Document:

EXHIBIT 10.4

                          SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this "Agreement") is dated as of August
31,  2005,  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 indicated 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.

          "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.

          "Commission" means the Securities and Exchange Commission.

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          "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 have been 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 Manatt, Phelps & Phillips, LLP.

          "Convertible  Debenture"  means the 7%  convertible  debenture  issued
     pursuant to the Convertible Debenture Financing.

          "Convertible Debenture Financing" means the convertible debentures and
     warrants issued pursuant to the Securities Purchase Agreement,  dated as of
     the date hereof,  by and between the Company and the  purchasers  signatory
     thereto.

          "Convertible  Debenture  Transaction  Documents" means the transaction
     documents  entered  into  in  connection  with  the  Convertible  Debenture
     Financing.

          "Convertible  Debenture  Warrant"  means  the  common  stock  purchase
     warrants issued pursuant to the Convertible Debenture Financing.

          "Debentures"  means the 10% Senior Secured  Debentures due, subject to
     the terms therein,  three years from their date of issuance,  issued by the
     Company to the Purchasers, in the form of Exhibit A.

          "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 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  for such  purpose,  (b)
     securities upon the exercise or exchange of or conversion of any Securities
     issued  hereunder  and/or  securities  exercisable or  exchangeable  for or

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     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 any such
     securities,  (c) securities  issued  pursuant to  acquisitions or strategic
     transactions,  provided 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)  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,  (e) securities  issued pursuant to the Convertible  Debenture
     Transaction   Documents  (including   securities  issued  in  a  Subsequent
     Stonegate  Placement (as defined in the Convertible  Debenture  Transaction
     Documents), (f) securities issued in connection with any stock split, stock
     dividend or  recapitalization  and (g) securities issued upon conversion of
     any securities included in the definition of Exempt Issuance.

          "FW" means Feldman Weinstein 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
     5.16.

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          "Participation  Maximum" shall have the meaning  ascribed to such term
     in Section 4.13.

          "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.

          "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.

          "Receivables"  means open accounts  whether or not matured and whether
     or  not  executory,   contract  rights,   chattel  paper,   notes,   rental
     receivables,   tax  refunds,  installment  payment  obligations  and  other
     obligations  for the payment of money  payable to Company,  and  contracts,
     documents,  invoices  and other  instruments  evidencing  the  same,  which
     Receivables  are created or otherwise  arise out of the sale of merchandise
     or the  supplying  of  services  by  Company in the  regular  course of its
     business and any of Company's  other assets or property  defined  under the
     Uniform Commercial Code of Nevada as accounts, general intangibles, chattel
     paper or instruments,  and all cash and non-cash proceeds thereof,  and all
     security therefor and guaranties and credit enhancements (including but not
     limited to letters of credit) thereof,  and all of Company's rights present
     or future to any property sold or leased which is represented thereby.

          "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.

          "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.

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

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

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

          "Security  Agreement"  means the  Security  Agreement,  dated the date
     hereof,  among the  Company  and the  Purchasers,  in the form of Exhibit E
     attached hereto.

          "Security Documents" shall mean the Security Agreement, the Subsidiary
     Guarantees and any other documents and filing required  thereunder in order
     to grant the Purchasers a first priority security interest in the assets of
     the Company as  provided in the  Security  Agreement,  including  all UCC-1
     filing receipts.

          "Short  Sales" shall  include all "short sales" as defined in Rule 200
     of Regulation SHO under the Exchange Act.

          "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).

          "Subsidiary Guarantee" means the Subsidiary Guarantee,  dated the date
     hereof,  among each of its Subsidiaries and the Purchasers,  in the form of
     Exhibit F attached hereto.

          "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
     Nasdaq SmallCap  Market,  the American Stock  Exchange,  the New York Stock
     Exchange, the Nasdaq National Market or the OTC Bulletin Board.

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          "Transaction  Documents"  means this Agreement,  the  Debentures,  the
     Security   Agreement,   the  Subsidiary   Guarantee,   the  Warrants,   the
     Registration  Rights  Agreement  and  any  other  documents  or  agreements
     executed in connection with the transactions contemplated hereunder.

          "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  Financial  L.P.  (based on a Trading Day from 9:30 a.m.  Eastern
     Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed
     or quoted on a Trading  Market and if prices for the Common  Stock are then
     reported in the "Pink Sheets"  published by the National  Quotation  Bureau
     Incorporated  (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 (c) 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.

          "Warrants" means collectively the Common Stock purchase  warrants,  in
     the form of Exhibit C,  identical in form and substance to the  Convertible
     Debenture Warrant, delivered to the Purchasers at the Closing in accordance
     with Section 2.2 hereof.

          "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,  concurrent with the execution and delivery of this
Agreement by the parties hereto,  the Company agrees to sell, and each Purchaser
agrees to purchase  in the  aggregate,  severally  and not  jointly,  $2,000,000
principal amount of the Debentures.  Each Purchaser shall deliver to the Company
via wire  transfer or a certified  check  immediately  available  funds equal to
their  respective  Subscription  Amount and the  Company  shall  deliver to each
Purchaser  their  respective  Debenture and Warrants as  determined  pursuant to
Section  2.2(a) and the other  items set forth in Section  2.2  issuable  at the
Closing.  Upon  satisfaction  of the  conditions  set forth in Section  2.2, the
Closing shall occur at the offices of FW, 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;

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               (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;

               (iv) a  Warrant  registered  in the  name  of such  Purchaser  to
                    purchase up to 50% of such Purchaser's  Subscription  Amount
                    divided by $0.40,  with an  exercise  price  equal to $0.40,
                    subject to adjustment therein;

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

               (vi) confirmation from Federal Insurance  Company,  the Company's
                    property  and   contents   insurer,   confirming   that  the
                    Purchasers are the first named  beneficiary on the Company's
                    property and contents  insurance  policy and that the amount
                    of  coverage is at least  equal to the  aggregate  principal
                    amount of the  Debentures,  which  confirmation  shall be in
                    form  and   substance   reasonably   satisfactory   to  each
                    Purchaser;

               (vii) confirmation from John Hancock Life Insurance Company,  the
                    Company's  key  man  life  insurer,   confirming   that  the
                    Purchasers are the first named  beneficiary on the Company's
                    key man  life  insurance  policy  and  that  the  amount  of
                    coverage is at least equal to the aggregate principal amount
                    of the Debentures,  which  confirmation shall be in form and
                    substance reasonably satisfactory to each Purchaser; and

               (viii) the  Security  Agreement,  duly  executed by the  Company,
                    along  with  all  the  Security  Documents,   including  the
                    Subsidiary  Guarantee and  1,600,000  shares of Common Stock
                    duly pledged to the Purchasers, which shares were previously
                    pledged to Samir Financial, LLC.

