Document:

Exhibit 10.18

                          SECURITIES PURCHASE AGREEMENT

     This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of June 17,
2005 is made by and  among  PharmaFrontiers  Corp.,  a Texas  corporation,  with
headquarters  located at 2408 Timberloch Place, Suite B-7, The Woodlands,  Texas
77380 (the  "Company"),  and the investors  named on the signature pages hereto,
together with their permitted transferees (the "Investors").

                                    RECITALS:

     A.  The  Company  and the  Investors  are  executing  and  delivering  this
Agreement in reliance upon the exemptions from securities  registration afforded
by Section 4(2) of the Securities Act and Rule 506 under Regulation D.

     B. Each of the Investors  desires,  upon the terms and conditions stated in
this Agreement, to purchase that number of shares of Common Stock of the Company
indicated  on their  signature  page hereto (the  "Common  Shares") at $1.50 per
share and to receive,  in  consideration  for such  purchase,  the warrants (the
"Warrants") to acquire shares of Common Stock as described herein.

     C. Contemporaneously with the execution and delivery of this Agreement, the
parties  hereto are executing and  delivering a  Registration  Rights  Agreement
under which the Company has agreed to provide certain  registration rights under
the  Securities  Act,  the  rules and  regulations  promulgated  thereunder  and
applicable state securities laws.

     D. The  capitalized  terms used herein and not  otherwise  defined have the
meanings given them in Article IX hereof.

     In consideration of the premises and the mutual covenants  contained herein
and other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the Company and the Investors hereby agree as follows:

                                   ARTICLE I
                        PURCHASE AND SALE OF COMMON STOCK

     1.1 Purchase and Sale of Common Stock. At the Closing, subject to the terms
of this Agreement and the  satisfaction or waiver of the conditions set forth in
Articles VI and VII hereof,  the Company  will issue and sell to each  Investor,
and each  Investor  will (on a several and not a joint basis)  purchase from the
Company, such number of Common Shares set forth on the Investor's signature page
at a price of $1.50 per share.  The Company will add Investor's  name and number
of shares  purchased  to Exhibit A and amend  Exhibit A from time to time to add
new Investors.

     1.2 Payment. At the Closing, subject to the terms of this Agreement and the
satisfaction  or  waiver of the  conditions  set  forth in  Articles  VI and VII
hereof,  each Investor will pay the purchase  amount for the Common Shares as is
set forth on the Investor's  signature page. Each Investor will make the payment
by wire transfer of immediately available funds in accordance with the Company's
written wire  instructions;  promptly after closing the Company shall deliver to
each  Investor  of (i) one or more  stock  certificates,  free and  clear of all
restrictive   and  other  legends   (except  as  expressly   provided   herein),
representing  the Common  Shares so purchased by such Investor and (ii) Warrants
in an amount  determined in accordance with Section 1.4 hereof,  and the Company
will  deliver  such stock  certificates  and  Warrants  against  delivery of the
purchase price as described above. At Company's  option,  Company may accept the
surrender of Bridge Notes as payment for the Securities in lieu of cash.

                                       1
<PAGE>

     1.3 Closing Date.  Subject to the  satisfaction or waiver of the conditions
set forth in  Articles VI and VII  hereof,  the Closing  will take place at 8:00
a.m., Central Time, on or prior to May 13, 2005 (or such extended date up to May
20, 2005 as agreed to by the Company and the  Placement  Agent) as identified by
one day prior notice from the Company, or at another date or time agreed upon by
the parties to this  Agreement (the "Closing  Date");  provided that at any time
after  Investors  agreeing  to  purchase  $2.5  million  of  securities  or more
hereunder have signed this  Agreement,  the Company may close the sale with such
Investors and then hold one or more subsequent  Closings  thereafter  subject to
the foregoing  limitations on the Closing Date.  The Closing(s)  will be held at
the offices of Vinson & Elkins LLP in Houston,  Texas, or at such other place as
the parties agree.

