Document:

EX-4.4

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

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                           ELITE PHARMACEUTICALS, INC.

              THIS COMMON STOCK PURCHASE WARRANT (the "WARRANT") certifies that,
for value received,  _____________ (the "HOLDER"),  is entitled,  upon the terms
and subject to the  limitations on exercise and the conditions  hereinafter  set
forth, at any time on or after the Initial  Exercise Date (as defined in Section
2) and on or prior to the close of business on the five year  anniversary of the
Initial Exercise Date (the "TERMINATION DATE") but not thereafter,  to subscribe
for and purchase from Elite  Pharmaceuticals,  Inc., a Delaware corporation (the
"COMPANY"),  up to ______  shares (the "WARRANT  SHARES") of Common  Stock,  par
value $.01 per share, of the Company (the "COMMON STOCK"). The purchase price of
one share of Common  Stock  under this  Warrant  shall be equal to the  Exercise
Price, as defined in Section 2(b).

       SECTION 1. DEFINITIONS.  Capitalized terms used and not otherwise defined
herein shall have the meanings  set forth in that  certain  Securities  Purchase
Agreement (the "PURCHASE  AGREEMENT"),  dated March 15, 2006,  among the Company
and the purchasers signatory thereto.

       SECTION 2. EXERCISE.

              a)     EXERCISE  OF  WARRANT.  Exercise  of  the  purchase  rights
       represented by this Warrant may be made, in whole or in part, at any time
       or times on or after  the  date of issue of this  Warrant  (the  "Initial
       Exercise Date") and on or before the Termination  Date by delivery to the
       Company of a duly executed  facsimile copy of the Notice of Exercise Form
       annexed  hereto (or such other  office or agency of the Company as it may
       designate by notice in writing to the registered Holder at the address of
       such Holder appearing on the books of the Company); and, within 3 Trading
       Days of the date said Notice of

<PAGE>

       Exercise is delivered to the Company,  the Holder shall have  surrendered
       this Warrant to the Company and the Company shall have  received  payment
       of the aggregate  Exercise Price of the shares thereby  purchased by wire
       transfer  or  cashier's  check  drawn on a United  States  bank.  Partial
       exercises  of this  Warrant  resulting  in  purchases of a portion of the
       total number of Warrant Shares available  hereunder shall have the effect
       of  lowering  the  outstanding   number  of  Warrant  Shares  purchasable
       hereunder in an amount equal to the  applicable  number of Warrant Shares
       purchased.  The Holder and the Company shall maintain records showing the
       number of Warrant Shares  purchased and the date of such  purchases.  The
       Company shall deliver any objection to any Notice of Exercise Form within
       1 Business Day of receipt of such notice.  In the event of any dispute or
       discrepancy,   the  records  of  the  Holder  shall  be  controlling  and
       determinative in the absence of manifest error.

              b)     EXERCISE PRICE.  The exercise price per share of the Common
       Stock under this Warrant shall be $2.25  subject to adjustment  hereunder
       (the "EXERCISE PRICE").

              c)     CASHLESS  EXERCISE.  If at any time  after the date  hereof
       this  Warrant may also be  exercised at such time by means of a "cashless
       exercise" in which the Holder shall be entitled to receive a  certificate
       for the  number of  Warrant  Shares  equal to the  quotient  obtained  by
       dividing [(A-B) (X)] by (A), where:

              (A) =  the VWAP on the Trading Day immediately  preceding the date
                     of such election;

              (B) =  the Exercise Price of this Warrant, as adjusted; and

              (X) =  the number of Warrant Shares issuable upon exercise of this
                     Warrant  in  accordance  with the terms of this  Warrant by
                     means of a cash exercise rather than a cashless exercise.

              d)     EXERCISE LIMITATIONS.

                            i.     HOLDER'S RESTRICTIONS.  The Company shall not
                     effect any exercise of this Warrant, and a Holder shall not
                     have the right to  exercise  any  portion of this  Warrant,
                     pursuant to Section 2(c) or  otherwise,  to the extent that
                     after giving effect to such issuance  after exercise as set
                     forth on the  applicable  Notice of  Exercise,  such Holder
                     (together  with  such  Holder's  Affiliates,  and any other
                     person  or  entity  acting  as a group  together  with such
                     Holder or any of such Holder's Affiliates), as set forth on
                     the applicable Notice of Exercise,  would  beneficially own
                     in  excess  of  the  Beneficial  Ownership  Limitation  (as
                     defined below). For purposes of the foregoing sentence, the
                     number of shares of Common Stock beneficially owned by such
                     Holder  and its  Affiliates  shall  include  the  number of
                     shares of  Common  Stock  issuable  upon  exercise  of this
                     Warrant with respect to which such  determination  is being
                     made,  but  shall  exclude  the  number of shares of Common
                     Stock  which  would be  issuable  upon (A)  exercise of the

                                       2
<PAGE>

                     remaining,    nonexercised    portion   of   this   Warrant
                     beneficially  owned by such Holder or any of its Affiliates
                     and  (B)  exercise  or  conversion  of the  unexercised  or
                     nonconverted portion of any other securities of the Company
                     (including,  without limitation,  any other Preferred Stock
                     or  Warrants)  subject to a  limitation  on  conversion  or
                     exercise  analogous  to  the  limitation  contained  herein
                     beneficially owned by such Holder or any of its affiliates.
                     Except as set forth in the preceding sentence, for purposes
                     of this  Section  2(d)(i),  beneficial  ownership  shall be
                     calculated in accordance with Section 13(d) of the Exchange
                     Act and the rules and regulations  promulgated  thereunder,
                     it being  acknowledged  by a Holder that the Company is not
                     representing  to such  Holder that such  calculation  is in
                     compliance  with Section 13(d) of the Exchange Act and such
                     Holder is solely  responsible for any schedules required to
                     be filed in  accordance  therewith.  To the extent that the
                     limitation  contained  in this Section  2(d)  applies,  the
                     determination  of whether this Warrant is  exercisable  (in
                     relation to other  securities owned by such Holder together
                     with any Affiliates) and of which a portion of this Warrant
                     is exercisable shall be in the sole discretion of a Holder,
                     and the  submission of a Notice of Exercise shall be deemed
                     to be each Holder's  determination  of whether this Warrant
                     is exercisable  (in relation to other  securities  owned by
                     such  Holder  together  with any  Affiliates)  and of which
                     portion  of this  Warrant  is  exercisable,  in  each  case
                     subject to such aggregate  percentage  limitation,  and the
                     Company  shall have no  obligation to verify or confirm the
                     accuracy   of   such   determination.    In   addition,   a
                     determination as to any group status as contemplated  above
                     shall be determined in accordance with Section 13(d) of the
                     Exchange  Act and the  rules  and  regulations  promulgated
                     thereunder.   For  purposes  of  this  Section   2(d),   in
                     determining  the  number  of  outstanding  shares of Common
                     Stock,  a Holder  may  rely on the  number  of  outstanding
                     shares of Common Stock as  reflected  in (x) the  Company's
                     most recent Form 10-Q or Form 10-K, as the case may be, (y)
                     a more recent public announcement by the Company or (z) any
                     other notice by the Company or the Company's Transfer Agent
                     setting   forth  the  number  of  shares  of  Common  Stock
                     outstanding.  Upon the written or oral request of a Holder,
                     the Company  shall within two Trading  Days confirm  orally
                     and in  writing  to such  Holder  the  number  of shares of
                     Common Stock then  outstanding.  In any case, the number of
                     outstanding  shares of  Common  Stock  shall be  determined
                     after  giving  effect  to the  conversion  or  exercise  of
                     securities of the Company,  including this Warrant, by such
                     Holder or its  Affiliates  since the date as of which  such
                     number of outstanding  shares of Common Stock was reported.
                     The "Beneficial Ownership Limitation" shall be 4.99% of the
                     number   of  shares  of  the   Common   Stock   outstanding
                     immediately  after giving  effect to the issuance of shares
                     of Common Stock issuable upon exercise of this Warrant. The
                     Beneficial Ownership Limitation  provisions of this Section
                     2(d)(i) may be waived by such  Holder,  at the  election of
                     such  Holder,  upon not less than 61 days' prior  notice to
                     the Company to change the Beneficial  Ownership

                                       3
<PAGE>

                     Limitation  to 9.99% of the  number of shares of the Common
                     Stock  outstanding  immediately  after giving effect to the
                     issuance  of shares of Common  Stock upon  exercise of this
                     Warrant,  and the  provisions  of this  Section  2(d) shall
                     continue  to  apply.  Upon such a change by a Holder of the
                     Beneficial  Ownership Limitation from such 4.99% limitation
                     to  such  9.99%   limitation,   the  Beneficial   Ownership
                     Limitation  may not be further  waived by such Holder.  The
                     provisions  of  this  paragraph   shall  be  construed  and
                     implemented in a manner otherwise than in strict conformity
                     with the terms of this  Section  2(d)(i)  to  correct  this
                     paragraph (or any portion hereof) which may be defective or
                     inconsistent   with  the  intended   Beneficial   Ownership
                     Limitation   herein   contained   or  to  make  changes  or
                     supplements  necessary or desirable to properly give effect
                     to  such  limitation.  The  limitations  contained  in this
                     paragraph  shall  apply  to  a  successor  holder  of  this
                     Warrant.

                            ii.    TRADING MARKET  RESTRICTIONS.  If the Company
                     has not obtained  Shareholder  Approval (as defined below),
                     then  the  Company  may not  issue  upon  exercise  of this
                     Warrant a number of shares  of Common  Stock,  which,  when
                     aggregated  with any shares of Common Stock issued (A) upon
                     conversion  of or as payment of dividends on the  Preferred
                     Stock issued pursuant to the Purchase  Agreement,  (B) upon
                     prior exercise of this or any other Warrant issued pursuant
                     to the Purchase  Agreement and (C) pursuant to any warrants
                     issued  to  any  registered   broker-dealer  as  a  fee  in
                     connection  with the  Securities  pursuant to the  Purchase
                     Agreement,  would exceed 19.999% of the number of shares of
                     Common  Stock  outstanding  on the Trading Day  immediately
                     preceding  the  Closing  Date (such  number of shares,  the
                     "ISSUABLE  MAXIMUM").  If on any attempted exercise of this
                     Warrant,  the  issuance of Warrant  Shares would exceed the
                     Issuable  Maximum and the Company shall not have previously
                     obtained the vote of  shareholders  to approve the issuance
                     of shares of Common Stock in excess of the Issuable Maximum
                     pursuant to the terms hereof (the "SHAREHOLDER  APPROVAL"),
                     then the  Company  shall issue to the Holder  requesting  a
                     Warrant  exercise  such number of Warrant  Shares as may be
                     issued below the Issuable  Maximum and, with respect to the
                     remainder of the aggregate  number of Warrant Shares,  this
                     Warrant   shall  not  be   exercisable   until  and  unless
                     Shareholder Approval has been obtained.

              e)     MECHANICS OF EXERCISE.

                            i.     AUTHORIZATION OF WARRANT SHARES.  The Company
                     covenants  that all Warrant Shares which may be issued upon
                     the exercise of the  purchase  rights  represented  by this
                     Warrant  will,   upon  exercise  of  the  purchase   rights
                     represented by this Warrant,  be duly  authorized,  validly
                     issued,  fully  paid and  nonassessable  and free  from all
                     taxes,  liens and charges created by the Company in respect
                     of the issue  thereof  (other  than

                                       4
<PAGE>

                     taxes    in    respect    of   any    transfer    occurring
                     contemporaneously with such issue).

                            ii.    DELIVERY  OF   CERTIFICATES   UPON  EXERCISE.
                     Certificates  for  shares  purchased   hereunder  shall  be
                     transmitted  by the  transfer  agent of the  Company to the
                     Holder by  crediting  the  account  of the  Holder's  prime
                     broker  with  the  Depository  Trust  Company  through  its
                     Deposit Withdrawal Agent Commission  ("DWAC") system if the
                     Company is a participant  in such system,  and otherwise by
                     physical delivery to the address specified by the Holder in
                     the  Notice  of  Exercise  within 3  Trading  Days from the
                     delivery  to the  Company of the Notice of  Exercise  Form,
                     surrender  of this  Warrant  and  payment of the  aggregate
                     Exercise Price as set forth above  ("WARRANT SHARE DELIVERY
                     DATE"). This Warrant shall be deemed to have been exercised
                     on the date the Exercise  Price is received by the Company.
                     The Warrant Shares shall be deemed to have been issued, and
                     Holder  or any  other  person  so  designated  to be  named
                     therein  shall be deemed to have  become a holder of record
                     of such shares for all purposes, as of the date the Warrant
                     has  been  exercised  by  payment  to  the  Company  of the
                     Exercise Price (or by cashless exercise,  if permitted) and
                     all  taxes  required  to be  paid  by the  Holder,  if any,
                     pursuant to Section 2(e)(vii) prior to the issuance of such
                     shares, have been paid.