          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
                    such accounts as specified in writing by the Company;

               (iii) the Security  Agreement,  duly executed by such  Purchaser;
                    and

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

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     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  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 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) the Convertible Debenture Financing shall have closed or all
                    conditions met such that a closing on such  financing  shall
                    occur simultaneously with the Closing;

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

               1.   the  holders  of  the  Company's   outstanding   convertible
                    securities  immediately  prior to the date hereof shall have
                    converted  at least 87% or  $1,700,000  of such  outstanding
                    securities  on  terms  and  conditions  satisfactory  to the
                    Purchasers;

               2.   the  delivery by the Company of  evidence,  to be  effective
                    contemporaneous  with  the  Closing,  of  the  satisfaction,
                    conversion  and/or payment of  indebtedness in the aggregate
                    amount of approximately  $3,856,500 owed to Siemens Medical,
                    Samir Financial and other individuals and entities set forth
                    on Schedule 4.9,  including the delivery of payoff  letters,
                    copies of  executed  UCC-3  termination  statements,  and/or
                    conversion documents together with general releases, each in
                    form   and   substance,   and  on  terms   and   conditions,
                    satisfactory to the Purchasers; and

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               (vi) and from the date hereof to the Closing Date, trading in the
                    Common Stock shall not have been suspended by the Commission
                    (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  Financial Markets 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,  the  Company  hereby  makes  the
representations and warranties set forth below 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 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,  then
     references  in the  Transaction  Documents  to  the  Subsidiaries  will  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

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     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.

          (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  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 applicable  bankruptcy,
     insolvency,   reorganization,   moratorium   and  other   laws  of  general
     application  affecting  enforcement of creditors' rights generally and (ii)
     as limited by laws relating to the  availability  of specific  performance,
     injunctive relief or other equitable remedies.

          (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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          (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  Debentures  and  Warrants and the listing of the
     Warrant Shares for trading thereon in the time and manner required thereby,
     (iv) the  filing  of Form D with the  Commission  and such  filings  as are
     required  to be made  under  applicable  state  securities  laws  and  (vi)
     Shareholder Approval (collectively, the "Required Approvals").

          (f) Issuance of the Warrant Shares.  The Warrant  Shares,  when issued
     and upon payment of the exercise price 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).  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 outstanding Common Stock  Equivalents.  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,  script 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 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

                                       11
<PAGE>

     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.

          (h) SEC  Reports;  Financial  Statements.  The  Company  has filed all
     reports,  schedules,  forms,  statements and other documents required to be
     filed  by it 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 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 and the rules and
     regulations of the Commission promulgated  thereunder,  and none of the SEC
     Reports,  when filed,  contained any untrue statement of a material fact or
     omitted to state a material fact required to be stated therein or necessary
     in order to make the statements  therein, in 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 the SEC Reports,  (i) there has been no event,  occurrence  or
     development  that has had or that could reasonably be expected to result in
     a  Material  Adverse  Effect,   (ii)  the  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 required to be 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.

                                       12
<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.

          (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 except in each case as could not have a Material Adverse Effect.

          (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

                                       13
<PAGE>

     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 of 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,  copyrights,  licenses and other
     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 written notice 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 of others.

          (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. To the best knowledge of the Company,  such
     insurance  contracts  and policies are accurate and  complete.  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 (i) for  payment  of  salary  or  consulting  fees for
     services  rendered,  (ii)  reimbursement for expenses incurred on behalf of
     the Company and (iii) for other employee  benefits,  including stock option
     agreements under any stock option plan of the Company.

                                       14
<PAGE>

          (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  material  information
     relating to the Company,  including its Subsidiaries,  is made known to the
     certifying  officers by others within those entities,  particularly  during
     the period in which the Company's most recently filed periodic report under
     the  Exchange  Act, as the case may be, is being  prepared.  The  Company's
     certifying  officers  have  evaluated  the  effectiveness  of the Company's
     controls and procedures as of the date prior to the filing date of the 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  significant  changes in the  Company's  internal
     controls  (as such term is defined in Item 307(b) of  Regulation  S-K under
     the Exchange  Act) or, to the  knowledge of the Company,  in other  factors
     that could significantly affect the Company's internal controls.

          (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.

                                       15
<PAGE>

          (v) Registration  Rights. 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(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.

          (y)  Disclosure.  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 constitutes or might constitute
     material,  nonpublic information. The Company understands and confirms that
     the Purchasers will rely on the foregoing  representations and covenants in
     effecting  transactions  in  securities  of  the  Company.  All  disclosure
     provided to the  Purchasers  regarding  the  Company,  its business and the
     transactions  contemplated  hereby,  including the Disclosure  Schedules to
     this  Agreement,  furnished  by or on behalf of the Company with respect to
     the  representations  and warranties  made herein are true and correct with
     respect to such  representations  and  warranties  and do not  contain  any
     untrue  statement  of a material  fact or omit to state any  material  fact
     necessary in order to make the  statements  made  therein,  in light of the
     circumstances  under  which they were made,  not  misleading.  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 provisions,  including, without limitation,
     under the rules and  regulations  of any Trading Market on which any of the
     securities of the Company are listed or designated.

                                       16
<PAGE>

          (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 Company's fair
     saleable value of its 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 for the current fiscal year as now conducted and as proposed to be
     conducted  including its capital  needs taking into account the  particular
     capital  requirements  of  the  business  conducted  by  the  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 debt 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.  The SEC  Reports set 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" shall mean (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.

          (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.

                                       17
<PAGE>

          (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 accountants are set forth on Schedule
     3.1(ff) of the Disclosure Schedule.  To the knowledge of the Company,  such
     accountants,  who  expressed  their  opinion with respect to the  financial
     statements  included in the Company's  Annual Report on Form 10-KSB for the
     year ended December 31, 2004, are a registered  public  accounting  firm as
     required by the Securities Act.

          (ff)  Seniority.  As of the Closing  Date,  no  Indebtedness  or other
     equity of 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  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 hereby. 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 this
     Agreement and the transactions  contemplated hereby and any advice given by
     any  Purchaser  or any of their  respective  representatives  or  agents in
     connection with this Agreement and the transactions  contemplated hereby 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  has  been  based  solely  on the  independent
     evaluation of the transactions  contemplated  hereby by the Company and its
     representatives.

                                       18
<PAGE>

          (ii) Acknowledgement Regarding Purchasers' Trading Activity.  Anything
     in this  Agreement  or  elsewhere  herein to the  contrary  notwithstanding
     (except  for  Section  4.15  hereof),  it is  understood  and agreed 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 each 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 of the 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.

          (jj)  Manipulation of Price. 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 (other
     than for the placement agent's placement of the Securities),  or (iii) paid
     or agreed to pay to any person any compensation  for soliciting  another to
     purchase any other securities of the Company.