     1.4 Warrants.  In consideration of the purchase of the Common Shares by the
Investors,  at the Closing the Company will issue three different warrants:  the
"Series  A  Warrant,"  the  "Series  B  Warrant"  and  the  "Series  C  Warrant"
(collectively,  the  "Warrants")  to each  Investor.  The Series A Warrant shall
entitle the  Investor to purchase  1,250  shares of Common  Stock for each 1,000
shares of Common  Stock  purchased  by such  Investor on the Closing  Date at an
exercise  price of $2.00  per  share  and will  expire on the later of (i) eight
months  after the  Closing  Date or (ii)  five  months  after  the  registration
statement for the re-sale of the warrant shares becomes effective.  The Series B
Warrant  shall  entitle the  Investor to purchase 500 shares of Common Stock for
each 1,000 shares of Common Stock purchased by such Investor on the Closing Date
at an  exercise  price of $2.90 per share and will expire on the later of (i) 16
months after the Closing Date or (ii) 12 months after the registration statement
for the re-sale of the warrant  shares becomes  effective.  The Series C Warrant
shall  entitle the  Investor to purchase  1,000  shares of Common Stock for each
1,000 shares of Common Stock  purchased by such  Investor on the Closing Date at
an exercise price of $4.00 per share and will expire five years from the Closing
Date.  The Series A  Warrant,  Series B Warrant  and  Series C Warrants  will be
substantially  in the  forms  of  Exhibits  B, C and D,  respectively,  attached
hereto. For purposes of the Warrants, the Closing Date for all Warrants shall be
the first Closing Date, notwithstanding the actual Closing Date for a particular
Investor was after the first Closing Date.

                                   ARTICLE II
                   REPRESENTATIONS AND WARRANTIES OF INVESTORS

     Each Investor represents and warrants to the Company,  severally and solely
with  respect to itself and its purchase  hereunder  and not with respect to any
other Investor, that:

     2.1 Investment  Purpose.  The Investor is purchasing the Securities for its
own account and not with a present  view toward the public sale or  distribution
thereof, except pursuant to sales registered or exempted from registration under
the  Securities  Act;  provided,  however,  that by making  the  representations
herein,  such  Investor  does not  agree to hold any of the  Securities  for any
minimum  or other  specific  term and  reserves  the  right  to  dispose  of the
Securities  at any  time  in  accordance  with  or  pursuant  to a  registration
statement or an exemption from the  registration  requirements of the Securities
Act.

                                       2
<PAGE>

     2.2 Accredited Investor Status. The Investor is an "accredited investor" as
defined in Rule  501(a) of  Regulation  D. The  Investor  has  experience  as an
investor in securities representing an investment decision like that involved in
the  purchase of the  Securities  and  acknowledges  that it has the  knowledge,
sophistication and experience in financial and business matters as to be capable
of evaluating  the merits and risks of an investment in the  Securities  and has
the ability to bear the economic risks of an investment in the Securities.

     2.3 Reliance on Exemptions.  The Investor  understands  that the Securities
are being offered and sold to it in reliance upon specific  exemptions  from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and  accuracy of, and the  Investor's
compliance with, the representations,  warranties,  agreements,  acknowledgments
and  understandings  of the Investor set forth herein in order to determine  the
availability  of such  exemptions and the eligibility of the Investor to acquire
the Securities.

     2.4 Information.  The Investor and its advisors,  if any, have reviewed the
SEC Documents and been  furnished  with all materials  relating to the business,
finances and operations of the Company,  and materials relating to the offer and
sale  of the  Securities,  that  have  been  requested  by the  Investor  or its
advisors,  if any. The Investor and its advisors, if any, have been afforded the
opportunity  to ask  questions of the Company.  Neither such  inquiries  nor any
other due diligence  investigation  conducted by Investor or any of its advisors
or representatives  modify,  amend or affect the Investor's right to rely on the
Company's  representations  and warranties  contained in Article III below.  The
Investor  acknowledges  and  understands  that its  investment in the Securities
involves a significant degree of risk,  including the risks reflected in the SEC
Documents,  and that the market price of the Common Stock has been and continues
to be volatile and that no  representation  is being made as to the future value
of the Common Stock.