                            iii.   DELIVERY OF NEW WARRANTS  UPON  EXERCISE.  If
                     this Warrant shall have been exercised in part, the Company
                     shall, upon surrender of this Warrant  certificate,  at the
                     time  of  delivery  of  the   certificate  or  certificates
                     representing  Warrant  Shares,  deliver  to  Holder  a  new
                     Warrant  evidencing  the rights of Holder to  purchase  the
                     unpurchased  Warrant  Shares  called  for by this  Warrant,
                     which new Warrant shall in all other  respects be identical
                     with this Warrant.

                            iv.    RESCISSION  RIGHTS.  If the Company  fails to
                     cause  its  transfer  agent  to  transmit  to the  Holder a
                     certificate or certificates representing the Warrant Shares
                     pursuant to this  Section  2(e)(iv)  by the  Warrant  Share
                     Delivery  Date,  then the  Holder  will  have the  right to
                     rescind such exercise.

                            v.     COMPENSATION  FOR BUY-IN ON FAILURE TO TIMELY
                     DELIVER  CERTIFICATES  UPON  EXERCISE.  In  addition to any
                     other rights available to the Holder,  if the Company fails
                     to cause its  transfer  agent to  transmit  to the Holder a
                     certificate or certificates representing the Warrant Shares
                     pursuant  to an  exercise  on or before the  Warrant  Share
                     Delivery  Date,  and if  after  such  date  the  Holder  is
                     required  by its  broker  to  purchase  (in an open  market
                     transaction or otherwise) shares of Common Stock to deliver
                     in  satisfaction  of a sale by the  Holder  of the  Warrant
                     Shares  which the Holder  anticipated  receiving  upon such
                     exercise (a  "BUY-IN"),  then the Company  shall (1) pay in
                     cash to the  Holder  the  amount by which (x) the  Holder's
                     total purchase price (including brokerage  commissions,  if
                     any) for the shares of Common  Stock so  purchased  exceeds
                     (y) the amount

                                       5
<PAGE>

                     obtained by  multiplying  (A) the number of Warrant  Shares
                     that the Company  was  required to deliver to the Holder in
                     connection  with the  exercise at issue times (B) the price
                     at  which  the  sell  order  giving  rise to such  purchase
                     obligation  was  executed,  and  (2) at the  option  of the
                     Holder,  either  reinstate  the  portion of the Warrant and
                     equivalent number of Warrant Shares for which such exercise
                     was not  honored  or  deliver  to the  Holder the number of
                     shares of Common  Stock that would have been issued had the
                     Company  timely  complied  with its  exercise  and delivery
                     obligations hereunder. For example, if the Holder purchases
                     Common  Stock having a total  purchase  price of $11,000 to
                     cover a Buy-In  with  respect to an  attempted  exercise of
                     shares of Common Stock with an aggregate  sale price giving
                     rise to such purchase  obligation of $10,000,  under clause
                     (1) of the immediately preceding sentence the Company shall
                     be  required  to pay the Holder  $1,000.  The Holder  shall
                     provide the Company  written notice  indicating the amounts
                     payable to the Holder in  respect of the Buy-In  and,  upon
                     request  of the  Company,  evidence  of the  amount of such
                     loss. Nothing herein shall limit a Holder's right to pursue
                     any other remedies available to it hereunder,  at law or in
                     equity including,  without limitation, a decree of specific
                     performance  and/or  injunctive  relief with respect to the
                     Company's   failure   to   timely   deliver    certificates
                     representing  shares of Common  Stock upon  exercise of the
                     Warrant as required pursuant to the terms hereof.

                            vi.    NO FRACTIONAL  SHARES OR SCRIP. No fractional
                     shares or scrip  representing  fractional  shares  shall be
                     issued  upon  the  exercise  of  this  Warrant.  As to  any
                     fraction  of  a  share  which  Holder  would  otherwise  be
                     entitled to purchase upon such exercise,  the Company shall
                     at its election, either pay a cash adjustment in respect of
                     such final  fraction  in an amount  equal to such  fraction
                     multiplied  by the  Exercise  Price or round up to the next
                     whole share.

                            vii.   CHARGES,  TAXES  AND  EXPENSES.  Issuance  of
                     certificates  for  Warrant  Shares  shall  be made  without
                     charge to the Holder for any issue or transfer tax or other
                     incidental  expense  in  respect  of the  issuance  of such
                     certificate,  all of which taxes and expenses shall be paid
                     by the Company,  and such  certificates  shall be issued in
                     the name of the  Holder  or in such name or names as may be
                     directed  by the  Holder;  provided,  however,  that in the
                     event certificates for Warrant Shares are to be issued in a
                     name other than the name of the Holder,  this  Warrant when
                     surrendered  for  exercise  shall  be  accompanied  by  the
                     Assignment  Form  attached  hereto  duly  executed  by  the
                     Holder;  and  the  Company  may  require,  as  a  condition
                     thereto,  the payment of a sum  sufficient  to reimburse it
                     for any transfer tax incidental thereto.

                            viii.  CLOSING OF BOOKS.  The Company will not close
                     its  stockholder  books  or  records  in any  manner  which
                     prevents the timely  exercise of this Warrant,  pursuant to
                     the terms hereof.

                                       6
<PAGE>

       SECTION 3.    CERTAIN ADJUSTMENTS.

              a)     STOCK  DIVIDENDS  AND SPLITS.  If the Company,  at any time
       while this Warrant is outstanding: (A) pays a stock dividend or otherwise
       make a distribution or distributions on shares of its Common Stock or any
       other equity or equity equivalent  securities payable in shares of Common
       Stock  (which,  for  avoidance of doubt,  shall not include any shares of
       Common Stock issued by the Company upon  exercise of this  Warrant),  (B)
       subdivides  outstanding  shares of Common  Stock into a larger  number of
       shares,   (C)  combines   (including  by  way  of  reverse  stock  split)
       outstanding  shares of Common Stock into a smaller  number of shares,  or
       (D) issues by  reclassification  of shares of the Common Stock any shares
       of capital  stock of the Company,  then in each case the  Exercise  Price
       shall be  multiplied  by a fraction of which the  numerator  shall be the
       number of shares of Common  Stock  (excluding  treasury  shares,  if any)
       outstanding  immediately  before such event and of which the  denominator
       shall be the  number of shares of Common  Stock  outstanding  immediately
       after such event and the number of shares  issuable upon exercise of this
       Warrant shall be proportionately  adjusted.  Any adjustment made pursuant
       to this Section 3(a) shall become effective  immediately after the record
       date for the  determination  of  stockholders  entitled  to receive  such
       dividend or distribution and shall become effective immediately after the
       effective   date  in  the   case  of  a   subdivision,   combination   or
       re-classification.

              b)     SUBSEQUENT  EQUITY SALES.  If the Company or any Subsidiary
       thereof,  as applicable,  at any time while this Warrant is  outstanding,
       shall sell or grant any option to  purchase or sell or grant any right to
       reprice its securities, or otherwise dispose of or issue (or announce any
       offer,  sale,  grant or any option to purchase or other  disposition) any
       Common Stock or Common Stock Equivalents  entitling any Person to acquire
       shares of Common  Stock,  at an  effective  price per share less than the
       then  applicable  Conversion  Price  (as  such  term  is  defined  in the
       Certificate  of  Designations)  of the  Preferred  Stock (such  issuances
       collectively,  a "DILUTIVE  ISSUANCE") (if the holder of the Common Stock
       or Common  Stock  Equivalents  so issued  shall at any time,  whether  by
       operation  of purchase  price  adjustments,  reset  provisions,  floating
       conversion, exercise or exchange prices or otherwise, or due to warrants,
       options or rights  per share  which are  issued in  connection  with such
       issuance,  be entitled to receive  shares of Common Stock at an effective
       price per share which is less than the then applicable  Conversion Price,
       such  issuance  shall be deemed to have  occurred  for less than the then
       applicable Conversion Price on such date of the Dilutive Issuance),  then
       the Exercise Price shall be reduced and only reduced by  multiplying  the
       Exercise Price by a fraction, the numerator

                                       7
<PAGE>

       of which is the number of shares of Common Stock  issued and  outstanding
       immediately  prior to the Dilutive  Issuance plus the number of shares of
       Common Stock which the offering  price for such Dilutive  Issuance  would
       purchase at the then applicable  Conversion Price, and the denominator of
       which shall be the sum of the number of shares of Common Stock issued and
       outstanding immediately prior to the Dilutive Issuance plus the number of
       shares of  Common  Stock so issued or  issuable  in  connection  with the
       Dilutive  Issuance and the number of Warrant  Shares  issuable  hereunder
       shall  be  increased  such  that the  aggregate  Exercise  Price  payable
       hereunder,  after taking into account the decrease in the Exercise Price,
       shall be equal to the aggregate  Exercise Price prior to such adjustment.
       Such adjustment  shall be made whenever such Common Stock or Common Stock
       Equivalents  are issued.  Notwithstanding  the foregoing,  no adjustments
       shall be made,  paid or issued  under this  Section 3(b) in respect of an
       Exempt Issuance. The Company shall notify the Holder in writing, no later
       than the Trading Day following the issuance of any Common Stock or Common
       Stock  Equivalents  subject  to  this  section,  indicating  therein  the
       applicable  issuance  price, or applicable  reset price,  exchange price,
       conversion  price and other  pricing  terms  (such  notice the  "DILUTIVE
       ISSUANCE  NOTICE").  For  purposes of  clarification,  whether or not the
       Company  provides a Dilutive  Issuance  Notice  pursuant to this  Section
       3(b),  upon the  occurrence of any Dilutive  Issuance,  after the date of
       such  Dilutive  Issuance  the Holder is  entitled  to receive a number of
       Warrant  Shares  based upon the adjusted  Exercise  Price  regardless  of
       whether the Holder  accurately  refers to the adjusted  Exercise Price in
       the Notice of Exercise.

              c)     SUBSEQUENT  RIGHTS OFFERINGS.  If the Company,  at any time
       while the Warrant is outstanding, shall issue rights, options or warrants
       to all  holders of Common  Stock (and not to Holders)  entitling  them to
       subscribe  for or  purchase  shares of Common  Stock at a price per share
       less than the VWAP at the record date mentioned below,  then the Exercise
       Price shall be multiplied by a fraction,  of which the denominator  shall
       be the number of shares of the Common  Stock  outstanding  on the date of
       issuance of such rights or warrants plus the number of additional  shares
       of Common Stock offered for  subscription  or purchase,  and of which the
       numerator  shall be the number of shares of the Common Stock  outstanding
       on the date of issuance  of such  rights or  warrants  plus the number of
       shares which the aggregate  offering  price of the total number of shares
       so offered  (assuming receipt by the Company in full of all consideration
       payable upon exercise of such rights, options or warrants) would purchase
       at such VWAP.  Such  adjustment  shall be made  whenever  such  rights or
       warrants are issued,  and shall become  effective  immediately  after the
       record date for the  determination  of  stockholders  entitled to receive
       such rights, options or warrants. If any such rights, options or warrants
       expire without having been exercised, the Exercise Price as adjusted upon
       the issuance of such rights,  options or warrants  shall be readjusted to
       the Exercise Price which would have been in effect had an adjustment been
       made on the basis that only  additional  shares of Common Stock so issued
       were the additional  shares of Common Stock,  if any,  actually issued or
       sold on the  exercise  of such  rights,  options  or  warrants  and  such
       additional  shares of Common  Stock,  if any, were issued or sold for the
       consideration  actually  received by the Corporation  upon such exercise,
       plus the consideration,  if any, actually received by the Corporation for
       the  granting of all such  rights,  options or  warrants,  whether or not
       exercised,  provided  that  such  readjustment  shall  not apply to prior
       exercises of the Warrant.