     3.2  Representations  and  Warranties  of the  Purchasers.  Each  Purchaser
hereby,  for itself and 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 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

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<PAGE>

     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
     arrangement  or  understanding   with  any  other  persons   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.  Such Purchaser does not
     have any  agreement  or  understanding,  directly or  indirectly,  with any
     Person to distribute any of the Securities.

          (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 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.  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  disposition,
     including Short Sales (but not including the location and/or reservation of

                                       20
<PAGE>

     borrowable shares of Common Stock), in the securities of the Company during
     the period  commencing  from the time that such Purchaser  first received a
     term sheet 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).

     The Company  acknowledges  and agrees that each  Purchaser does not make or
has not made any  representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

                                  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(b),  of a legend on any of the Securities in the following
     form:

     THESE  SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
     COMMISSION  OR THE  SECURITIES  COMMISSION OF ANY STATE IN RELIANCE UPON AN
     EXEMPTION  FROM  REGISTRATION  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
     (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
     PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
     PURSUANT TO AN AVAILABLE  EXEMPTION  FROM, OR IN A TRANSACTION  NOT SUBJECT

                                       21
<PAGE>

     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.  THESE SECURITIES AND THE SECURITIES
     ISSUABLE  UPON  EXERCISE OF THESE  SECURITIES  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.

          (c)  Certificates  evidencing  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  Securities  pursuant  to Rule 144, or (iii) if
     such  Securities  are eligible for sale under Rule 144(k),  or (iv) if such
     legend is not required under applicable  requirements of the Securities Act
     (including judicial  interpretations and pronouncements issued by the staff
     of the  Commission).  The Company  shall cause its counsel to issue a legal
     opinion to the Company's  transfer  agent promptly after the Effective Date
     if required by the  Company's  transfer  agent to effect the removal of the
     legend hereunder. If all or any portion of a Warrant is exercised 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  thereof) 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
     Company's 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 Purchaser a

                                       22
<PAGE>

     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  any  transfer  agent  of the  Company  that  enlarge  the
     restrictions  on  transfer  set  forth in this  Section.  Certificates  for
     Securities  subject to legend removal hereunder shall be transmitted by the
     transfer agent of the Company 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
     Company's  transfer agent) delivered for removal of the restrictive  legend
     and subject to this 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 Purchaser
     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 each such  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.

     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,  all to the extent required from time to time
to enable such Person to sell such  Securities  without  registration  under the
Securities Act within the limitation of the exemptions provided by Rule 144.

                                       23
<PAGE>

     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  Procedures.  The form of Notice of Exercise  included in the
Warrants set 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.
Eastern  time on the  Trading Day  following  the date  hereof,  issue a Current
Report on Form 8-K,  reasonably  acceptable  to each  Purchaser  disclosing  the
material terms of the  transactions  contemplated  hereby,  and shall attach 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, 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 the registration statement contemplated by the
Registration Rights Agreement 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 subclause
(i) or (ii).

     4.7  Shareholder  Rights  Plan.  No claim will be made or  enforced  by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring  Person" under any  shareholder  rights plan or similar 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.  The Company  shall
conduct  its  business  in a manner so that it will not  become  subject  to the
Investment Company Act.

     4.8  Non-Public  Information. 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.

                                       24
<PAGE>

     4.9  Use of Proceeds. The Company shall be required to use the net proceeds
from the sale of the Securities hereunder  specifically as set forth on Schedule
4.9 hereto,  including the repayment of all  outstanding  Indebtedness as of the
date hereof other than as specifically set forth on such schedule, and to redeem
Common Stock or Common Stock Equivalents and to settle  outstanding  litigation,
but not for the redemption of any other Common Stock or Common Stock Equivalents
or to settle any other outstanding litigation not set forth thereon.

     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 current  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.  Other than with respect to willful  misconduct  by a Purchaser in
connection with the acquisition of the Securities,  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.

     4.11  Indemnification  of  Purchasers.  Subject to the  provisions  of this
Section  4.11,  the Company will  indemnify  and hold the  Purchasers  and their
directors,  officers,  shareholders,  members,  partners,  employees  and agents
(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 such Purchaser of state or federal  securities laws or any conduct
by Purchaser which constitutes  fraud,  gross negligence,  willful misconduct or
malfeasance).  If any action  shall be brought  against any  Purchaser  Party in

                                       25
<PAGE>

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. 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.  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 the Purchasers in this Agreement or in the other Transaction Documents.

     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 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 the 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) From the date  hereof  until the date that the  Debentures  are no
     longer  outstanding,  upon any  inventory  financing  or  financing  by the
     Company of its Receivables (a "Subsequent Financing"), each Purchaser shall
     have  the  right  to  participate  in up to an  amount  of  the  Subsequent
     Financing  equal to the lesser of 100% of the Subsequent  Financing and the
     sum of the aggregate  Subscription Amounts of all Purchasers on the Closing
     Date (the "Participation Maximum").

                                       26
<PAGE>

          (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,  the Person with whom
     such Subsequent Financing is proposed to be effected, and attached to which
     shall be a term sheet or similar document relating thereto.

          (c)  Any  Purchaser   desiring  to  participate  in  such   Subsequent
     Financing, must provide written notice to the Company by no 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 its 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 to the
     Persons set forth in the Subsequent Financing Notice.

          (e) 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.

     4.14 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,  if more than one, acting in concert or as a group
with respect to the purchase, disposition or voting of Securities or otherwise.

                                       27
<PAGE>

     4.15 Short Sales and Confidentiality  After The Date Hereof. Each Purchaser
severally and not jointly with the other  Purchasers  covenants  that neither it
nor any affiliates acting on its behalf or pursuant to any understanding with it
will  execute any Short Sales during the period  after the  Discussion  Time and
ending  on  the  earlier  of (a)  the  Effectiveness  Date  (as  defined  in the
Registration  Rights Agreement) and (b) the date that an Event of Default occurs
under the Debentures (the "Restriction  Date"). 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 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations,  dated
August 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  Restriction  Date.  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.

                                   ARTICLE V.
                                  MISCELLANEOUS

     5.1  Fees and Expenses. At the Closing, the Company has agreed to reimburse
Regenmacher  Holdings  Ltd.  ("Regenmacher")  for (i)  $15,000,  for its actual,
reasonable,  out-of-pocket  legal fees and expenses and (ii) an origination  fee
equal  to  2%  of  the  aggregate   Subscription   Amount  ("Purchaser   Fees").
Accordingly,  at the Closing,  Regenmacher  is hereby  authorized  to deduct the
Purchaser  Fees from its  Subscription  Amount  otherwise  required  to be paid.
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.

     5.2 Entire Agreement. The Transaction Documents, together with the exhibits
and  schedules  thereto,  contain the entire  understanding  of the parties with
respect to the subject  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.

                                       28
<PAGE>

     5.3  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.