     2.5  Governmental  Review.  The Investor  understands that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any  recommendation  or  endorsement of the Securities or an
investment therein.

     2.6 Transfer or Resale. The Investor understands that:

          (a) except as  provided  in the  Registration  Rights  Agreement,  the
     Securities  have  not  been  registered  under  the  Securities  Act or any
     applicable state securities laws and,  consequently,  the Investor may have
     to bear the risk of owning the Securities for an indefinite  period of time
     because the Securities may not be transferred  unless (i) the resale of the
     Securities is registered  pursuant to an effective  registration  statement
     under the Securities Act; (ii) the Investor has delivered to the Company an
     opinion of counsel (in form,  substance and scope customary for opinions of
     counsel in comparable transactions) to the effect that the Securities to be
     sold or  transferred  may be sold or  transferred  pursuant to an exemption
     from  such  registration;  (iii)  the  Securities  are sold or  transferred
     pursuant to Rule 144; or (iv) the  Securities are sold or transferred to an
     affiliate (as defined in Rule 144) of the Investor;

                                       3
<PAGE>

          (b) any sale of the  Securities  made in  reliance  on Rule 144 may be
     made only in accordance  with the terms of Rule 144 and, if Rule 144 is not
     applicable,  any resale of the Securities under  circumstances in which the
     seller (or the person through whom the sale is made) may be deemed to be an
     underwriter  (as that term is defined in the  Securities  Act) may  require
     compliance with another exemption under the Securities Act or the rules and
     regulations of the SEC thereunder;

          (c) except as set forth in the Registration Rights Agreement,  neither
     the Company nor any other  person is under any  obligation  to register the
     Securities  under the  Securities  Act or any state  securities  laws or to
     comply with the terms and conditions of any exemption thereunder; and

          (d) notwithstanding  anything in this Agreement or the Warrants to the
     contrary,  the Company  agrees to  reregister  any Common Shares or Warrant
     issued to an Investor  hereunder in the name of any partner or affiliate of
     such  Investor,  and any such partner shall be deemed to be an Investor for
     all  purposes of this  Agreement  and the  Registration  Rights  Agreement,
     provided that any such partner or affiliate agrees in writing to be subject
     to the terms of this Agreement and the Registration Rights Agreement to the
     same extent as of such  partner  were an original  Investor  hereunder  and
     thereunder.

     2.7 Legends.  The Investor understands that until (a) the Common Shares and
the Warrants  may be sold by the Investor  under Rule 144(k) or (b) such time as
the resale of the  Securities  has been  registered  under the Securities Act as
contemplated by the Registration Rights Agreement, the certificates representing
the Securities  will bear a restrictive  legend in  substantially  the following
(and, subject to Article V, a stop transfer order may be placed against transfer
of the certificates for such Securities):

          THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
          REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933,  AS  AMENDED,  OR THE
          SECURITIES LAWS OF ANY STATE OF THE UNITED STATES  (COLLECTIVELY,  THE
          "ACTS").  THE  SECURITIES MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF
          THE  FOLLOWING:  (1)  AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR  THE
          SECURITIES  UNDER THE ACTS COVERING THE  TRANSACTION,  (2) THE COMPANY
          RECEIVES AN OPINION OF COUNSEL REASONABLY  SATISFACTORY TO THE COMPANY
          THAT SUCH  REGISTRATION  IS NOT  REQUIRED  UNDER THE ACTS,  OR (3) THE
          COMPANY  OTHERWISE  SATISFIES ITSELF THAT REGISTRATION IS NOT REQUIRED
          UNDER THE ACTS.  NOTWITHSTANDING THE FOREGOING,  THE SECURITIES MAY BE
          PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
          FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                                       4
<PAGE>

     The legend set forth  above will be removed  and the  Company  will issue a
certificate without the legend to the holder of any certificate upon which it is
stamped, in accordance with the terms of Article V hereof.