                                       8
<PAGE>

              d)     PRO RATA  DISTRIBUTIONS.  If the Company, at any time prior
       to the Termination  Date, shall distribute to all holders of Common Stock
       (and not to Holders of the  Warrants)  evidences of its  indebtedness  or
       assets  (including  cash and cash  dividends)  or rights or  warrants  to
       subscribe for or purchase any security other than the Common Stock (which
       shall be subject to Section  3(b)),  then in each such case the  Exercise
       Price shall be  adjusted  by  multiplying  the  Exercise  Price in effect
       immediately   prior  to  the  record  date  fixed  for  determination  of
       stockholders entitled to receive such distribution by a fraction of which
       the  denominator  shall  be the VWAP  determined  as of the  record  date
       mentioned  above,  and of which the numerator  shall be such VWAP on such
       record date less the then per share fair market value at such record date
       of the portion of such assets or evidence of  indebtedness so distributed
       applicable to one outstanding  share of the Common Stock as determined by
       the Board of  Directors  in good faith.  In either  case the  adjustments
       shall be described  in a statement  provided to the Holder of the portion
       of  assets  or  evidences  of   indebtedness   so   distributed  or  such
       subscription  rights  applicable  to one  share  of  Common  Stock.  Such
       adjustment shall be made whenever any such distribution is made and shall
       become effective immediately after the record date mentioned above.

              e)     FUNDAMENTAL TRANSACTION. If, at any time while this Warrant
       is outstanding,  (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  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  (in any such case, a
       "FUNDAMENTAL TRANSACTION"), then,

                     i.     subject to clause  (ii) below,  upon any  subsequent
                            exercise of this Warrant,  the Holder shall have the
                            right to receive,  for each Warrant Share that would
                            have been issuable  upon such  exercise  immediately
                            prior  to  the   occurrence   of  such   Fundamental
                            Transaction,  at the option of the Holder,  (a) upon
                            exercise of this Warrant and payment of the Exercise
                            Price,  the number of shares of Common  Stock of the
                            successor  or  acquiring   corporation   or  of  the
                            Company, if it is the surviving corporation, and any
                            additional     consideration     (the     "ALTERNATE
                            CONSIDERATION")  receivable  upon or as a result  of
                            such   reorganization,   reclassification,   merger,
                            consolidation  or  disposition of assets by a Holder
                            of the  number of  shares of Common  Stock for which
                            this  Warrant is  exercisable  immediately  prior to
                            such event or (b) if the  Company is  acquired in an
                            all cash  transaction,  cash  equal to the  value of
                            this Warrant as determined  in  accordance  with the
                            Black-Scholes option pricing formula; or

                     ii.    if  the   Company  is   acquired   in  an  all  cash
                            transaction,  in the  option of the  Company  or its
                            acquiror,  the  Holder may be paid cash equal to the

                                       9
<PAGE>

                            value of this Warrant as  determined  in  accordance
                            with the  Black-Scholes  option pricing  formula and
                            upon  payment  of  such  cash,   the  Warrant  shall
                            terminate.

       For purposes of any such exercise by the Holder, the determination of the
       Exercise Price shall be appropriately adjusted to apply to such Alternate
       Consideration based on the amount of Alternate  Consideration issuable in
       respect of one share of Common Stock in such Fundamental Transaction, and
       the Company  shall  apportion  the  Exercise  Price  among the  Alternate
       Consideration in a reasonable manner reflecting the relative value of any
       different components of the Alternate Consideration. If holders of Common
       Stock are given any choice as to the  securities,  cash or property to be
       received in a Fundamental Transaction, then the Holder shall be given the
       same  choice  as to the  Alternate  Consideration  it  receives  upon any
       exercise of this Warrant following such Fundamental  Transaction.  To the
       extent necessary to effectuate the foregoing provisions, any successor to
       the Company or surviving  entity in such  Fundamental  Transaction  shall
       issue  to  the  Holder  a  new  warrant  consistent  with  the  foregoing
       provisions  and  evidencing  the Holder's  right to exercise such warrant
       into  Alternate  Consideration.  The terms of any  agreement  pursuant to
       which a Fundamental Transaction is effected shall include terms requiring
       any such  successor or surviving  entity to comply with the provisions of
       this Section 3(d) and insuring that this Warrant (or any such replacement
       security)  will be similarly  adjusted  upon any  subsequent  transaction
       analogous to a Fundamental Transaction.

              f)     CALCULATIONS.  All calculations  under this Section 3 shall
       be made to the  nearest  cent or the nearest  1/100th of a share,  as the
       case may be.  For  purposes  of this  Section  3, the number of shares of
       Common Stock deemed to be issued and outstanding as of a given date shall
       be the sum of the number of shares of Common  Stock  (excluding  treasury
       shares, if any) issued and outstanding.

              g)     VOLUNTARY  ADJUSTMENT  BY  COMPANY.  The Company may at any
       time during the term of this  Warrant  reduce the then  current  Exercise
       Price to any amount and for any period of time deemed  appropriate by the
       Board of Directors of the Company.

              h)     NOTICE TO HOLDERS.

                            i.     ADJUSTMENT  TO EXERCISE  PRICE.  Whenever the
                     Exercise  Price is adjusted  pursuant to any  provision  of
                     this  Section 3, the Company  shall  promptly  mail to each
                     Holder a notice setting forth the Exercise Price after such
                     adjustment and setting forth a brief statement of the facts
                     requiring such adjustment. If the Company issues a variable
                     rate  security,  despite  the  prohibition  thereon  in the
                     Purchase  Agreement,  the  Company  shall be deemed to have
                     issued  Common  Stock or Common  Stock  Equivalents  at the
                     lowest possible  conversion or exercise price at which such
                     securities  may be  converted or exercised in the case of a
                     Variable  Rate  Transaction  (as  defined  in the  Purchase
                     Agreement).

                                       10
<PAGE>

                            ii.    NOTICE TO ALLOW  EXERCISE  BY HOLDER.  If (A)
                     the  Company   shall  declare  a  dividend  (or  any  other
                     distribution in whatever form) on the Common Stock; (B) the
                     Company shall declare a special  nonrecurring cash dividend
                     on or a  redemption  of the Common  Stock;  (C) the Company
                     shall  authorize  the granting to all holders of the Common
                     Stock rights or warrants to  subscribe  for or purchase any
                     shares of capital stock of any class or of any rights;  (D)
                     the approval of any  stockholders  of the Company  shall be
                     required in  connection  with any  reclassification  of the
                     Common  Stock,  any  consolidation  or  merger to which the
                     Company  is a  party,  any  sale  or  transfer  of  all  or
                     substantially  all of the  assets  of the  Company,  of any
                     compulsory  share  exchange  whereby  the  Common  Stock is
                     converted into other securities,  cash or property; (E) the
                     Company  shall   authorize  the  voluntary  or  involuntary
                     dissolution,  liquidation  or winding up of the  affairs of
                     the Company; then, in each case, the Company shall cause to
                     be mailed to the  Holder  at its last  address  as it shall
                     appear upon the Warrant  Register of the Company,  at least
                     20  calendar  days  prior  to  the  applicable   record  or
                     effective date hereinafter  specified, a notice stating (x)
                     the date on which a record is to be taken  for the  purpose
                     of  such  dividend,  distribution,  redemption,  rights  or
                     warrants, or if a record is not to be taken, the date as of
                     which  the  holders  of the  Common  Stock of  record to be
                     entitled  to  such  dividend,  distributions,   redemption,
                     rights or warrants are to be  determined or (y) the date on
                     which such reclassification,  consolidation,  merger, sale,
                     transfer or share exchange is expected to become  effective
                     or  close,  and the date as of which  it is  expected  that
                     holders of the Common  Stock of record shall be entitled to
                     exchange  their shares of the Common Stock for  securities,
                     cash   or   other    property    deliverable    upon   such
                     reclassification,  consolidation, merger, sale, transfer or
                     share  exchange;  provided  that the  failure  to mail such
                     notice or any  defect  therein  or in the  mailing  thereof
                     shall not  affect  the  validity  of the  corporate  action
                     required  to be  specified  in such  notice.  The Holder is
                     entitled to exercise this Warrant  during the 20-day period
                     commencing on the date of such notice to the effective date
                     of the event triggering such notice.

       SECTION 4.    TRANSFER OF WARRANT.

              a)     TRANSFERABILITY.  The Warrant  and the other  rights of the
       Holder  pursuant to this Warrant  certificate are not severable from this
       Warrant  certificate,  and shall not be assignable or transferable except
       in connection  with a transfer or assignment of this Warrant  certificate
       in accordance with the terms hereof. Any instrument  purporting to make a
       transfer or  assignment  in  violation of this Section 4(a) shall be void
       and of no effect.  Subject to compliance  with any applicable  securities
       laws and the  conditions  set forth in  Section  4(d)  hereof  and to the
       provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
       rights hereunder (including, without limitation, any registration rights)
       are  transferable,  in whole or in part,  upon  surrender of this Warrant
       certificate  at the  principal  office of the  Company or its  designated
       agent,  together with a written assignment of this Warrant  substantially
       in the form  attached  hereto duly

                                       11
<PAGE>

       executed by the Holder or its agent or attorney and funds  sufficient  to
       pay any transfer  taxes  payable upon the making of such  transfer.  Upon
       compliance  with the foregoing and such surrender and, if required,  such
       payment,  the Company shall execute and deliver a new Warrant or Warrants
       in the name of the  assignee  or  assignees  and in the  denomination  or
       denominations specified in such instrument of assignment, and shall issue
       to the assignor a new Warrant  evidencing the portion of this Warrant not
       so assigned,  and this Warrant shall promptly be cancelled. A Warrant, if
       properly  assigned,  may be exercised by a new holder for the purchase of
       Warrant Shares without having a new Warrant issued.

              b)     NEW WARRANTS.  This Warrant may be divided or combined with
       other Warrants upon  presentation  hereof at the aforesaid  office of the
       Company,  together  with  a  written  notice  specifying  the  names  and
       denominations  in which  new  Warrants  are to be  issued,  signed by the
       Holder or its agent or attorney. Subject to compliance with Section 4(a),
       as to any transfer which may be involved in such division or combination,
       the  Company  shall  execute  and  deliver a new  Warrant or  Warrants in
       exchange  for the  Warrant  or  Warrants  to be divided  or  combined  in
       accordance with such notice.

              c)     WARRANT REGISTER.  The Company shall register this Warrant,
       upon  records to be  maintained  by the  Company  for that  purpose  (the
       "WARRANT REGISTER"), in the name of the record Holder hereof from time to
       time.  The  Company  may deem and  treat  the  registered  Holder of this
       Warrant as the  absolute  owner  hereof for the  purpose of any  exercise
       hereof or any  distribution  to the Holder,  and for all other  purposes,
       absent actual notice to the contrary.

              d)     TRANSFER RESTRICTIONS.  If, at the time of the surrender of
       this  Warrant  in  connection  with any  transfer  of this  Warrant,  the
       transfer of this Warrant shall not be registered pursuant to an effective
       registration  statement  under the  Securities  Act and under  applicable
       state  securities  or blue  sky  laws,  the  Company  may  require,  as a
       condition of allowing  such transfer (i) that the Holder or transferee of
       this  Warrant,  as the case may be,  furnish  to the  Company  a  written
       opinion of counsel (which  opinion shall be in form,  substance and scope
       customary  for  opinions of counsel in  comparable  transactions)  to the
       effect that such  transfer  may be made  without  registration  under the
       Securities Act and under  applicable  state  securities or blue sky laws,
       (ii) that the holder or transferee  execute and deliver to the Company an
       investment  letter in form and  substance  acceptable  to the Company and
       (iii) that the transferee be an "accredited  investor" as defined in Rule
       501(a)(1),  (a)(2),  (a)(3),  (a)(7),  or  (a)(8)  promulgated  under the
       Securities  Act or a "qualified  institutional  buyer" as defined in Rule
       144A(a) under the Securities Act.

       SECTION 5.    MISCELLANEOUS.

              a)     NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE.  This Warrant does
       not  entitle  the  Holder  to any  voting  rights  or other  rights  as a
       shareholder  of the Company prior to the exercise  hereof as set forth in
       Section 2(e)(ii).