     5.4  Amendments;  Waivers.  No provision of this Agreement may be waived or
amended except in a written instrument  signed, in the case of an amendment,  by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom  enforcement  of any such waiver 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 either party to exercise  any right  hereunder in
any manner impair the exercise of any such right.

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

     5.6  Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their  successors and permitted  assigns.  The
Company may not assign this  Agreement  or any rights or  obligations  hereunder
without the prior written  consent of each  Purchaser.  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 hereof that apply to the "Purchasers".

     5.7  No Third-Party  Beneficiaries.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.

     5.8  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

                                       29
<PAGE>

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 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 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  attorneys'  fees and other costs and expenses  incurred  with the
investigation, preparation and prosecution of such action or proceeding.

     5.9  Survival.  The representations  and warranties  contained herein shall
survive  the  Closing  and  the  delivery,  exercise  and/or  conversion  of the
Securities, as applicable for the applicable statue of limitations.

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

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

     5.12  Rescission  and  Withdrawal  Right.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
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 subject to any such rescinded conversion or exercise notice.

                                       30
<PAGE>

     5.13 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,  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  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such replacement Securities.

     5.14  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  described in the  foregoing  sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

     5.15 Payment Set Aside.  To the extent that the Company  makes a payment or
payments to Purchaser pursuant to any Transaction Document or 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.

     5.16 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

                                       31
<PAGE>

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.

     5.17  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,  if any,  and no Purchaser
shall be  responsible in any way for the  performance of the  obligations of any
other Purchaser under any Transaction  Document.  Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall  be  deemed  to  constitute  the  Purchasers,  if  more  than  one,  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.

     5.18  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.

     5.19  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)

                                       32
<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:
                                                       -------------------

                                                       3170 De La Cruz Boulevard
                                                       Suite 108
                                                       Santa Clara, CA  95054
By:  /s/ Donald A. Goer
     ---------------------------------------------
     Name:  Donald A. Goer
     Title: President and Chief Executive Officer

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

Manatt, Phelps & Phillips, LLP
1001 Page Mill Road, Bldg. 2
Palo Alto, CA  94304
Attention: David M. Pike, Esq.

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

                                       33
<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: Regenmacher Holdings, Ltd.
Signature of Authorized Signatory of Holder: /s/ Jonathan P. Knight
Name of Authorized Signatory: Jonathan P. Knight
Title of Authorized Signatory: President of Investment Manager
Email Address of Purchaser:_______________________________________________

Address for Notice of Purchaser:

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

Subscription Amount: 1,000,000
Warrant Shares: 1,250,000
EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                                       34
<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: ABS SOS-Plus Partners, Ltd.
Signature of Authorized Signatory of Holder: /s/ Jonathan P. Knight
Name of Authorized Signatory: Jonathan P. Knight
Title of Authorized Signatory: President/Director
Email Address of Purchaser:_______________________________________________

Address for Notice of Purchaser:

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

Subscription Amount: 1,000,000
Warrant Shares: 1,250,000
EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                                       35
<PAGE>

                                                                         Annex A

                                CLOSING STATEMENT

Pursuant to the attached  Securities  Purchase  Agreement,  dated as of the date
hereto,  the  purchasers  shall  purchase up to  $2,000,000  of  Debentures  and
Warrants from Intraop Medical  Corporation  (the  "Company").  All funds will be
disbursed in accordance with this Closing Statement.

Disbursement Date: August ___, 2005

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

I.  PURCHASE PRICE
    --------------
                    Gross Proceeds to be Received in Trust          $

II. DISBURSEMENTS
    -------------
                    Regenmacher Holdings Ltd.                       $40,000
                                                                    $
                                                                    $
                                                                    $
                                                                    $

Total Amount Disbursed:                                             $

WIRE INSTRUCTIONS: Regenmacher Holdings Ltd.
-----------------

To: _____________________________________

                                       36EXHIBIT 10.5

THIS  SECURITY  HAS  NOT  BEEN  REGISTERED  WITH  THE  SECURITIES  AND  EXCHANGE
COMMISSION  OR THE  SECURITIES  COMMISSION  OF ANY  STATE  IN  RELIANCE  UPON AN
EXEMPTION  FROM  REGISTRATION  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN  AVAILABLE   EXEMPTION  FROM,  OR  IN  A  TRANSACTION  NOT  SUBJECT  TO,  THE
REGISTRATION   REQUIREMENTS  OF  THE  SECURITIES  ACT  AND  IN  ACCORDANCE  WITH
APPLICABLE  STATE  SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE  TRANSFEROR  TO SUCH  EFFECT,  THE  SUBSTANCE  OF WHICH SHALL BE  REASONABLY
ACCEPTABLE TO THE COMPANY.  THIS  SECURITY MAY BE PLEDGED IN  CONNECTION  WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITY.

Original Issue Date: August ___, 2005

                                                                     $[_________

                          10% SENIOR SECURED DEBENTURE
                              DUE AUGUST ___, 2008

     THIS 10% SECURED DEBENTURE is one of a series of duly authorized and issued
10%  Senior  Secured  Debentures  of  Intraop  Medical  Corporation,   a  Nevada
corporation, having a principal place of business at ______________________ (the
"Company"), designated as its 10% Senior Secured Debenture, due August ___, 2008
(the "Debentures").

     FOR VALUE  RECEIVED,  the Company  promises to pay to Regenmacher  Holdings
Ltd. or its registered  assigns (the "Holder"),  the principal sum of $[________
on August  ___,  2008 or such  earlier  date as this  Debenture  is  required or
permitted to be repaid as provided  hereunder (the "Maturity Date"),  and to pay
interest  to the  Holder  on the  then  outstanding  principal  amount  of  this
Debenture in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:

     Section 1.  Definitions.  For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement,  and (b)
the following terms shall have the following meanings:

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

                                       1
<PAGE>

          "Change of Control  Transaction"  means the occurrence  after the date
     hereof of any of (i) an acquisition  after the date hereof by an individual
     or legal entity or "group" (as  described in Rule  13d-5(b)(1)  promulgated
     under the Exchange Act),  other than pursuant to the Transaction  Documents
     or the Convertible  Debenture Transaction  Documents,  of effective control
     (whether  through  legal or  beneficial  ownership of capital  stock of the
     Company,  by  contract  or  otherwise)  of in excess  of 40% of the  voting
     securities of the Company,  or (ii) the Company merges into or consolidates
     with any other Person,  or any Person merges into or consolidates  with the
     Company and, after giving effect to such  transaction,  the stockholders of
     the Company  immediately prior to such transaction own less than 60% of the
     aggregate  voting  power of the  Company  or the  successor  entity of such
     transaction,  or (iii) the Company  sells or  transfers  its assets,  as an
     entirety  or  substantially  as an  entirety,  to  another  Person  and the
     stockholders of the Company  immediately prior to such transaction own less
     than 60% of the aggregate voting power of the acquiring entity  immediately
     after the  transaction,  (iv) a  replacement  at one time or within a three
     year period of more than one-half of the members of the Company's  board of
     directors which is not approved by a majority of those  individuals who are
     members  of  the  board  of  directors  on the  date  hereof  (or by  those
     individuals  who are  serving as members of the board of  directors  on any
     date whose  nomination to the board of directors was approved by a majority
     of the  members  of the  board of  directors  who are  members  on the date
     hereof),  or (v) the  execution by the Company of an agreement to which the
     Company is a party or by which it is bound, providing for any of the events
     set forth above in (i) or (iv).