     2.8 Authorization;  Enforcement. This Agreement and the Registration Rights
Agreement  have been duly and validly  authorized,  executed  and  delivered  on
behalf of the Investor  and are valid and binding  agreements  of the  Investor,
enforceable  in  accordance  with  their  terms,  subject  to the  effect of any
applicable bankruptcy,  insolvency,  reorganization,  moratorium or similar laws
affecting  the rights of  creditors  generally  and the  application  of general
principles of equity.

     2.9  Residency.  The Investor is a resident of the  jurisdiction  set forth
immediately below such Investor's name on the signature pages hereto.

     2.10 No Intent to Effect a Change of Control.  The  Investor has no present
intent to change or influence  the control of the Company  within the meaning of
Rule 13d-1 of the Exchange Act.

     2.11 No  Hedging.  The  Investor  has not  established  any  hedge or other
position in the Common Stock that is outstanding  on the Closing Date,  which is
designed to or could  reasonably be expected to lead to or result in any sale of
the Common  Shares.  For  purposes  hereof,  a "hedge or other  position"  would
include  effecting any short sale or having in effect any short  position or any
purchase,  sale or grant of any put  option,  call  option  or  prepaid  forward
contract  with respect to the Common Stock of the Company or with respect to any
security  (other  than a  broad-based  market  basket or index)  that  includes,
relates to or derives any significant part of its value from the Common Stock.

                                  ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company,  and each of its Subsidiaries,  as applicable,  represents and
warrants to the Investors that:

     3.1  Organization  and  Qualification.  All  of  the  direct  and  indirect
Subsidiaries  of the Company are set forth on Schedule  3.1.  The Company  owns,
directly or  indirectly,  all of the capital stock or other equity  interests of
each of its  Subsidiaries  free and clear of any  Liens,  and all the issued and
outstanding  shares of capital  stock of each of its  Subsidiaries  are  validly
issued and are fully paid,  non-assessable  and free of  preemptive  and similar
rights to subscribe for or purchase securities. The Company and its Subsidiaries
are duly  incorporated,  validly existing and in good standing under the laws of
the jurisdictions in which they are incorporated,  with full power and authority
(corporate and other) to own, lease, use and operate their  properties,  if any,
and to carry on their businesses as and where now owned,  leased, used, operated
and  conducted.  The Company is duly  qualified  to do  business  and is in good
standing in every  jurisdiction in which the nature of the business conducted by
it makes  such  qualification  necessary,  except  where  the  failure  to be so
qualified or in good standing would not have a Material Adverse Effect.

                                       5
<PAGE>

     3.2 Authorization; Enforcement. (a) The Company has all requisite corporate
power and  authority  to enter into and to perform  its  obligations  under this
Agreement, the Registration Rights Agreement and the Warrants, to consummate the
transactions  contemplated  hereby and  thereby and to issue the  Securities  in
accordance  with the terms hereof and thereof;  (b) the execution,  delivery and
performance  of  this  Agreement,  the  Registration  Rights  Agreement  and the
Warrants  by  the  Company  and  the  consummation  by  it of  the  transactions
contemplated  hereby and thereby  (including  without limitation the issuance of
the Common  Shares,  the Warrants  and the Warrant  Shares and  reservation  for
issuance of the Warrant Shares) have been duly authorized by the Company's Board
of Directors and no further consent or authorization  of the Company,  its Board
or  Directors,  or  its  stockholders  is  required;  (c)  this  Agreement,  the
Registration  Rights  Agreement  and the Warrants have been duly executed by the
Company;  and (d) each of this Agreement,  the Registration Rights Agreement and
the Warrants  constitutes a legal,  valid and binding  obligation of the Company
enforceable  against the Company in accordance with its respective terms, except
as may be limited by any applicable bankruptcy,  insolvency,  reorganization, or
moratorium or similar laws  affecting the rights of creditors  generally and the
application of general principles of equity.