                                       12
<PAGE>

              b)     LOSS,  THEFT,  DESTRUCTION  OR MUTILATION  OF WARRANT.  The
       Company covenants that upon receipt by the Company of evidence reasonably
       satisfactory to it of the loss, theft,  destruction or mutilation of this
       Warrant or any stock certificate  relating to the Warrant Shares,  and in
       case of loss, theft or destruction,  of indemnity or security  reasonably
       satisfactory to it (which, in the case of the Warrant,  shall not include
       the posting of any bond),  and upon  surrender and  cancellation  of such
       Warrant or stock  certificate,  if  mutilated,  the Company will make and
       deliver a new Warrant or stock  certificate of like tenor and dated as of
       such cancellation, in lieu of such Warrant or stock certificate.

              c)     SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed
       day for the taking of any action or the  expiration of any right required
       or granted  herein shall not be a Business  Day,  then such action may be
       taken or such right may be exercised on the next succeeding Business Day.

              d)     AUTHORIZED SHARES.

                     The Company covenants that during the period the Warrant is
              outstanding,  it will  reserve  from its  authorized  and unissued
              Common  Stock a  sufficient  number of shares to  provide  for the
              issuance of the Warrant  Shares upon the  exercise of any purchase
              rights under this Warrant.  The Company further covenants that its
              issuance of this Warrant shall  constitute  full  authority to its
              officers  who  are  charged  with  the  duty  of  executing  stock
              certificates to execute and issue the necessary  certificates  for
              the Warrant Shares upon the exercise of the purchase  rights under
              this Warrant.  The Company will take all such reasonable action as
              may be necessary to assure that such Warrant  Shares may be issued
              as provided  herein  without  violation of any  applicable  law or
              regulation,  or of any  requirements  of the  Trading  Market upon
              which the Common Stock may be listed.

                     Except and to the extent as waived or  consented  to by the
              Holder,  the Company shall not by any action,  including,  without
              limitation,  amending its certificate of  incorporation or through
              any  reorganization,  transfer of assets,  consolidation,  merger,
              dissolution,  issue or sale of securities  or any other  voluntary
              action,  avoid or seek to avoid the  observance or  performance of
              any of the  terms of this  Warrant,  but will at all times in good
              faith  assist  in the  carrying  out of all such  terms and in the
              taking of all such actions as may be necessary or  appropriate  to
              protect the rights of Holder as set forth in this Warrant  against
              impairment.  Without limiting the generality of the foregoing, the
              Company will (a) not increase the par value of any Warrant  Shares
              above the amount payable  therefor upon such exercise  immediately
              prior to such  increase in par value,  (b) take all such action as
              may be  necessary  or  appropriate  in order that the  Company may
              validly and legally  issue  fully paid and  nonassessable  Warrant
              Shares upon the exercise of this Warrant, and (c) use commercially
              reasonable efforts to obtain all such  authorizations,  exemptions
              or consents from any public  regulatory  body having  jurisdiction
              thereof as may be  necessary  to enable the Company to perform its
              obligations under this Warrant.

                                       13
<PAGE>

                     Before   taking  any  action   which  would  result  in  an
              adjustment in the number of Warrant  Shares for which this Warrant
              is exercisable or in the Exercise Price,  the Company shall obtain
              all  such   authorizations  or  exemptions  thereof,  or  consents
              thereto,  as may be necessary from any public  regulatory  body or
              bodies having jurisdiction thereof.

              e)     JURISDICTION.  All questions  concerning the  construction,
       validity,  enforcement  and  interpretation  of  this  Warrant  shall  be
       determined in accordance with the provisions of the Purchase Agreement.

              f)     RESTRICTIONS.  The  Holder  acknowledges  that the  Warrant
       Shares  acquired  upon the exercise of this Warrant,  if not  registered,
       will  have   restrictions  upon  resale  imposed  by  state  and  federal
       securities laws.

              g)     NONWAIVER AND  EXPENSES.  No course of dealing or any delay
       or failure to exercise  any right  hereunder  on the part of Holder shall
       operate as a waiver of such right or otherwise prejudice Holder's rights,
       powers or remedies,  notwithstanding  the fact that all rights  hereunder
       terminate on the Termination Date. If the Company willfully and knowingly
       fails to comply with any provision of this Warrant,  which results in any
       material  damages to the  Holder,  the  Company  shall pay to Holder such
       amounts as shall be sufficient to cover any costs and expenses including,
       but not  limited  to,  reasonable  attorneys'  fees,  including  those of
       appellate  proceedings,  incurred by Holder in collecting any amounts due
       pursuant  hereto or in otherwise  enforcing any of its rights,  powers or
       remedies hereunder.

              h)     NOTICES. Any notice,  request or other document required or
       permitted to be given or delivered to the Holder by the Company  shall be
       delivered  in  accordance  with the  notice  provisions  of the  Purchase
       Agreement.

              i)     LIMITATION  OF  LIABILITY.  No  provision  hereof,  in  the
       absence of any  affirmative  action by Holder to exercise this Warrant to
       purchase  Warrant  Shares,  and no  enumeration  herein of the  rights or
       privileges of Holder,  shall give rise to any liability of Holder for the
       purchase  price of any Common Stock or as a  stockholder  of the Company,
       whether such  liability is asserted by the Company or by creditors of the
       Company.

              j)     REMEDIES. Holder, in addition to being entitled to exercise
       all  rights  granted  by law,  including  recovery  of  damages,  will be
       entitled to specific  performance  of its rights under this Warrant.  The
       Company agrees that monetary  damages would not be adequate  compensation
       for any loss  incurred by reason of a breach by it of the  provisions  of
       this Warrant and hereby  agrees to waive and not to assert the defense in
       any  action  for  specific  performance  that a  remedy  at law  would be
       adequate.

              k)     SUCCESSORS  AND ASSIGNS.  Subject to applicable  securities
       laws, this Warrant and the rights and obligations  evidenced hereby shall
       inure to the benefit of and be binding upon the successors of the Company
       and the  successors  and permitted  assigns of Holder.  The provisions of
       this  Warrant are intended to be for the benefit of all Holders

                                       14
<PAGE>

       from time to time of this  Warrant and shall be  enforceable  by any such
       Holder or holder of Warrant Shares.

              l)     AMENDMENT.  This  Warrant may be modified or amended or the
       provisions  hereof waived with the written consent of the Company and the
       Holder.

              m)     SEVERABILITY.  Wherever  possible,  each  provision of this
       Warrant shall be  interpreted in such manner as to be effective and valid
       under  applicable  law, but if any  provision  of this  Warrant  shall be
       prohibited by or invalid under  applicable  law, such provision  shall be
       ineffective  to the extent of such  prohibition  or  invalidity,  without
       invalidating the remainder of such provisions or the remaining provisions
       of this Warrant.

              n)     HEADINGS.  The  headings  used in this  Warrant are for the
       convenience of reference only and shall not, for any purpose, be deemed a
       part of this Warrant.

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

                                       15
<PAGE>

              IN WITNESS  WHEREOF,  the Company  has caused  this  Warrant to be
executed by its officer thereunto duly authorized.

Dated:  March ___, 2006

                                        ELITE PHARMACEUTICALS, INC.

                                        By:_____________________________________
                                             Name: Bernard J. Berk
                                             Title: Chief Executive Officer

                                       16
<PAGE>

                               NOTICE OF EXERCISE

TO:    ELITE PHARMACEUTICALS, INC.

              (1)    The undersigned  hereby elects to purchase ________ Warrant
Shares of the Company  pursuant to the terms of the  attached  Warrant  (only if
exercised in full),  and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.

              (2)    Payment shall take the form of (check applicable box):

                     [ ]    in lawful money of the United States; or

                     [ ]    [if  permitted] the  cancellation  of such number of
                            Warrant Shares as is necessary,  in accordance  with
                            the  formula  set  forth  in  subsection   2(c),  to
                            exercise  this  Warrant  with respect to the maximum
                            number of Warrant Shares purchasable pursuant to the
                            cashless exercise  procedure set forth in subsection
                            2(c).

              (3)    Please issue a  certificate  or  certificates  representing
said Warrant  Shares in the name of the  undersigned or in such other name as is
specified below:

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

The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

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

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

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

              (4)    ACCREDITED  INVESTOR.  The  undersigned  is an  "accredited
investor" as defined in Regulation D  promulgated  under the  Securities  Act of
1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ______________________________________________________

SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: _________________________

Name of Authorized Signatory: __________________________________________________

Title of Authorized Signatory: _________________________________________________

Date: __________________________________________________________________________

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

              FOR  VALUE  RECEIVED,  [____]  all of or  [_______]  shares of the
foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________________________ whose address is

_______________________________________________________________________________.

________________________________________________________________________________

                                                  Dated: ______________, _______

                Holder's Signature:____________________________

                Holder's Address:  ____________________________

                                   ____________________________

Signature Guaranteed:  ___________________________________________

NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.EX-10.1

                          SECURITIES PURCHASE AGREEMENT

       This  Securities  Purchase  Agreement  (this  "AGREEMENT") is dated as of
March 15, 2006, among Elite  Pharmaceuticals,  Inc., a Delaware 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  Certificate  of  Designation  (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).

              "ACTUAL  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
       Underlying  Shares  issuable  upon  exercise or conversion in full of all
       Warrants  and shares of  Preferred  Stock,  ignoring  any  conversion  or
       exercise  limits set forth  therein,  and  assuming  that any  previously
       unconverted   shares  of  Preferred   Stock  are  held  until  the  fifth
       anniversary  of the Closing Date and all  dividends are paid in shares of
       Common Stock until such fifth anniversary.

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

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

<PAGE>

              "CERTIFICATE OF DESIGNATION"  means the Certificate of Designation
       to be filed  prior to the Closing by the Company  with the  Secretary  of
       State of Delaware, in the form of EXHIBIT A attached hereto.

              "CLOSING"  means the closing or closings 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.

              "COMMON  STOCK" means the common  stock of the Company,  par value
       $.01 per  share,  and any  other  class of  securities  into  which  such
       securities may hereafter be reclassified or changed into.

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

              "COMPANY  COUNSEL"  means  Reitler,  Brown,  & Rosenblatt LLC with
       offices located at 800 Third Avenue, New York, NY 10022.

              "CONVERSION PRICE" shall have the meaning ascribed to such term in
       the Certificate of Designation.

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

              "DISCUSSION  TIME" shall have the meaning ascribed to such term in
       Section 3.2 (f).

              "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,  consultants,  officers  or  directors  of the
       Company  pursuant to any stock or

                                       2
<PAGE>

       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  other  securities  exercisable  or
       exchangeable  for or  convertible  into shares of Common Stock issued and
       outstanding on the date of this Agreement,  provided that such securities
       have not been  amended  since the date of this  Agreement to increase the
       number of such  securities  or to  decrease  the  exercise,  exchange  or
       conversion price of any such securities,  (c) securities  issued pursuant
       to acquisitions or strategic  transactions  approved by a majority of the
       disinterested  directors,  provided any such issuance  shall only be to a
       Person which is, itself or through its subsidiaries, an operating company
       in, or an  individual  that  operates,  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) up to a maximum of  1,500,000  shares of Common Stock or
       Common  Stock  Equivalents  in any  rolling  12 month  period  issued  to
       consultants,  vendors,  financial  institutions  or lessors in connection
       with  services  (including  the  provision  of  Permitted   Indebtedness)
       provided by such  Persons  referred to in this clause (d),  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,  and provided that none of
       such shares may be registered  for sale or resale by any of such holders;
       (e) securities issued as a dividend or distribution any of the Securities
       pursuant to the terms of the  Transaction  Documents  and (f)  securities
       issued  in   connection   with  any  stock  split,   stock   dividend  or
       recapitalization of the Common Stock.

              "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).

              "INITIAL CONVERSION PRICE" means $2.25.

              "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.

                                       3
<PAGE>

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

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

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

              "MIDSUMMER"  shall  have  the  meaning  ascribed  to such  term in
       Section 2.1(b).

              "PERMITTED  DAY" shall have the  meaning  ascribed to such term in
       Section 4.16.

              "PERMITTED SHARE POSITION" shall have the meaning ascribed to such
       term in Section 4.16.

              "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.

              "PREFERRED  STOCK" means the up to 10,000  shares of the Company's
       8% Series B  Convertible  Preferred  Stock  issued  hereunder  having the
       rights,  preferences  and  privileges  set  forth in the  Certificate  of
       Designation, in the form of EXHIBIT A hereto.

              "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.

              "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  Underlying  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).

              "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

                                       4
<PAGE>

       regulation  hereafter adopted by the Commission having  substantially the
       same effect as such Rule.

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

              "SECURITIES" means the Preferred Stock, the Warrants,  the Warrant
       Shares and the Underlying Shares.