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

          "Debenture Register" shall have the meaning set forth in Section 2(c).

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

          "Event of Default" shall have the meaning set forth in Section 6.

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

          "Fundamental  Transaction"  shall  mean (A) the  Company  effects  any
     merger or consolidation of the Company with or into another Person, (B) the
     Company effects any sale of all or  substantially  all of its assets in one
     or a series of related transactions, (C) any tender offer or exchange offer
     (whether by the Company or another  Person) is completed  pursuant to which

                                       2
<PAGE>

     holders of Common Stock are  permitted  to tender or exchange  their shares
     for other  securities,  cash or  property,  or (D) the Company  effects any
     reclassification  of the  Common  Stock or any  compulsory  share  exchange
     pursuant  to which  the  Common  Stock  is  effectively  converted  into or
     exchanged for other securities, cash or property.

          "Late Fees" shall have the meaning set forth in Section 2(c).

          "Mandatory  Default  Amount"  shall  equal  the sum of (i) 130% of the
     principal  amount of this  Debenture  to be  prepaid,  plus all accrued and
     unpaid  interest  thereon and (ii) all other amounts,  costs,  expenses and
     liquidated damages due in respect of this Debenture.

          "Monthly  Payment  Amount"  shall  mean the  aggregate  principal  and
     interest to be paid on each Monthly Payment Date as set forth on Schedule A
     hereto.

          "Monthly Payment Date" means the 1st of each month,  commencing on the
     first such date after the Original Issue Date and ending upon the August 1,
     2008.

          "New York Courts" shall have the meaning set forth in Section 7(e).

          "Original  Issue  Date"  shall mean the date of the first  issuance of
     this  Debenture  regardless of the number of transfers of any Debenture and
     regardless  of the number of  instruments  which may be issued to  evidence
     such Debenture.

          "Permitted  Indebtedness"  shall mean the  individual  and  collective
     reference to the following:  (a) up to, in the aggregate during the term of
     this Debenture,  $2,000,000 of new Indebtedness,  (b) Indebtedness incurred
     in connection  with the Purchase  Agreement and the  Convertible  Debenture
     Financing, (c) up to approximately $974,614 of Indebtedness existing on the
     date of the Purchase Agreement as described in Schedule 3.1(aa) attached to
     the Purchase  Agreement and (d) up to  $3,000,000  in  connection  with the
     Company's  revolving  inventory and sales contract financing agreement with
     E.U. Capital.

          "Permitted Lien" shall mean the individual and collective reference to
     the  following:  (a) Liens for taxes,  assessments  and other  governmental
     charges  or levies not yet due or Liens for  taxes,  assessments  and other
     governmental  charges  or  levies  being  contested  in good  faith  and by
     appropriate  proceedings  for which  adequate  reserves  (in the good faith
     judgment  of the  management  of the  Company)  have  been  established  in
     accordance  with GAAP;  (b) Liens imposed by law which were incurred in the
     ordinary  course  of  business,  such  as  carriers',   warehousemen's  and
     mechanics'  Liens,  statutory  landlords'  Liens,  and other  similar Liens
     arising  in  the  ordinary  course  of  business,  and  (x)  which  do  not
     individually or in the aggregate  materially detract from the value of such
     property or assets or materially impair the use thereof in the operation of
     the business of the Company and its consolidated  Subsidiaries or (y) which

                                       3
<PAGE>

     are  being  contested  in good  faith  by  appropriate  proceedings,  which
     proceedings  have the effect of  preventing  the  forfeiture or sale of the
     property or asset subject to such Lien;  and (c) Liens on  Receivables  and
     the Company's  "inventory" (as such term is used in the Security Agreement)
     incurred  solely in connection with a Permitted  Indebtedness  under clause
     (a) of the definition of Permitted Indebtedness.

          "Person"  means  a  corporation,   an   association,   a  partnership,
     organization,   a  business,  an  individual,  a  government  or  political
     subdivision thereof or a governmental agency.

          "Purchase Agreement" means the Securities Purchase Agreement, dated as
     of the date  hereof,  to which the Company,  the original  Holder and other
     investors   signatory  thereto  are  parties,   as  amended,   modified  or
     supplemented from time to time in accordance with its terms.

          "Registration   Rights   Agreement"  means  the  Registration   Rights
     Agreement,  dated as of the date of the  Purchase  Agreement,  to which the
     Company  and the  original  Holder are  parties,  as  amended,  modified or
     supplemented from time to time in accordance with its terms.

          "Registration  Statement" means a registration  statement  meeting the
     requirements set forth in the Registration Rights Agreement, covering among
     other  things the resale of the  Warrant  Shares and naming the Holder as a
     "selling stockholder" thereunder.

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

          "Subsidiary" shall have the meaning given to such term in the Purchase
     Agreement.

          "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
     Nasdaq SmallCap  Market,  the American Stock  Exchange,  the New York Stock
     Exchange, the Nasdaq National Market or the OTC Bulletin Board.

          "Transaction  Documents"  shall  have  the  meaning  set  forth in the
     Purchase Agreement.

                                       4
<PAGE>

     Section 2. Monthly Payment.

          a) On each Monthly  Payment  Date,  the Company  shall pay the Monthly
     Payment  Amount,  in cash,  in the amount  set forth on  Schedule A annexed
     hereto.  If any portion of the cash payment for a Monthly Payment shall not
     be paid by the Company by the  respective  due date,  interest shall accrue
     thereon  at the rate of 18% per annum (or the  maximum  rate  permitted  by
     applicable law, whichever is less) until the payment of the Monthly Payment
     Amount, plus all amounts owing thereon is paid in full.

          b) Balloon Payment.  On the Maturity Date, all outstanding  principal,
     plus  accrued but unpaid  interest  thereon at the rate of 10% per annum as
     set forth on Schedule A annexed  hereto under "Balloon  Payment",  plus all
     other  outstanding  amounts  due to the Holder  shall be paid to the Holder
     (except  that,  if such date is not a Business Day, then such payment shall
     be due on the next succeeding Business Day).