     3.3  Capitalization.  As of the date prior to the Closing Date hereof,  the
authorized  capital stock of the Company  consisted of (i) 50,000,000  shares of
Common Stock, par value $0.05 per share, of which 10,534,324  shares were issued
and  outstanding;  2,000,000  shares were reserved for issuance under the Option
Plan; and no shares were reserved for issuance  pursuant to any other securities
(except  as set  forth  under  this  Section  3.3 and in the  Private  Placement
Memorandum);  and (ii)  10,000,000  shares of preferred  stock, no par value per
share, of which no shares were issued and  outstanding.  All of such outstanding
shares of capital stock have been,  or upon  issuance will be, duly  authorized,
validly issued, fully paid and nonassessable.  No shares of capital stock of the
Company,  including  the Common  Shares and the Warrant  Shares,  are subject to
preemptive  rights or any other similar rights of the other  stockholders of the
Company or any liens or  encumbrances  imposed through the actions or failure to
act  of  the  Company.  Except  as  set  forth  in the  SEC  Documents  and  the
transactions  contemplated hereby,  there are no outstanding options,  warrants,
scrip,   rights  to  subscribe  for,  puts,  calls,  rights  of  first  refusal,
agreements,  understandings,  claims  or  other  commitments  or  rights  of any
character  whatsoever  relating to, or  securities or rights  convertible  into,
exercisable for, or exchangeable for any shares of capital stock of the Company,
or arrangements by which the Company is or may become bound to issue  additional
shares of capital stock of the Company.

     Except as disclosed in the Private  Placement  Memorandum  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 Investors) and will not
result in a right of any holder of Company  securities  to adjust the  exercise,
conversion,  exchange or reset price under such securities.  Except as disclosed
in the Private Placement  Memorandum,  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.  Except as
disclosed  in the  Private  Placement  Memorandum,  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.  The Company's
Certificate of Incorporation and the Company's By-laws, each as in effect on the
date hereof,  filed as exhibits to the  Company's  SEC  Documents,  are true and
correct copies of each such document.

                                       6
<PAGE>

     3.4 Issuance of  Securities.  The Common  Shares and the Warrants have been
duly  authorized  and,  upon  issuance  in  accordance  with  the  terms of this
Agreement, will be validly issued, fully paid and non-assessable,  free from all
taxes,  liens,  claims,  encumbrances  and charges  with respect to the issuance
thereof,  will not be subject to preemptive  rights or other  similar  rights of
stockholders  of the  Company,  and will not impose  personal  liability  on the
holders  thereof.  The Warrant Shares have been duly authorized and reserved for
issuance,  and,  upon  exercise  of the  Warrants in  accordance  with the terms
thereof,  will be validly issued,  fully paid and non-assessable,  and free from
all taxes,  liens,  claims and  encumbrances  and  charges  with  respect to the
issuance  thereof and will not be subject to preemptive  rights or other similar
rights of  stockholders  of the Company and will not impose  personal  liability
upon the holder thereof.

     3.5 Outstanding  Debt. The Company has no  Indebtedness  for Borrowed Money
(as hereinafter  defined) except for the Bridge Notes and as otherwise set forth
in the SEC  Documents.  The  Company  is not in  default  in the  payment of the
principal of or interest or premium on any such Indebtedness for Borrowed Money,
and  no  event  has  occurred  or is  continuing  under  the  provisions  of any
instrument,   document  or  agreement   evidencing   or  relating  to  any  such
Indebtedness  for  Borrowed  Money which with the lapse of time or the giving of
notice, or both, would constitute an event of default thereunder.