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

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

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

              "SHAREHOLDER  APPROVAL"  means such approval as may be required by
       the applicable  rules and  regulations of the American Stock Exchange (or
       any successor  entity) from the  shareholders of the Company with respect
       to the transactions contemplated by the Transaction Documents,  including
       the issuance of all of the  Underlying  Shares in excess of 19.99% of the
       issued and outstanding Common Stock on the Closing Date.

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

              "STATED VALUE" means $1,000 per share of Preferred Stock.

              "SUBSCRIPTION  AMOUNT"  shall  mean,  as to  each  Purchaser,  the
       aggregate  amount to be paid for the Preferred Stock 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.

                                       5
<PAGE>

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

              "SUPPLEMENTAL  CLOSING"  shall have the  meaning  ascribed to such
       term in Section 2.1 (b).

              "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  Capital  Market,  the American Stock  Exchange,  the New York
       Stock Exchange or the Nasdaq National Market.

              "TRANSACTION  DOCUMENTS" means this Agreement,  the Certificate of
       Designation,  the Warrants,  the Voting  Agreements and the  Registration
       Rights Agreement.

              "UNDERLYING  SHARES"  means the shares of Common  Stock issued and
       issuable upon  conversion of the  Preferred  Stock,  upon exercise of the
       Warrants and issued and issuable in lieu of the cash payment of dividends
       on the Preferred Stock in accordance with the terms of the Certificate of
       Designation.

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

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

              "WARRANTS" means  collectively  Series A Warrants and the Series B
       Warrants.

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

                                       6
<PAGE>

                                   ARTICLE II
                                PURCHASE AND SALE

       2.1    CLOSING.  (a) On the Closing  Date,  upon the terms and subject to
the conditions set forth herein, substantially concurrent with the execution and
delivery of this  Agreement by the parties  hereto,  the Company agrees to sell,
and each  Purchaser  agrees to  purchase  in the  aggregate,  severally  and not
jointly,  up to  $10,000,000  of shares of  Preferred  Stock with an  aggregated
Stated  Value  equal to such  Purchaser's  Subscription  Amount and  Warrants as
determined by pursuant to Section 2.2(a), with a minimum aggregate  Subscription
Amount of  $5,000,000.  The aggregate  number of shares of Preferred  Stock sold
hereunder  shall be up to 10,000.  Each Purchaser  shall deliver to HSBC Bank as
escrow agent,  via wire transfer or a certified  check of immediately  available
funds equal to their  Subscription  Amount and the Company shall deliver to each
Purchaser their respective  shares of Preferred Stock 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 Sections 2.2
and 2.3, the Closing shall occur at the offices of FW, or such other location as
the parties shall mutually agree.

(b)    In the  event  that on the  Closing  Date,  the  Company  sells,  and the
Purchasers  purchase  in the  aggregate,  shares  of  Preferred  Stock  with  an
aggregate Stated Value of less than $10,000,000, the Company may, on or prior to
the second  Trading Day after the Closing  Date,  sell to Midsummer  Investment,
Ltd. (or its affiliate) (collectively,  "MIDSUMMER"), and Midsummer may purchase
(the "SUPPLEMENTAL CLOSING"), shares of Preferred Stock with an aggregate Stated
Value up to the amount by which  $10,000,000  exceeds the aggregate Stated Value
of the shares of Preferred  Stock sold on the Closing  Date;  PROVIDED  that the
price per share of Preferred Stock to be sold in the Supplemental  Closing shall
equal the  greater of $1,000 per share and (i) the sum of (x)  closing bid price
of the Common  Stock on the Trading Day  immediately  prior to the  Supplemental
Closing and (y) the amount by which $2.25  exceeded the closing bid price of the
Common Stock on the Trading Day immediately prior to the Closing Date multiplied
by (ii) $444.44  (representing $1,000 divided by (iii) $2.25). Upon consummation
of the Supplemental Closing,  Midsummer shall be deemed a "Purchaser" having the
same rights and obligations of all Purchasers that purchased shares of Preferred
Stock on the Closing Date.

       2.2    DELIVERIES.

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

                     (i)    this Agreement duly executed by the Company;

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

                     (iii)  a  certificate  evidencing  a number  of  shares  of
              Preferred  Stock  equal to such  Purchaser's  Subscription  Amount
              divided  by the  Stated  Value,  registered  in the  name  of such
              Purchaser;

                                       7
<PAGE>

                     (iv)   a Series A  Warrant  registered  in the name of such
              Purchaser  to  purchase  up to a number of shares of Common  Stock
              equal to 25% of such  Purchaser's  Subscription  Amount divided by
              the Initial  Conversion  Price,  with an  exercise  price equal to
              $2.75 per share, subject to adjustment therein;

                     (v)    a Series B  Warrant  registered  in the name of such
              Purchaser  to  purchase  up to a number of shares of Common  Stock
              equal to 25% of such  Purchaser's  Subscription  Amount divided by
              the Initial  Conversion  Price,  with an  exercise  price equal to
              $3.25 per share, subject to adjustment therein; and

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

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

                     (i)    this Agreement duly executed by such Purchaser;

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

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

       2.3    CLOSING CONDITIONS.

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

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

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

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

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

                     (i)    the accuracy in all material respects 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;

                                       8
<PAGE>

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

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

                     (v)    from the date hereof to the Closing Date, trading in
              the Common Stock shall not have been  suspended by the  Commission
              or  the  Company's   principal  Trading  Market  (except  for  any
              suspension  of  trading  of  limited  duration  agreed  to by  the
              Company,  which  suspension  shall  be  terminated  prior  to  the
              Closing),  and, at any time prior to the Closing Date,  trading in
              securities  generally as reported by Bloomberg  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 Preferred  Stock at
              the Closing.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

       3.1    REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the  corresponding  section of the disclosure  schedules  delivered to the
Purchasers  concurrently herewith (the "DISCLOSURE  SCHEDULES") which Disclosure
Schedules  shall be deemed a part  hereof and to qualify any  representation  or
warranty  otherwise  made herein to the extent of such  disclosure,  the Company
hereby  makes  the  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 all other references in the Transaction
       Documents to the Subsidiaries or any of them 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

                                       9
<PAGE>

       the Company and the  Subsidiaries  is duly qualified to conduct  business
       and is in good standing as a foreign  corporation or other entity in each
       jurisdiction  in which the nature of the  business  conducted or property
       owned by it makes such qualification necessary,  except where the failure
       to be so  qualified  or in good  standing,  as the case may be, could not
       have or reasonably be expected to result in (i) a material adverse effect
       on the legality,  validity or enforceability of any Transaction Document,
       (ii) a material  adverse  effect on the  results of  operations,  assets,
       business,  prospects or condition (financial or otherwise) of the Company
       and the  Subsidiaries,  taken as a whole,  or  (iii) a  material  adverse
       effect on the Company's  ability to perform in any material  respect on a
       timely basis its obligations under any Transaction  Document (any of (i),
       (ii) or (iii),  a "MATERIAL  ADVERSE  EFFECT") and no Proceeding has been
       instituted in any such jurisdiction  revoking,  limiting or curtailing or
       seeking  to  revoke,  limit  or  curtail  such  power  and  authority  or
       qualification.

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

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

                                       10
<PAGE>

       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.

              (e)    FILINGS,   CONSENTS  AND  APPROVALS.  The  Company  is  not
       required to obtain any consent,  waiver,  authorization or order of, give
       any  notice  to, or make any filing or  registration  with,  any court or
       other  federal,  state,  local or other  governmental  authority or other
       Person in connection with the execution,  delivery and performance by the
       Company of the  Transaction  Documents,  other than (i) filings  required
       pursuant  to Section  4.6,  (ii) the filing  with the  Commission  of the
       Registration  Statement,  (iii) the notice and/or  application(s) to each
       applicable Trading Market for the issuance and sale of the Securities and
       the listing of the Underlying  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 (v) Shareholder Approval (collectively, the "REQUIRED
       APPROVALS").

              (f)    ISSUANCE  OF  THE  SECURITIES.   The  Securities  are  duly
       authorized  and,  when  issued  and  paid  for  in  accordance  with  the
       applicable Transaction Documents,  will be duly and validly issued, fully
       paid and  nonassessable,  free  and  clear of all  Liens  imposed  by the
       Company  other  than   restrictions  on  transfer  provided  for  in  the
       Transaction  Documents.  The Underlying Shares, when issued in accordance
       with the terms of the  Transaction  Documents,  will be  validly  issued,
       fully paid and nonassessable,  free and clear of all Liens imposed by the
       Company.  The Company has reserved from its duly authorized capital stock
       a number of shares of Common Stock for issuance of the Underlying  Shares
       at least equal to the Actual 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 Common  Stock  Equivalents
       outstanding  as of the date of the most recently  filed  periodic  report
       under  the  Exchange  Act.  No  Person  has any  right of first  refusal,
       preemptive  right,  right  of  participation,  or any  similar  right  to
       participate  in  the   transactions   contemplated   by  the  Transaction
       Documents.  Except as a result of the purchase and sale of the Securities
       or as set forth on SCHEDULE  3.1(g),  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

                                       11
<PAGE>

       Purchasers)  and will not  result  in a right of any  holder  of  Company
       securities  to adjust the exercise,  conversion,  exchange or reset price
       under any of such  securities.  All of the outstanding  shares of capital
       stock of the Company are validly  issued,  fully paid and  nonassessable,
       have been issued in  compliance  with all  federal  and state  securities
       laws, and none of such outstanding  shares was issued in violation of any
       preemptive  rights  or  similar  rights  to  subscribe  for  or  purchase
       securities. No further approval or authorization of any stockholder,  the
       Board of  Directors of the Company or others is required for the issuance
       and sale of the Securities. There are no stockholders agreements,  voting
       agreements  or other  similar  agreements  with respect to the  Company's
       capital stock to which the Company is a party or, to the knowledge of the
       Company, between or among any of the Company's stockholders.

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

              (i)    MATERIAL  CHANGES;   UNDISCLOSED  EVENTS,   LIABILITIES  OR
       DEVELOPMENTS.  Since the date of the latest audited financial  statements
       included within the SEC Reports,  except as  specifically  disclosed in a
       subsequent  SEC  Report,  (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

                                       12
<PAGE>

       reflected  in the  Company's  financial  statements  pursuant  to GAAP or
       disclosed in filings made with the Commission,  (iii) the Company has not
       altered its method of  accounting,  (iv) the Company has not  declared or
       made  any  dividend  or  distribution  of cash or other  property  to its
       stockholders or purchased, redeemed or made any agreements to purchase or
       redeem any shares of its capital stock and (v) the Company has not issued
       any equity  securities  to any  officer,  director or  Affiliate,  except
       pursuant to existing  Company stock option plans.  Except as set forth on
       SCHEDULE 3.1(i),  the Company does not have pending before the Commission
       any request for  confidential  treatment of information.  SCHEDULE 3.1(i)
       shall set forth the dates of any requests for confidential  treatment and
       whether or not the Commission  has responded to such requests,  but shall
       not include the substance of any information subject to such confidential
       treatment   request(s).   Except  for  the  issuance  of  the  Securities
       contemplated  by this  Agreement or as set forth on SCHEDULE  3.1(i),  no
       event,  liability or  development  has occurred or exists with respect to
       the Company or its Subsidiaries or their respective business, properties,
       operations or financial condition, that would be required to be disclosed
       by  the  Company  under  applicable  securities  laws  at the  time  this
       representation  is made that has not been  publicly  disclosed at least 1
       Trading Day prior to the date that this representation is made.

              (j)    LITIGATION.  Except as set forth on Schedule 3.1(j),  there
       is  no  action,  suit,  inquiry,  notice  of  violation,   proceeding  or
       investigation  pending or, to the  knowledge of the  Company,  threatened
       against  or  affecting  the  Company,  any  Subsidiary  or any  of  their
       respective properties before or by any court, arbitrator, governmental or
       administrative  agency or regulatory  authority (federal,  state, county,
       local or foreign) (collectively, an "Action") which (i) adversely affects
       or challenges  the  legality,  validity or  enforceability  of any of the
       Transaction  Documents or the Securities or (ii) could,  if there were an
       unfavorable  decision,  have or  reasonably  be  expected  to result in a
       Material Adverse Effect. Neither the Company nor any Subsidiary,  nor any
       director  or officer  thereof,  is or has been the  subject of any Action
       involving a claim of  violation of or  liability  under  federal or state
       securities  laws or a claim of breach of  fiduciary  duty.  There has not
       been,  and to the  knowledge  of the  Company,  there is not  pending  or
       contemplated,  any investigation by the Commission  involving the Company
       or any  current  or  former  director  or  officer  of the  Company.  The
       Commission  has not issued any stop order or other order  suspending  the
       effectiveness of any  registration  statement filed by the Company or any
       Subsidiary under the Exchange Act or the Securities Act.