          c) Interest  Calculations.  Interest on the then outstanding principal
     amount of this Debenture shall accrue at the rate of 10% per annum, payable
     on each  Monthly  Payment  Date and on the  Maturity  Date as set  forth on
     Schedule A. Interest shall be calculated on the basis of a 360-day year and
     shall accrue daily  commencing on the Original  Issue Date until payment in
     full of the principal  sum,  together with all accrued and unpaid  interest
     and other amounts which may become due hereunder,  has been made.  Interest
     hereunder  will be paid to the  Person  in whose  name  this  Debenture  is
     registered  on  the  records  of the  Company  regarding  registration  and
     transfers of this Debenture (the "Debenture Register").

          d) Late Fee.  All  overdue  accrued  and  unpaid  interest  to be paid
     hereunder  shall  entail a late fee at the rate of 18% per  annum  (or such
     lower maximum amount of interest  permitted to be charged under  applicable
     law) ("Late Fees") which will accrue daily,  from the date such interest is
     due hereunder through and including the date of payment.

          e)  Prepayment.  The  Company  may  prepay  all or any  portion of the
     principal amount of this Debenture without the prior written consent of the
     Holder at any time; provided, however,  prepayments at any one time must be
     at least  equal to (i)  $250,000  or (ii) if less than  $250,000  principal
     amount is then  outstanding on this Debenture,  the  outstanding  principal
     amount of this Debenture.

     Section 3. Registration of Transfers and Exchanges.

          a) Different  Denominations.  This  Debenture is  exchangeable  for an
     equal  aggregate  principal  amount of Debentures  of different  authorized
     denominations, as requested by the Holder surrendering the same. No service
     charge  will be  made  for  such  registration  of  transfer  or  exchange;
     provided,  however,  the Company  shall not be  required  to exchange  this
     Debenture  for  denominations  of less than the  greater of $50,000 and the
     principal amount of this Debenture then outstanding. No service charge will
     be made for such registration of transfer or exchange.

                                       5
<PAGE>

          b) Investment Representations.  This Debenture has been issued subject
     to certain  investment  representations of the original Holder set forth in
     the  Purchase  Agreement  and  may be  transferred  or  exchanged  only  in
     compliance  with the Purchase  Agreement and  applicable  federal and state
     securities laws and regulations.

          c) Reliance on Debenture  Register.  Prior to due  presentment  to the
     Company for  transfer of this  Debenture,  the Company and any agent of the
     Company  may  treat  the  Person  in  whose  name  this  Debenture  is duly
     registered on the Debenture Register as the owner hereof for the purpose of
     receiving payment as herein provided and for all other purposes, whether or
     not this  Debenture is overdue,  and neither the Company nor any such agent
     shall be affected by notice to the contrary.

     Section 4. Intentionally Omitted.

     Section 5. Negative Covenants.  So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:

          a) other than  Permitted  Indebtedness,  enter  into,  create,  incur,
     assume, guarantee or suffer to exist any indebtedness for borrowed money of
     any kind, including but not limited to, a guarantee,  on or with respect to
     any of its  property  or assets  now  owned or  hereafter  acquired  or any
     interest therein or any income or profits therefrom;

          b) other than Permitted Liens,  enter into, create,  incur,  assume or
     suffer to exist any liens of any  kind,  on or with  respect  to any of its
     property or assets now owned or hereafter  acquired or any interest therein
     or any income or profits therefrom;

          c) amend its  certificate  of  incorporation,  bylaws or other charter
     documents  so as to  materially  and  adversely  affect  any  rights of the
     Holder;

          d) other than with  respect to the  securities  of the  Company to the
     extent  permitted or required under the Convertible  Debenture  Transaction
     Documents or other than  repurchases  of, up to, in the aggregate among all
     shareholders,  $130,000 of Common Stock from dissenting shareholders in the
     reverse  merger,  repay,  repurchase  or  offer  to  repay,  repurchase  or
     otherwise  acquire  more than a de  minimis  number of shares of its Common
     Stock or Common Stock Equivalents;

          e) enter into any agreement with respect to any of the foregoing; or

          f) pay cash dividends or distributions on any equity securities of the
     Company.

                                       6
<PAGE>

     Section 6. Events of Default.

          a) "Event of  Default",  wherever  used  herein,  means any one of the
     following  events (whatever the reason and whether it shall be voluntary or
     involuntary  or effected by operation  of law or pursuant to any  judgment,
     decree or order of any  court,  or any  order,  rule or  regulation  of any
     administrative or governmental body):

               i. any default in the payment of (A) the principal  amount of any
          Debenture or Convertible  Debenture,  or (B) interest  (including Late
          Fees) on, or  liquidated  damages in respect of, any  Debenture or the
          Convertible  Debenture,  as and  when the same  shall  become  due and
          payable (whether on the Maturity Date or by acceleration or otherwise)
          which  default,  solely in the case of an  interest  payment  or other
          default under clause (B) above, is not cured, within 5 Trading Days;

               ii. the  Company  shall  fail to  observe  or  perform  any other
          covenant or agreement contained in (A) this Debenture,  (B) any of the
          other  Transaction  Documents or (C) any of the Convertible  Debenture
          Transaction  Documents,  which  failure is not cured,  if  possible to
          cure,  within the earlier to occur of (A) 15 Trading Days after notice
          of such  default  sent by the Holder or by any other  Holder and (B)20
          Trading  Days after the  Company  shall  become or should  have become
          aware of such failure;

               iii. a default or event of default  (subject to any grace or cure
          period  provided  for  in  the  applicable   agreement,   document  or
          instrument)  shall occur under (A) any of the  Transaction  Documents,
          (B) any of the Convertible  Debenture Transaction Documents or (C) any
          other material agreement,  lease,  document or instrument to which the
          Company  or any  Subsidiary  is bound  and which  default  or event of
          default could have a Material Adverse Effect on the Company;

               iv. any  representation  or warranty  made  herein,  in any other
          Transaction  Documents or Convertible  Debenture Transaction Documents
          shall be untrue or incorrect  in any  material  respect as of the date
          when made or deemed made;

               v. (i) the Company or any of its  Subsidiaries  shall  commence a
          case, as debtor, a case under any applicable  bankruptcy or insolvency
          laws as now or hereafter in effect or any  successor  thereto,  or the
          Company or any  Subsidiary  commences any other  proceeding  under any
          reorganization,  arrangement,  adjustment of debt,  relief of debtors,
          dissolution,   insolvency  or   liquidation  or  similar  law  of  any
          jurisdiction  whether  now or  hereafter  in  effect  relating  to the
          Company or any  Subsidiary  thereof or (ii) there is  commenced a case
          against the Company or any  Subsidiary  thereof,  under any applicable
          bankruptcy  or  insolvency  laws, as now or hereafter in effect or any