     3.6 No Conflicts; No Violation.

          (a) The execution,  delivery and  performance of this  Agreement,  the
     Registration  Rights  Agreement  and the Warrants by the  Company,  and the
     consummation  by the Company of the  transactions  contemplated  hereby and
     thereby (including,  without limitation, the issuance of the Common Shares,
     the Warrants  and the Warrant  Shares and  reservation  for issuance of the
     Warrant  Shares)  do not and  will not (i)  conflict  with or  result  in a
     violation of any provision of the Certificate of  Incorporation or By-laws,
     (ii) violate or conflict  with,  or result in a breach of any provision of,
     or  constitute a default (or an event which with notice or lapse of time or
     both  could  become a  default)  under,  or give to  others  any  rights of
     termination, amendment (including without limitation, the triggering of any
     anti-dilution  provision),  acceleration or cancellation of, any agreement,
     indenture,  patent, patent license, or instrument to which the Company is a
     party, or (iii) result in a violation of any law, rule, regulation,  order,
     judgment or decree  (including U.S.  federal and state  securities laws and
     regulations and regulations of any  self-regulatory  organizations to which
     the Company or its securities are subject)  applicable to the Company or by
     which any property or asset of the Company is bound or affected (except for
     such   conflicts,    breaches,    defaults,    terminations,    amendments,
     accelerations,  cancellations and violations as would not,  individually or
     in the aggregate, have a Material Adverse Effect).

                                       7
<PAGE>

          (b)  The  Company  is  not  in   violation  of  its   Certificate   of
     Incorporation, By-laws or other organizational documents and the Company is
     not in default  (and no event has  occurred  which with  notice or lapse of
     time or both could put the Company in default)  under,  and the Company has
     not taken any  action or failed to take any  action  that (and no event has
     occurred  which,  without  notice or lapse of time or both)  would  give to
     others any rights of termination,  amendment,  acceleration or cancellation
     of, any agreement,  indenture or instrument to which the Company is a party
     or by which any  property  or assets of the  Company is bound or  affected,
     except  for  possible  defaults  as  would  not,  individually  or  in  the
     aggregate, have a Material Adverse Effect.

          (c) The Company is not  conducting,  and, so long as any Investor owns
     any of the Securities,  will not conduct,  its business in violation of any
     law,  ordinance or regulation of any  governmental  entity,  the failure to
     comply with which would,  individually or in the aggregate, have a Material
     Adverse Effect.

          (d)  Except as  specifically  contemplated  by this  Agreement  and as
     required under the Securities Act and any applicable  state securities laws
     or  any  listing  agreement  with  any  securities  exchange  or  automated
     quotation  system,  the  Company is not  required  to obtain  any  consent,
     authorization  or order of, or make any filing or  registration  with,  any
     court or governmental agency or any regulatory or self regulatory agency in
     order for it to execute,  deliver or perform any of its  obligations  under
     this Agreement,  the Warrants or the Registration Rights Agreement, in each
     case in accordance  with the terms hereof or thereof,  or to issue and sell
     the Common Shares and the Warrants in accordance  with the terms hereof and
     to issue the Warrant Shares upon exercise of the Warrants.

     3.7 SEC Documents,  Financial  Statements.  Since June 1, 2004, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC  pursuant to the  reporting  requirements  of the
Securities  Act and the  Exchange Act (all of the  foregoing  filed prior to the
date hereof and all  exhibits  included  therein and  financial  statements  and
schedules thereto and documents (other than exhibits)  incorporated by reference
therein,  being hereinafter  referred to herein as the "SEC  Documents").  As of
their respective dates, the SEC Documents complied in all material respects with
the  requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and  regulations of the SEC promulgated  thereunder  applicable to
the SEC Documents,  and none of the SEC  Documents,  at the time they were filed
with the SEC,  contained  any untrue  statement of a material fact or omitted to
state a material  fact  required to be stated  therein or  necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.  As of their respective dates, the financial statements of
the Company  included in the SEC  Documents  complied as to form in all material
respects with  applicable  accounting  requirements  and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in  accordance  with U.S.  generally  accepted  accounting  principles,
consistently  applied,  during  the  periods  involved  (except  (i)  as  may be
otherwise  indicated in such financial  statements or the notes thereto, or (ii)
in the case of unaudited interim statements,  to the extent they may not include
footnotes or may be condensed or summary  statements)  and fairly present in all
material respects the financial  position of the Company as of the dates thereof
and the  results of its  operations  and cash flows for the  periods  then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).  Except  for the  Bridge  Notes and as set forth in the  financial
statements  included  in the SEC  Documents,  the  Company  has no  liabilities,
contingent or otherwise,  other than liabilities incurred in the ordinary course
of business  subsequent to December 31, 2004,  and  liabilities  of the type not
required under generally accepted accounting  principles to be reflected in such
financial statements.