              (k)    LABOR  RELATIONS.  No material  labor dispute exists or, to
       the  knowledge  of the  Company,  is imminent  with respect to any of the
       employees of the Company which could  reasonably be expected to result in
       a Material  Adverse  Effect.  None of the Company's or its  Subsidiaries'
       employees  is a  member  of a  union  that  relates  to  such  employee's
       relationship  with the  Company,  and  neither  the Company or any of its
       Subsidiaries  is a party to a collective  bargaining  agreement,  and the
       Company and its Subsidiaries  believe that their relationships with their
       employees  are  good.  No  executive  officer,  to the  knowledge  of the
       Company,  is, or is now expected to be, in violation of any material term
       of any employment  contract,  confidentiality,  disclosure or proprietary
       information agreement or non-competition agreement, or any other contract
       or agreement or any restrictive covenant, and the continued employment of
       each such  executive  officer

                                       13
<PAGE>

       does not subject the Company or any of its  Subsidiaries to any liability
       with  respect  to any of the  foregoing  matters.  The  Company  and  its
       Subsidiaries are in compliance with all U.S.  federal,  state,  local and
       foreign  laws and  regulations  relating  to  employment  and  employment
       practices, terms and conditions of employment and wages and hours, except
       where the failure to be in compliance  could not,  individually or in the
       aggregate, reasonably be expected to have a Material Adverse Effect.

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

              (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.  Except as set forth on  SCHEDULE  3.1(n),
       the Company and the  Subsidiaries  have good and marketable  title in fee
       simple  to all  real  property  owned  by them  that is  material  to the
       business  of the  Company and the  Subsidiaries  and good and  marketable
       title in all  personal  property  owned by them that is  material  to the
       business of the Company and the Subsidiaries, in each case free and clear
       of all Liens,  except for Liens as do not materially  affect the value of
       such  property  and do not  materially  interfere  with  the use made and
       proposed to be made of such property by the Company and the  Subsidiaries
       and Liens for the payment of federal,  state or other taxes,  the payment
       of which  is  neither  delinquent  nor  subject  to  penalties.  Any real
       property  and  facilities  held  under  lease  by  the  Company  and  the
       Subsidiaries  are held by them under valid,  subsisting  and  enforceable
       leases with which the Company and the Subsidiaries are in compliance.

              (o)    PATENTS AND  TRADEMARKS.  The Company and the  Subsidiaries
       have,  or  have  rights  to  use,  all  patents,   patent   applications,
       trademarks,  trademark  applications,  service marks,  trade names, trade
       secrets, inventions, copyrights, licenses and other intellectual property
       rights and similar  rights  necessary or material  for use in  connection
       with their  respective  businesses  as  described  in the SEC Reports and
       which  the  failure  to so have

                                       14
<PAGE>

       could have a Material  Adverse Effect  (collectively,  the  "INTELLECTUAL
       PROPERTY RIGHTS").  Neither the Company nor any Subsidiary has received a
       notice (written or otherwise) that the Intellectual  Property Rights used
       by the Company or any Subsidiary violates or infringes upon the rights of
       any  Person.  To the  knowledge  of the  Company,  all such  Intellectual
       Property Rights are enforceable and there is no existing  infringement by
       another Person of any of the Intellectual  Property  Rights.  The Company
       and its Subsidiaries  have taken reasonable  security measures to protect
       the  secrecy,  confidentiality  and  value of all of  their  intellectual
       properties,  except where failure to do so could not,  individually or in
       the aggregate, reasonably be expected to have a Material Adverse Effect.

              (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 as set forth in
       SCHEDULE 3.1(p). 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.

              (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

                                       15
<PAGE>

       disclosure controls and procedures to ensure that information required to
       be disclosed by the Company in the reports it files or submits  under the
       Exchange Act is recorded, processed,  summarized and reported, within the
       time periods specified in the Commission's rules and forms. The Company's
       certifying  officers have  evaluated the  effectiveness  of the Company's
       disclosure controls and procedures as of the end of the period covered by
       the Company's most recently filed periodic  report under the Exchange Act
       (such date, the  "EVALUATION  DATE").  The Company  presented in its most
       recently filed periodic  report under the Exchange Act the conclusions of
       the  certifying  officers  about  the  effectiveness  of  the  disclosure
       controls and procedures  based on their  evaluations as of the Evaluation
       Date.  Since the  Evaluation  Date,  there  have been no  changes  in the
       Company's  internal  control over  financial  reporting  (as such term is
       defined  in  the  Exchange  Act)  that  has  materially  affected,  or is
       reasonably likely to materially  affect,  the Company's  internal control
       over financial reporting.

              (s)    CERTAIN FEES.  Except as set forth on SCHEDULE  3.1(s),  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.

              (v)    REGISTRATION  RIGHTS.  Except  as  set  forth  on  SCHEDULE
       3.1(v),  other  than each of the  Purchasers,  no Person has any right to
       cause the Company to effect the registration  under the Securities Act of
       any securities of the Company.

              (w)    LISTING AND MAINTENANCE REQUIREMENTS.  The Company's Common
       Stock is  registered  pursuant to Section  12(b) or 12(g) of the Exchange
       Act,  and the  Company has taken no action  designed  to, or which to its
       knowledge is likely to have the effect of,  terminating the  registration
       of the Common Stock under the  Exchange Act nor has the Company  received
       any notification  that the Commission is  contemplating  terminating such
       registration. Except as set forth on SCHEDULE 3.1(w), (a) the Company has
       not, in the 12 months preceding the date hereof, received notice from any
       Trading  Market on which

                                       16
<PAGE>

       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  and (b) 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.  Except with respect to the material  terms and
       conditions of the transactions contemplated by the Transaction Documents,
       the Company  confirms  that neither it nor any other Person acting on its
       behalf has provided any of the Purchasers or their agents or counsel with
       any  information  that  it  believes   constitutes  or  might  constitute
       material,  nonpublic  information.  The Company  understands and confirms
       that  the  Purchasers  will  rely  on  the  foregoing  representation  in
       effecting   transactions  in  securities  of  the  Company.  All  written
       disclosure  furnished  by or on behalf of the  Company to the  Purchasers
       regarding  the Company,  its business and the  transactions  contemplated
       hereby,  including  the  Disclosure  Schedules  to this  Agreement,  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 of any
       Trading  Market on which any of the  securities of the Company are listed
       or designated.

              (aa)   SOLVENCY.  Based on the financial  condition of the Company
       as of the Closing Date after giving  effect to the receipt by the Company
       of the proceeds from the sale of the Securities  hereunder,  (i) the fair
       saleable  value of the Company's  assets  exceeds the amount that will be
       required to be paid on or in respect of the Company's  existing debts and
       other  liabilities  (including  known  contingent  liabilities)  as  they
       mature;

                                       17
<PAGE>

       (ii) the Company's assets do not constitute unreasonably small capital to
       carry on its  business as now  conducted  and as proposed to be conducted
       including  its capital needs taking into account the  particular  capital
       requirements  of the business  conducted by the  Company,  and  projected
       capital  requirements  and capital  availability  thereof;  and (iii) the
       current cash flow of the Company,  together with the proceeds the Company
       would receive,  were it to liquidate all of its assets, after taking into
       account all anticipated  uses of the cash, would be sufficient to pay all
       amounts  on or in  respect  of its  liabilities  when  such  amounts  are
       required to be paid.  The Company  does not intend to incur debts  beyond
       its ability to pay such debts as they  mature  (taking  into  account the
       timing  and  amounts of cash to be payable on or in respect of its debt).
       The Company has no knowledge of any facts or circumstances  which lead it
       to believe that it will file for  reorganization or liquidation under the
       bankruptcy or  reorganization  laws of any  jurisdiction  within one year
       from the  Closing  Date.  SCHEDULE  3.1(aa)  sets  forth as of the  dates
       thereof all outstanding secured and unsecured Indebtedness of the Company
       or any  Subsidiary,  or for  which  the  Company  or any  Subsidiary  has
       commitments.  For the purposes of this  Agreement,  "INDEBTEDNESS"  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.

              (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

                                       18
<PAGE>

       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(ee) of the  Disclosure  Schedule.  To the  knowledge of the
       Company,  such  accountants,  who the Company  expects will express their
       opinion with respect to the  financial  statements  to be included in the
       Company's  Annual  Report on Form 10-K for the year ending March 31, 2006
       are a registered  public  accounting  firm as required by the  Securities
       Act.

              (ff)   SENIORITY.  Except as set forth on SCHEDULE 3.1(ff),  as of
       the  Closing  Date,  no  Indebtedness  or other  equity of the Company is
       senior to the Preferred  Stock in right of payment,  whether with respect
       to interest or upon liquidation or dissolution,  or otherwise, other than
       indebtedness  secured by  purchase  money  security  interests  (which is
       senior only as to underlying  assets  covered  thereby) and capital lease
       obligations (which is senior only as to the property covered thereby).

              (gg)   NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
       disagreements of any kind presently existing,  or reasonably  anticipated
       by the Company to arise,  between the  Company  and the  accountants  and
       lawyers  formerly or presently  employed by the Company and except as set
       forth on SCHEDULE  3.1(gg),  the Company is current  with  respect to any
       fees owed to its accountants and lawyers.

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

              (ii)   ACKNOWLEDGEMENT  REGARDING  PURCHASERS'  TRADING  ACTIVITY.
       Anything  in  this   Agreement  or  elsewhere   herein  to  the  contrary
       notwithstanding  (except  for  Sections  3.2(f) and 4.16  hereof),  it is
       understood  and  acknowledged  by  the  Company  (i)  that  none  of  the
       Purchasers  have been asked to agree,  nor has any Purchaser  agreed,  to
       desist from purchasing or selling,  long and/or short,  securities of the
       Company,  or "derivative"  securities  based on securities  issued by the
       Company or to hold the Securities for any specified  term; (ii) that past
       or future open market or other  transactions by any Purchaser,  including
       Short Sales, and specifically including,  without limitation, Short Sales
       or  "derivative"  transactions,  before or after the  closing  of this or
       future private placement

                                       19
<PAGE>

       transactions,  may  negatively  impact the market price of the  Company's
       publicly-traded securities; (iii) that any Purchaser, and counter-parties
       in  "derivative"  transactions  to which any such  Purchaser  is a party,
       directly  or  indirectly,  presently  may have a "short"  position in the
       Common Stock,  and (iv) that each  Purchaser  shall not be deemed to have
       any affiliation  with or control over any arm's length  counter-party  in
       any  "derivative"  transaction.   The  Company  further  understands  and
       acknowledges  that  (a) one or more  Purchasers  may  engage  in  hedging
       activities  at various  times during the period that the  Securities  are
       outstanding,  including, without limitation,  during the periods that the
       value of the Underlying 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,  or (iii) paid or agreed to pay to any person any
       compensation  for soliciting  another to purchase any other securities of
       the Company,  other than,  in the case of each of clauses (ii) and (iii),
       compensation paid to the Company's placement agent in connection with the
       placement of the Securities.

              (kk)   FORM S-3  ELIGIBILITY.  The Company is eligible to register
       the resale of the  Underlying  Shares for resale by the Purchaser on Form
       S-3 promulgated under the Securities Act.

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

              (a)    ORGANIZATION;  AUTHORITY.  Such Purchaser, if an entity, is
       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. Such Purchaser, if an
       individual, has legal capacity and authority to enter into and consummate
       the transactions  contemplated by the Transaction Documents and otherwise
       to  carry  out  his or her  obligations  hereunder  and  thereunder.  The
       execution, delivery and performance by such Purchaser of the transactions
       contemplated by this Agreement have been duly authorized by all necessary
       corporate  or  similar  action  on  the  part  of  such  Purchaser.  Each
       Transaction  Document  to which it is a party has been duly  executed  by
       such  Purchaser,  and when delivered by such Purchaser in accordance with
       the  terms  hereof,   will  constitute  the  valid  and  legally  binding
       obligation of such Purchaser,  enforceable  against it in accordance with
       its terms,  except (i) as limited  by general  equitable  principles  and

                                       20
<PAGE>

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

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

              (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  converts  any  shares  of  Preferred  Stock or  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. Such Purchaser is not required to be registered
       as a broker-dealer under Section 15 of the Exchange Act.