                                       7
<PAGE>

          successor  thereto which remains  undismissed for a period of 60 days;
          or (iii) the Company or any  Subsidiary  thereof is  adjudicated  by a
          court of competent jurisdiction insolvent or bankrupt; or any order of
          relief  or other  order  approving  any  such  case or  proceeding  is
          entered;  or (iv) the Company or any  Subsidiary  thereof  suffers any
          appointment  of any  custodian  or the like for it or any  substantial
          part of its property which  continues  undischarged  or unstayed for a
          period of 60 days; or (v) the Company or any Subsidiary  thereof makes
          a general assignment for the benefit of creditors; or (vi) the Company
          shall fail to pay,  or shall  state that it is unable to pay, or shall
          be unable to pay, its debts generally as they become due; or (vii) the
          Company  or  any  Subsidiary  thereof  shall  call  a  meeting  of its
          creditors  with a view  to  arranging  a  composition,  adjustment  or
          restructuring  of its debts;  or (viii) the Company or any  Subsidiary
          thereof  shall by any act or failure  to act  expressly  indicate  its
          consent to, approval of or  acquiescence  in any of the foregoing;  or
          (ix) any  corporate  or other  action is taken by the  Company  or any
          Subsidiary thereof for the purpose of effecting any of the foregoing;

               vi. the  Company or any  Subsidiary  shall  default in any of its
          obligations  under any mortgage,  credit  agreement or other facility,
          indenture  agreement,  factoring  agreement or other  instrument under
          which  there  may be  issued,  or by which  there  may be  secured  or
          evidenced any  indebtedness  for borrowed money or money due under any
          long term leasing or factoring arrangement of the Company in an amount
          exceeding  $150,000,  whether  such  indebtedness  now exists or shall
          hereafter   be  created  and  such   default   shall  result  in  such
          indebtedness  becoming or being  declared due and payable prior to the
          date on which it would otherwise become due and payable.

               vii. the Common  Stock shall not be eligible for  quotation on or
          quoted for trading on a Trading Market and shall not again be eligible
          for and quoted or listed for trading thereon within five Trading Days;

               viii.  the  Company  shall be a party to any  Change  of  Control
          Transaction or Fundamental Transaction, shall agree to sell or dispose
          of all or in excess of 33% of its  assets in one or more  transactions
          (whether  or not  such  sale  would  constitute  a Change  of  Control
          Transaction)  or shall  redeem or  repurchase  more than a de  minimis
          number  of its  outstanding  shares of  Common  Stock or other  equity
          securities of the Company (other than  repurchases of shares of Common
          Stock or other equity  securities of departing  officers and directors
          of the Company;  provided such repurchases  shall not exceed $130,000,
          in the  aggregate,  for all officers and directors  during the term of
          this Debenture);

               ix.  the  Company  shall  fail for any  reason to pay in full the
          amount of cash due  pursuant to a Buy-In of the Warrant  within 5 days
          after notice therefor is delivered  hereunder or shall fail to pay all
          amounts owed on account of an Event of Default within five days of the
          date due;

                                       8
<PAGE>

               x. the Company shall fail to have  available a sufficient  number
          of authorized and  unreserved  shares of Common Stock to issue to such
          Holder upon exercise of the Warrants in full;

               xi. any breach by the Company or any creditor of the Company with
          respect  to  the  payoffs,   satisfactions   and/or   conversions   of
          indebtedness  referred  to in  Section  2.3(b)(vii)  of  the  Purchase
          Agreement,  including  any  claim  by any  such  pre-Closing  creditor
          related to such prior  indebtedness;

               xii. the Company  shall  redeem more than a de minimis  number of
          Common Stock Equivalents; and

               xiii.  other than Permitted Liens, the Company shall fail, at any
          time, to have a perfected,  first  priority  security  interest in all
          Collateral (as defined in the Security Agreement) and all other assets
          pledged  to  Holder  as  security  for  the  loan  evidenced  by  this
          Debenture.

          b) Remedies Upon Event of Default. If any Event of Default occurs, (i)
     the full  principal  amount of this  Debenture,  together with interest and
     other amounts owing in respect thereof,  to the date of acceleration  shall
     become, at the Holder's  election,  immediately due and payable in cash and
     (ii) the  Exercise  Price of the Warrant  shall be adjusted to equal $0.01,
     subject to further adjustment therein. The aggregate amount payable upon an
     Event of Default shall be equal to the Mandatory Default Amount. Commencing
     5 days after the  occurrence  of any Event of Default  that  results in the
     eventual  acceleration  of  this  Debenture,  the  interest  rate  on  this
     Debenture  shall accrue at the rate of 18% per annum, or such lower maximum
     amount of interest  permitted to be charged under  applicable law. Upon the
     payment in full of the Mandatory  Default  Amount on this entire  Debenture
     the Holder shall promptly surrender this Debenture to or as directed by the
     Company.  The Holder need not provide  and the  Company  hereby  waives any
     presentment,  demand,  protest or other notice of any kind,  and the Holder
     may immediately and without  expiration of any grace period enforce any and
     all of its rights and remedies  hereunder and all other remedies  available
     to it under  applicable law. Such declaration may be rescinded and annulled
     by Holder at any time prior to payment  hereunder and the Holder shall have
     all rights as a  Debenture  holder  until such  time,  if any,  as the full
     payment  under  this  Section  shall  have  been  received  by it.  No such
     rescission  or annulment  shall affect any  subsequent  Event of Default or
     impair any right consequent thereon.

     Section 7. Miscellaneous.

          a) Notices.  Any and all notices or other communications or deliveries
     to be provided by the Holder hereunder,  including, without limitation, any
     Notice of  Conversion,  shall be in writing and  delivered  personally,  by

                                       9
<PAGE>

     facsimile,  sent by a  nationally  recognized  overnight  courier  service,
     addressed to the Company, at the address set forth above,  facsimile number
     408.986.0222,  Attn: Donald A. Goer, CEO or such other address or facsimile
     number as the Company may specify for such purposes by notice to the Holder
     delivered in  accordance  with this  Section.  Any and all notices or other
     communications  or deliveries to be provided by the Company hereunder shall
     be in writing and delivered personally,  by facsimile, sent by a nationally
     recognized  overnight  courier  service  addressed  to each  Holder  at the
     facsimile telephone number or address of such Holder appearing on the books
     of the  Company,  or if no  such  facsimile  telephone  number  or  address
     appears,  at the principal  place of business of the Holder.  Any notice or
     other  communication  or  deliveries  hereunder  shall be deemed  given and
     effective on the earliest of (i) the date of  transmission,  if such notice
     or  communication  is delivered via  facsimile at the  facsimile  telephone
     number  specified in this Section  prior to 5:30 p.m. (New York City time),
     (ii)  the  date  after  the  date  of  transmission,   if  such  notice  or
     communication is delivered via facsimile at the facsimile  telephone number
     specified in this Section  later than 5:30 p.m. (New York City time) on any
     date and earlier than 11:59 p.m.  (New York City time) on such date,  (iii)
     the  second  Business  Day  following  the  date  of  mailing,  if  sent by
     nationally  recognized  overnight  courier  service,  or (iv)  upon  actual
     receipt by the party to whom such notice is required to be given.