                                       8
<PAGE>

     3.8 Absence of Certain Changes. Except as disclosed in the SEC Documents or
in the  Private  Placement  Memorandum,  since  the date of the  latest  audited
financial  statements  included within the SEC Documents,  (i) there has been no
event,  occurrence  or  development  that has had or that  could  reasonably  be
expected  to result in a  Material  Adverse  Effect,  (ii) the  Company  has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B)  liabilities not required to be reflected in the Company's
financial  statements  pursuant to GAAP or required to be  disclosed  in filings
made with the  Commission,  (iii) the  Company  has not  altered  its  method of
accounting,  (iv)  the  Company  has  not  declared  or  made  any  dividend  or
distribution  of  cash or  other  property  to its  stockholders  or  purchased,
redeemed or made any  agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity  securities  to any officer,
director or Affiliate,  except pursuant to existing  Company stock option plans.
The  Company  does not have  pending  before  the  Commission  any  request  for
confidential treatment of.

     3.9 Absence of Litigation.  There is no action,  suit,  claim,  proceeding,
inquiry or  investigation  before or by any  court,  arbitrator,  public  board,
government or administrative agency, regulatory or self-regulatory  organization
or body  pending or, to the  knowledge  of the  Company,  threatened  against or
affecting  the Company or any of its officers or  directors  acting as such that
could,  individually or in the aggregate,  have a Material  Adverse Effect.  The
Company is not aware of any facts or  circumstances  which would  reasonably  be
expected to give rise to any such action or proceeding.  Neither the Company nor
any of its Subsidiaries, 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 SEC involving the Company or any current
or former  director or officer of the  Company.  The SEC has not issued any stop
order or other order suspending the effectiveness of any registration  statement
filed by the Company or any of its  Subsidiaries  under the  Exchange Act or the
Securities Act

     3.10 Intellectual Property Rights.

          (a) To the Company's  knowledge,  Schedule 3.10  accurately sets forth
     all patents,  patent  applications,  patent rights,  inventions,  know-how,
     trade secrets, trademarks,  trademark applications,  service marks, service
     names,  trade names and  copyrights  necessary  to enable it to conduct its
     business as now operated (the "Intellectual  Property") that is material to
     Company's business  (collectively,  the "Company's IP"). The Company either
     owns or has a valid  license  to the  Company's  IP free  and  clear of any
     claim,  security interest,  lien, pledge,  option, charge or encumbrance of
     any kind whatsoever. The Company's rights in Company's IP are in full force
     and effect. Company's IP has not been used or enforced or failed to be used
     or enforced in a manner that would result in the abandonment,  cancellation
     or unenforceability of any of Company's rights in and to Company's IP.

                                       9
<PAGE>

          (b) Except as set forth in Schedule 3.10,  Company has not transferred
     any rights or interest  in, or granted any  exclusive  license with respect
     to, any of its Intellectual Property, to any third party.

          (c) All  Intellectual  Property of the Company and its Subsidiaries is
     currently  in  compliance  with all legal  requirements  (including  timely
     filings,  proofs and  payments  of fees) and is valid and  enforceable.  No
     Intellectual Property of the Company or its Subsidiaries which is necessary
     for the  conduct  of  Company's  and each of its  Subsidiaries'  respective
     businesses as currently  conducted or as currently proposed to be conducted
     has been or is now  involved in any  cancellation,  dispute or  litigation,
     and, to the Company's knowledge, no such action is threatened. No patent of
     the  Company  or  its  Subsidiaries  has  been  or is now  involved  in any
     interference, reissue, re-examination or opposition proceeding.