              (d)    EXPERIENCE OF SUCH PURCHASER. Such Purchaser,  either alone
       or together with its representatives,  has such knowledge, sophistication
       and  experience in business and financial  matters so as to be capable of
       evaluating  the merits  and risks of the  prospective  investment  in the
       Securities, and has so evaluated the merits and risks of such investment.
       Such  Purchaser is able to bear the economic risk of an investment in the
       Securities and, at the present time, is able to afford a complete loss of
       such  investment.  Such  Purchaser has been given the  opportunity to ask
       questions of, and receive answers from, the Company  concerning the terms
       and  conditions  of  the  offer  of  the  Securities  and  other  matters
       pertaining to 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

                                       21
<PAGE>

       any Person acting on behalf of or pursuant to any understanding with such
       Purchaser,  executed  any  disposition,  including  Short  Sales,  in the
       securities of the Company during the period commencing from the time that
       such  Purchaser  first  received a term sheet  (written or oral) from the
       Company  or any other  Person  setting  forth the  material  terms of the
       transactions  contemplated  hereunder until the date hereof  ("DISCUSSION
       TIME"). Notwithstanding the foregoing, in the case of a Purchaser that is
       a multi-managed  investment  vehicle whereby separate  portfolio managers
       manage  separate  portions of such  Purchaser's  assets and the portfolio
       managers have no direct knowledge of the investment decisions made by the
       portfolio  managers  managing other portions of such Purchaser's  assets,
       the  representation  set forth above shall only apply with respect to the
       portion  of  assets  managed  by the  portfolio  manager  that  made  the
       investment decision to purchase the Securities covered by this Agreement.
       Other than to other Persons party to this  Agreement,  such Purchaser has
       maintained  the   confidentiality  of  all  disclosures  made  to  it  in
       connection  with this  transaction  (including the existence and terms of
       this transaction).

              (g)    MANIPULATION OF PRICE PRIOR TO CLOSING.  Such Purchaser 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
       manipulation  of the price of any  security of the Company at or prior to
       the Closing Date, (ii) sold, bid for, purchased, or paid any compensation
       for soliciting  purchases of, any security of the Company,  or (iii) paid
       or agreed to pay to any Person any compensation for soliciting another to
       purchase any securities of the Company.

                                   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:

              [NEITHER]  THESE  SECURITIES  [NOR THE SECURITIES INTO WHICH THESE
              SECURITIES ARE [EXERCISABLE]  [CONVERTIBLE]]  HAVE

                                       22
<PAGE>

              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.  THESE  SECURITIES  AND THE
              SECURITIES   ISSUABLE  UPON   [EXERCISE]   [CONVERSION]  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  the  Underlying  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  Underlying  Shares
       pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for
       sale under Rule  144(k),  or (iv) if such  legend is not  required  under
       applicable   requirements  of  the  Securities  Act  (including  judicial
       interpretations   and   pronouncements   issued   by  the  staff  of  the
       Commission). The Company shall cause its counsel to issue a legal opinion
       to the 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 shares of Preferred Stock or any portion
       of a Warrant is  converted or exercised  (as  applicable)  at a

                                       23
<PAGE>

       time  when  there is an  effective  registration  statement  to cover the
       resale of the Underlying Shares, or if such Underlying Shares may be sold
       under  Rule  144(k) or if such  legend is not  otherwise  required  under
       applicable   requirements  of  the  Securities  Act  (including  judicial
       interpretations and pronouncements issued by the staff of the Commission)
       then such  Underlying  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
       Underlying Shares, as applicable,  issued with a restrictive legend (such
       third  Trading Day, the "LEGEND  REMOVAL  DATE"),  deliver or cause to be
       delivered to such Purchaser a certificate  representing  such shares that
       is free from all restrictive and other legends.  The Company may not make
       any notation on its records or give instructions to any transfer agent of
       the Company that enlarge the  restrictions  on transfer set forth in this
       Section.  Certificates  for  Underlying  Shares 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 Underlying 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 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  commencing 3 Trading Days after the Legend
       Removal  Date  until  such  certificate  is  delivered  without a legend.
       Nothing  herein  shall  limit  such  Purchaser's  right to pursue  actual
       damages for the Company's  failure to deliver  certificates  representing
       any  Securities  as  required  by the  Transaction  Documents,  and  such
       Purchaser shall have the right to pursue all remedies  available to it at
       law or in equity  including,  without  limitation,  a decree of  specific
       performance and/or injunctive relief.

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

       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 Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not  subject  to any  right  of  set  off,  counterclaim,  delay  or  reduction,
regardless  of the effect of any such dilution or any claim the Company may have
against any Purchaser and  regardless of

                                       24
<PAGE>

the dilutive  effect that such  issuance may have on the  ownership of the other
stockholders of the Company.

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

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

       4.5    CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the  Warrants and the form of Notice of  Conversion  included in the
Certificate of Designation set forth the totality of the procedures  required of
the Purchasers in order to exercise the Warrants or convert the Preferred Stock.
No  additional  legal  opinion or other  information  or  instructions  shall be
required of the Purchasers to exercise their Warrants or convert their Preferred
Stock.  The Company shall honor exercises of the Warrants and conversions of the
Preferred  Stock and shall  deliver  Underlying  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  immediately  following  the date hereof,
issue  a  press  release  describing  the  material  terms  of the  transactions
contemplated  hereby,  and, by 8:30 a.m.  Eastern time on the second Trading Day
following the date hereof, a Current Report on Form 8-K, 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 or delayed,
except if such disclosure is required by law, in which case the disclosing party
shall  promptly  provide  the other  party  with  prior  notice  of such  public
statement or communication. Notwithstanding the foregoing, the Company shall not
publicly  disclose  the  name  of any  Purchaser,  or  include  the  name of any
Purchaser in any filing with the Commission or any regulatory  agency or Trading

                                       25
<PAGE>

Market,  without  the prior  written  consent of such  Purchaser,  except (i) as
required  by federal  securities  law in  connection  with (A) any  registration
statement  contemplated by the Registration  Rights Agreement and (B) the filing
of final  Transaction  Documents  (including  signature  pages thereto) with the
Commission and (ii) to the extent such  disclosure is required by law or Trading
Market regulations,  in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under this subclause (ii).

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

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

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

       4.10   [Intentionally Omitted].

       4.11   INDEMNIFICATION  OF PURCHASERS.  Subject to the provisions of this
Section  4.11,  the  Company  will  indemnify  and hold each  Purchaser  and its
directors, officers, shareholders,  members, partners, employees and agents (and
any other Persons with a functionally  equivalent  role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser  (within the meaning of Section 15 of the Securities Act
and  Section 20 of the  Exchange  Act),  and the  directors,  officers,  agents,
members,  shareholders,  partners or  employees  (and any other  Persons  with a
functionally  equivalent role of a Person holding such titles  notwithstanding a
lack of such title or any other  title) of such  controlling  persons  (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

                                       26
<PAGE>

them or their  respective  Affiliates,  by any stockholder of the Company who is
not an Affiliate  of such  Purchaser,  with  respect to any of the  transactions
contemplated  by the Transaction  Documents  (unless such action is based upon a
breach of such  Purchaser's  representations,  warranties or covenants under the
Transaction  Documents or any  agreements or  understandings  such Purchaser may
have with any such  stockholder  or any  violations by the Purchaser of state or
federal  securities  laws or any  conduct by such  Purchaser  which  constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action shall
be brought  against any  Purchaser  Party in respect of which  indemnity  may be
sought  pursuant to this  Agreement,  such Purchaser Party shall promptly notify
the  Company  in  writing,  and the  Company  shall have the right to assume the
defense  thereof with counsel of its own choosing  reasonably  acceptable to the
Purchaser  Party.  Any Purchaser  Party shall have the right to employ  separate
counsel in any such action and participate in the defense thereof,  but the fees
and expenses of such  counsel  shall be at the expense of such  Purchaser  Party
except to the  extent  that (i) the  employment  thereof  has been  specifically
authorized  by the  Company in  writing,  (ii) the  Company  has failed  after a
reasonable  period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable  opinion of such separate counsel,  a
material  conflict on any material issue between the position of the Company and
the  position  of such  Purchaser  Party,  in which  case the  Company  shall be
responsible  for the  reasonable  fees  and  expenses  of no  more  than on such
separate  counsel.  The Company will not be liable to any Purchaser  Party under
this Agreement (i) for any settlement by a Purchaser Party effected  without the
Company's prior written  consent,  which shall not be  unreasonably  withheld or
delayed;  or (ii) to the  extent,  but only to the  extent  that a loss,  claim,
damage or liability is  attributable  to any Purchaser  Party's breach of any of
the representations,  warranties, covenants or agreements made by such Purchaser
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 110% of (i) the
       Actual  Minimum on such  date,  minus (ii) the number of shares of Common
       Stock previously issued pursuant to the Transaction  Documents,  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 Actual  Minimum at such time  (minus the number of shares
       of Common Stock previously issued pursuant to the Transaction Documents),
       as soon as  possible  and in any event not later  than the 75th day after
       such date;  provided that the Company will not be required at any time to
       authorize  a number of shares of Common  Stock  greater  than the maximum
       remaining  number of shares of Common Stock that could possibly be issued
       after such time pursuant to the Transaction Documents.

              (c)    The  Company  shall,  if  applicable:  (i) in the  time and
       manner required by the principal  Trading  Market,  prepare and file with
       such Trading Market an additional

                                       27
<PAGE>

       shares listing application covering a number of shares of Common Stock at
       least equal to the Actual Minimum on the date of such  application,  (ii)
       take all steps  necessary  to cause  such  shares  of Common  Stock to be
       approved  for  listing  on  such  Trading  Market  as  soon  as  possible
       thereafter, (iii) provide to the Purchasers evidence of such listing, and
       (iv) maintain the listing of such Common Stock on any date at least equal
       to the  Actual  Minimum  on such date on such  Trading  Market or another
       Trading Market. In addition,  the Company shall hold a special meeting of
       shareholders (which may also be at the annual meeting of shareholders) on
       or  before  June  30,  2006  for the  purpose  of  obtaining  Shareholder
       Approval,  with the  recommendation  of the Company's  Board of Directors
       that such proposal be approved,  and the Company  shall  solicit  proxies
       from its  shareholders in connection  therewith in the same manner as all
       other   management   proposals   in   such   proxy   statement   and  all
       management-appointed  proxyholders  shall vote their  proxies in favor of
       such proposal. If the Company does not obtain Shareholder Approval at the
       first  meeting,  the  Company  shall  call a meeting  every  four  months
       thereafter  to seek  Shareholder  Approval  until the earlier of the date
       Shareholder  Approval  is obtained  or the  Preferred  Stock is no longer
       outstanding.

       4.13   PARTICIPATION IN FUTURE FINANCING.

              (a)    From the date  hereof  until  the date  that the  Preferred
       Stock is no longer  outstanding,  upon any issuance by the Company or any
       of its  Subsidiaries  of Common  Stock or  Common  Stock  Equivalents  (a
       "SUBSEQUENT FINANCING"),  each Purchaser shall have the right to purchase
       its pro rata share of the Common Stock or Common Stock Equivalents on the
       same  terms,   conditions  and  price  provided  for  in  the  Subsequent
       Financing.  Each  Purchaser's pro rata share is equal to the ratio of (a)
       the number of shares of the Company's  Common Stock (including all shares
       of Common  Stock  issued or issuable  upon  conversion  of the  Preferred
       Stock) which such  Purchaser is deemed to hold  immediately  prior to the
       issuance  of such Common  Stock or Common  Stock  Equivalents  to (b) the
       total  number  of  shares  of  the  Company's  outstanding  Common  Stock
       (including all shares of Common Stock issued or issuable upon  conversion
       of the Preferred Stock)  immediately  prior to the issuance of the Common
       Stock or Common Stock Equivalents.

              (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 2 Trading  Days  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 or Persons through or with
       whom such Subsequent  Financing is proposed to be effected,  and attached
       to which shall be a term sheet or similar document relating thereto.