          b)  Absolute  Obligation.  Except as  expressly  provided  herein,  no
     provision of this  Debenture  shall alter or impair the  obligation  of the
     Company,  which is absolute and  unconditional,  to pay the  principal  of,
     interest and  liquidated  damages (if any) on, this  Debenture at the time,
     place,  and rate,  and in the coin or  currency,  herein  prescribed.  This
     Debenture is a direct debt obligation of the Company.  This Debenture ranks
     pari passu with all other  Debentures  now or  hereafter  issued  under the
     terms set forth herein.

          c) Security  Interest.  This Debenture is a direct debt  obligation of
     the Company and, pursuant to the Security Documents,  is secured by a first
     priority  security interest in all of the assets of the Company and certain
     other collateral for the benefit of the Holders.

          d) Lost or Mutilated Debenture.  If this Debenture shall be mutilated,
     lost,  stolen or  destroyed,  the Company  shall  execute and  deliver,  in
     exchange  and  substitution  for  and  upon  cancellation  of  a  mutilated
     Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
     Debenture,  a new Debenture for the principal  amount of this  Debenture so
     mutilated,  lost,  stolen or destroyed but only upon receipt of evidence of
     such loss,  theft or  destruction of such  Debenture,  and of the ownership
     hereof,  and indemnity,  if requested,  all reasonably  satisfactory to the
     Company.

          e) Governing Law. All questions concerning the construction, validity,
     enforcement and  interpretation  of this Debenture 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

                                       10
<PAGE>

     interpretations,  enforcement and defense of the transactions  contemplated
     by any of the Transaction Documents (whether brought against a party hereto
     or its respective affiliates, directors, officers, shareholders,  employees
     or agents)  shall be commenced in the state and federal  courts  sitting in
     the City of New York,  Borough of Manhattan (the "New York  Courts").  Each
     party hereto hereby  irrevocably  submits to the exclusive  jurisdiction of
     the New York Courts for the  adjudication  of any dispute  hereunder  or in
     connection  herewith  or  with  any  transaction   contemplated  hereby  or
     discussed  herein  (including with respect to the enforcement of 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, or such New York
     Courts are improper or 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 Debenture and agrees that such service shall  constitute good
     and sufficient  service of process and notice  thereof.  Nothing  contained
     herein  shall be deemed to limit in any way any right to serve  process  in
     any manner permitted by law. Each party hereto hereby  irrevocably  waives,
     to the fullest  extent  permitted by  applicable  law, any and all right to
     trial by jury in any legal  proceeding  arising  out of or relating to this
     Debenture or the transactions  contemplated  hereby.  If either party shall
     commence  an  action  or  proceeding  to  enforce  any  provisions  of this
     Debenture,  then the prevailing party in such action or proceeding shall be
     reimbursed  by the other party for its  attorneys  fees and other costs and
     expenses  incurred with the  investigation,  preparation and prosecution of
     such action or proceeding.

          f) Waiver.  Any waiver by the Company or the Holder of a breach of any
     provision  of this  Debenture  shall not operate as or be construed to be a
     waiver of any other breach of such  provision or of any breach of any other
     provision  of this  Debenture.  The failure of the Company or the Holder to
     insist upon strict  adherence to any term of this  Debenture on one or more
     occasions  shall not be  considered  a waiver or deprive  that party of the
     right  thereafter to insist upon strict adherence to that term or any other
     term of this Debenture. Any waiver must be in writing.

          g)  Severability.  If any  provision  of this  Debenture  is  invalid,
     illegal or  unenforceable,  the balance of this  Debenture  shall remain in
     effect, and if any provision is inapplicable to any person or circumstance,
     it  shall   nevertheless   remain  applicable  to  all  other  persons  and
     circumstances.  If it shall be found  that  any  interest  or other  amount
     deemed interest due hereunder violates applicable laws governing usury, the
     applicable rate of interest due hereunder shall automatically be lowered to
     equal the maximum permitted rate of interest. The Company covenants (to the
     extent  that it may  lawfully  do so) that it shall not at any time  insist
     upon,  plead,  or in any  manner  whatsoever  claim or take the  benefit or
     advantage  of, any stay,  extension  or usury law or other law which  would
     prohibit  or forgive  the  Company  from  paying all or any  portion of the
     principal of or interest on this Debenture as contemplated herein, wherever
     enacted,  now or at any time  hereafter  in force,  or which may affect the

                                       11
<PAGE>

     covenants or the  performance  of this  indenture,  and the Company (to the
     extent it may  lawfully  do so) hereby  expressly  waives all  benefits  or
     advantage of any such law, and covenants that it will not, by resort to any
     such law,  hinder,  delay or  impeded  the  execution  of any power  herein
     granted to the Holder,  but will suffer and permit the  execution  of every
     such as though no such law has been enacted.

          h) Next  Business  Day.  Whenever  any  payment  or  other  obligation
     hereunder  shall be due on a day other than a Business  Day,  such  payment
     shall be made on the next succeeding Business Day.

          i) Headings.  The headings  contained herein are for convenience only,
     do not constitute a part of this Debenture and shall not be deemed to limit
     or affect any of the provisions hereof.

          j) 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 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 of such increase or decrease
     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,  if any,
     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  in the  event  any  principal  amount  remains
     outstanding.

          k) Assumption.  Any successor to the Company or surviving  entity in a
     Fundamental  Transaction shall (i) assume in writing all of the obligations
     of the Company  under this  Debenture and the other  Transaction  Documents
     pursuant to written  agreements in form and substance  satisfactory  to the
     Holder (such approval not to be unreasonably  withheld or delayed) prior to
     such  Fundamental  Transaction  and  (ii)  to  issue  to the  Holder  a new

                                       12
<PAGE>

     debenture  of such  successor  entity  evidenced  by a  written  instrument
     substantially  similar in form and substance to this Debenture,  including,
     without  limitation,  having a principal  amount and interest rate equal to
     the principal  amounts and the interest rates of the Debentures held by the
     Holder and having similar  ranking to this Debenture,  and  satisfactory to
     the Holder (any such approval not to be unreasonably  withheld or delayed).
     The  provisions  of this Section 7(k) shall apply  similarly and equally to
     successive Fundamental  Transactions and shall be applied without regard to
     any limitations of this Debenture.

                              *********************

                                       13
<PAGE>

     IN WITNESS  WHEREOF,  the  Company  has caused  this  Debenture  to be duly
executed by a duly authorized officer as of the date first above indicated.

                                           INTRAOP MEDICAL CORPORATION

                                           By:__________________________________
                                              Name:
                                              Title:

                                       14

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