                                       28
<PAGE>

              (c)    Any Purchaser  desiring to participate  in such  Subsequent
       Financing  must provide  written  notice to the Company by not later than
       5:30 p.m.  (New York City time) on the 5th  Trading  Day after all of the
       Purchasers  have received the Pre-Notice that the Purchaser is willing to
       purchase  its  pro  rata  share  of the  Common  Stock  or  Common  Stock
       Equivalents for the price and upon the terms and conditions  specified in
       the Subsequent  Financing Notice and stating the quantity of Common Stock
       or Common Stock  Equivalents to be purchased,  and that the Purchaser has
       such funds ready,  willing,  and available for  investment.  Such written
       notice to the Company shall be a binding  obligation of such Purchaser to
       participate in such Subsequent Financing upon terms substantially similar
       to those 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)    The  Company  may  effect  the  remaining  portion  of such
       Subsequent  Financing  on the terms and with the Persons set forth in the
       Subsequent Financing Notice.

              (e)    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.

              (f)    Notwithstanding the foregoing,  this Section 4.13 shall not
       apply in respect of an Exempt Issuance.

       4.14   SUBSEQUENT EQUITY SALES.

              (a)    From the date  hereof  until 180 days  after the  Effective
       Date, neither the Company nor any Subsidiary shall issue shares of Common
       Stock or Common Stock Equivalents;  provided, however, the 180 day period
       set  forth in this  Section  4.14  shall be  extended  for the  number of
       Trading  Days during such period in which (i) trading in the Common Stock
       is suspended by any Trading Market, or (ii) following the Effective Date,
       the Registration Statement is not effective or the prospectus included in
       the  Registration  Statement  may not be used by the  Purchasers  for the
       resale of the Underlying Shares.

              (b)    From the date hereof until such time as no Purchaser  holds
       any of the Securities,  the Company shall be prohibited from effecting or
       entering into an agreement to effect any Subsequent Financing involving a
       "Variable Rate  Transaction".  The term "VARIABLE RATE TRANSACTION" shall
       mean a transaction  in which the Company  issues or sells (i) any debt or
       equity securities that are convertible into,  exchangeable or exercisable
       for, or include the right to receive  additional  shares of Common  Stock
       either (A) at a conversion, exercise or exchange rate or other price that
       is based upon and/or varies with the trading  prices of or quotations for
       the shares of Common Stock at any

                                       29
<PAGE>

       time after the initial issuance of such debt or equity securities, or (B)
       with a  conversion,  exercise or exchange  price that is subject to being
       reset at some  future  date after the  initial  issuance  of such debt or
       equity security or upon the occurrence of specified or contingent  events
       directly  or  indirectly  related to the  business  of the Company or the
       market for the Common Stock or (ii) enters into any agreement, including,
       but not  limited  to, an equity  line of credit,  whereby the Company may
       sell  securities  at  a  future  determined  price,  provided,  that  any
       transaction  involving a Common  Stock  Equivalent  shall not be deemed a
       "Variable  Rate  Transaction"  solely  as a result  of any  anti-dilution
       adjustment provisions.

              (c)    Unless  Shareholder  Approval has been  obtained and deemed
       effective, neither the Company nor any Subsidiary shall make any issuance
       whatsoever  of Common Stock or Common Stock  Equivalents  at an effective
       price per share less than $2.15 (other than any Exempt Issuance)  subject
       to  adjustment  for reverse and forward stock  splits,  stock  dividends,
       stock  combinations  and other similar  transactions  of the Common Stock
       that  occur  after the date of this  Agreement.  Any  Purchaser  shall be
       entitled to obtain  injunctive relief against the Company to preclude any
       such issuance,  which remedy shall be in addition to any right to collect
       damages.

              (d)    Notwithstanding the foregoing,  this Section 4.14 shall not
       apply in respect of an Exempt  Issuance,  except  that no  Variable  Rate
       Transaction shall be an Exempt Issuance.

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

       4.16  SHORT  SALES  AND  CONFIDENTIALITY  AFTER  THE  DATE  HEREOF.  Each
Purchaser  severally and not jointly with the other  Purchasers  covenants  that
neither  it  nor  any  Affiliate  acting  on  its  behalf  or  pursuant  to  any
understanding  with it will execute any Short Sales during the period commencing
at the Discussion Time and ending on the public announcement of the transactions
contemplated  hereby in accordance with Section 4.6. Each  Purchaser,  severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions  contemplated  by this  Agreement  are  publicly  disclosed  by the
Company  as  described  in  Section  4.6,  such   Purchaser  will  maintain  the
confidentiality   of  all  disclosures  made  to  it  in  connection  with  this
transaction  (including  the  existence  and  terms of this  transaction).  Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser,  that the  Commission  currently  takes the position that coverage of
short  sales of  shares  of the  Common  Stock  "against  the box"  prior to the
Effective Date of the Registration  Statement with the Securities is a violation
of

                                       30
<PAGE>

Section 5 of the  Securities  Act,  as set forth in Item 65,  Section  A, of the
Manual  of  Publicly  Available  Telephone  Interpretations,  dated  July  1997,
compiled  by the  Office of Chief  Counsel,  Division  of  Corporation  Finance.
Notwithstanding the foregoing,  no Purchaser makes any representation,  warranty
or covenant  hereby that it will not engage in Short Sales in the  securities of
the Company after the time that the transactions  contemplated by this Agreement
are first publicly announced as described in Section 4.6 except that, so long as
a Purchaser  continues to hold any Preferred Stock, such Purchaser severally and
not  jointly  with the  other  Purchasers,  covenants  that  neither  it nor any
Affiliate acting on its behalf or pursuant to any  understanding  with it, shall
knowingly  engage in any Short  Sales,  except on those days (each a  "PERMITTED
DAY") on which the aggregate  short position with respect to the Common Stock of
such  Purchaser  prior to giving effect to any Short Sales by such  Purchaser on
such Permitted Day does not exceed such Purchaser's Permitted Share Position (as
defined below) on such Permitted Day; provided,  however,  that a Purchaser will
only be  entitled to engage in  transactions  that  constitute  Short Sales on a
Permitted Day to the extent that following such transaction, the aggregate short
position with respect to the Common Stock of such Purchaser does not exceed such
Purchaser's  Permitted  Share  Position.  For purposes of this  Section  4.16, a
Purchaser's  "PERMITTED  SHARE  POSITION"  means,  with  respect  to any date of
determination,  the  number of shares of Common  Stock  owned by such  Purchaser
(including  Conversion  Shares,  Warrant Shares and shares purchased in the open
market or otherwise) plus the sum of (i) the maximum number of Conversion Shares
then issuable (including as to portions of the Preferred Stock not yet converted
and  without  regard  to  any  exercise  caps  or  other  exercise  restrictions
applicable to the Preferred Stock) to such Purchaser and (ii) the maximum number
of Warrants  Shares then issuable  (including as to portions of the Warrants not
yet  exercised  and  without  regard  to any  exercise  caps or  other  exercise
restrictions applicable to the Warrants) to such Purchaser.  Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the  portfolio  managers have no direct  knowledge of the  investment
decisions  made  by the  portfolio  managers  managing  other  portions  of such
Purchaser's  assets,  the covenant set forth above shall only apply with respect
to the  portion  of  assets  managed  by the  portfolio  manager  that  made the
investment decision to purchase the Securities covered by this Agreement.

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

       4.18   CAPITAL  CHANGE.  Until the one year  anniversary of the Effective
Date,  the  Company  shall not  undertake  a reverse or forward  stock  split or
reclassification of the Common Stock.

                                       31
<PAGE>

                                    ARTICLE V
                                  MISCELLANEOUS

       5.1    TERMINATION. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the  obligations  between the Company  and the other  Purchasers,  by written
notice to the other  parties,  if the  Closing  has not been  consummated  on or
before March 17, 2006; provided,  however,  that no such termination will affect
the right of any party to sue for any breach by the other party (or parties).

       5.2    FEES AND  EXPENSES.  At the  Closing,  the  Company  has agreed to
reimburse Bushido Capital Master Fund L.P.  ("Bushido") the  non-accountable sum
of $50,000,  for its legal fees and expenses,  none which has been paid prior to
the Closing.  Accordingly,  in lieu of the  foregoing  payments,  the  aggregate
amount that Bushido is to pay for the Securities at the Closing shall be reduced
by $50,000 in lieu  thereof.  Except as expressly  set forth in the  Transaction
Documents  to the  contrary,  each party shall pay the fees and  expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party  incident  to the  negotiation,  preparation,  execution,
delivery and performance of this  Agreement.  The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

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

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

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

                                       32
<PAGE>

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

       5.7    SUCCESSORS AND ASSIGNS.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their successors and permitted  assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger).  Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities in the minimum Stated
Value of $500,000,  provided such transferee agrees in writing to be bound, with
respect to the  transferred  Securities,  by the  provisions of the  Transaction
Documents that apply to the "Purchasers"  (provided,  however, a Purchaser shall
not knowingly  (without  independent  investigation or  verification)  assign or
transfer  any of its  Preferred  Stock or  Warrants to an entity  whose  primary
business  operations  are  in  direct  competition  with  the  primary  business
operations of the Company, without the prior written consent of the Company).

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

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

                                       33
<PAGE>

       5.10   SURVIVAL.  The  representations,  warranties,  covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities,  as applicable for the applicable statue of
limitations.

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

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

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

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

       5.15   REMEDIES.  In  addition to being  entitled to exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Purchasers  and the Company will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that

                                       34
<PAGE>

monetary  damages  may not be  adequate  compensation  for any loss  incurred by
reason of any breach of obligations described and hereby agrees to waive and not
to assert in any action for  specific  performance  of any such  obligation  the
defense that a remedy at law would be adequate.

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

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

       5.18   INDEPENDENT  NATURE OF  PURCHASERS'  OBLIGATIONS  AND RIGHTS.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations of any other  Purchaser,  and no Purchaser  shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document.  Nothing contained herein
or in any  other  Transaction  Document,  and no action  taken by any  Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an  association,  a joint  venture  or any  other  kind of  entity,  or create a
presumption  that the  Purchasers are in any way acting in concert or as a group
with  respect  to  such  obligations  or the  transactions  contemplated  by the
Transaction Documents. Each Purchaser shall be entitled to

                                       35
<PAGE>

independently protect and enforce its rights, including without limitation,  the
rights arising out of this Agreement or out of the other Transaction  Documents,
and it shall  not be  necessary  for any  other  Purchaser  to be  joined  as an
additional  party in any  proceeding  for such purpose.  Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation of
the  Transaction  Documents.  For reasons of  administrative  convenience  only,
Purchasers  and their  respective  counsel have chosen to  communicate  with the
Company  through  FW.  FW does  not  represent  all of the  Purchasers  but only
Bushido.  The Company has elected to provide all Purchasers  with the same terms
and Transaction  Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.

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

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

                            [SIGNATURE PAGE FOLLOWS]

                                       36
<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.

ELITE PHARMACEUTICALS, INC.                   ADDRESS FOR NOTICE:
                                              -------------------

By:                                           Elite Pharmaceuticals, Inc.
   ------------------------------------       165 Ludlow Avenue
     Name: Bernard J. Berk                    Northvale, New Jersey 07647
     Title: Chief Executive Officer           Attention: Chief Executive Officer

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

Reitler Brown & Rosenblatt LLC
800 Third Avenue
21st Floor
New York, New York 10022
Attention: Scott H. Rosenblatt

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

                                       37
<PAGE>

        [PURCHASER SIGNATURE PAGES TO ELI 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 Purchaser: __________________________

SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

Email Address of Purchaser: ________________________________

Fax Number of Purchaser: ______________________________

Address for Notice of Purchaser:

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

Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

                                       38
<PAGE>

                                                                         ANNEX A

                               CLOSING STATEMENT

Pursuant to the attached  Securities  Purchase  Agreement,  dated as of the date
hereto,  the purchasers  shall purchase up to $10,000,000 of Preferred Stock and
Warrants  from  Elite   Pharmaceuticals,   Inc.,  a  Delaware  corporation  (the
"COMPANY").  All funds will be wired into a trust account maintained by Reitler,
Brown,  &  Rosenblatt,  counsel to the  Company.  All funds will be disbursed in
accordance with this Closing Statement.

DISBURSEMENT DATE:    March ___, 2006
--------------------------------------------------------------------------------

I.   PURCHASE PRICE

                     GROSS PROCEEDS TO BE RECEIVED IN TRUST           $

II.  DISBURSEMENTS

                                                                      $
                                                                      $
                                                                      $
                                                                      $
                                                                      $

TOTAL AMOUNT DISBURSED:                                               $

WIRE INSTRUCTIONS:

To: _____________________________________

To: _____________________________________

                                       39

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}]]