          (d) All of the licenses and sublicenses and consent,  royalty or other
     agreements  concerning  Intellectual  Property  which are necessary for the
     conduct  of  the  Company's  and  each  of  its  Subsidiaries'   respective
     businesses as currently conducted,  or, to the knowledge of the Company, as
     currently  proposed to be conducted to which the Company or any  Subsidiary
     is a party or by which any of their assets are bound (other than  generally
     commercially  available,  non-custom,  off-the-shelf  software  application
     programs  having  a  retail  acquisition  price of less  than  $10,000  per
     license)  (collectively,   "License  Agreements")  are  valid  and  binding
     obligations  of the Company or its  Subsidiaries  that are parties  thereto
     and, to the Company's knowledge, the other parties thereto,  enforceable in
     accordance with their terms,  except to the extent that enforcement thereof
     may be  limited  by  bankruptcy,  insolvency,  reorganization,  moratorium,
     fraudulent  conveyance or other similar laws  affecting the  enforcement of
     creditors' rights generally, and, to the Company's knowledge,  there exists
     no event or condition  which will result in a material  violation or breach
     of or  constitute  (with or without  due notice or lapse of time or both) a
     default by the Company or any of its  Subsidiaries  under any such  License
     Agreement.

          (e) To the Company's  knowledge,  the Company and its Subsidiaries own
     or have the valid  right to use all of the  Intellectual  Property  that is
     necessary for the conduct of the  Company's  and each of its  Subsidiaries'
     respective  businesses as currently conducted,  or, to the knowledge of the
     Company,  as  currently  proposed to be  conducted  and for the  ownership,
     maintenance and operation of the Company's and its Subsidiaries' properties
     and assets,  free and clear of all liens,  encumbrances,  adverse claims or
     obligations   to  license  all  such  owned   Intellectual   Property   and
     Confidential Information,  other than licenses entered into in the ordinary
     course of the Company's and its Subsidiaries'  businesses. To the Company's
     knowledge,  the Company and its  Subsidiaries  have a valid and enforceable
     right  to use  all  third  party  Intellectual  Property  and  Confidential
     Information  used  or  held  for use in the  respective  businesses  of the
     Company and its Subsidiaries.

                                       10
<PAGE>

          (f) To the Company's  knowledge,  the conduct of the Company's and its
     Subsidiaries'  businesses  as  currently  conducted  does not  infringe  or
     otherwise   impair  or  conflict  with   (collectively,   "Infringe")   any
     Intellectual  Property  rights  of any third  party or any  confidentiality
     obligation  owed to a third party,  and, to the  Company's  knowledge,  the
     Intellectual  Property and Confidential  Information of the Company and its
     Subsidiaries  which are  necessary for the conduct of Company's and each of
     its  Subsidiaries'  respective  businesses  as currently  conducted are not
     being Infringed by any third party. There is no litigation or order pending
     or outstanding or, to the Company's knowledge, threatened or imminent, that
     seeks to limit or challenge or that concerns the ownership,  use,  validity
     or enforceability of any Intellectual Property or Confidential  Information
     of the Company and its Subsidiaries and the Company's and its Subsidiaries'
     use of any  Intellectual  Property or Confidential  Information  owned by a
     third party, and, to the Company's  knowledge,  there is no valid basis for
     the same.

          (g) The  consummation of the transactions  contemplated  hereby and by
     the other  Transaction  Documents will not result in the alteration,  loss,
     impairment of or restriction  on the Company's or any of its  Subsidiaries'
     ownership or right to use any of the Intellectual  Property or Confidential
     Information which is necessary for the conduct of Company's and each of its
     Subsidiaries'  respective businesses as currently conducted or as currently
     proposed to be conducted.

          (h) The Company and its  Subsidiaries  have taken  reasonable steps to
     protect the Company's and its  Subsidiaries'  rights in their  Intellectual
     Property  and  Confidential  Information.  Each  employee,  consultant  and
     contractor  who  has  had  access  to  Confidential  Information  which  is
     necessary  for the  conduct  of  Company's  and  each of its  Subsidiaries'
     respective businesses as currently conducted or as currently proposed to be
     conducted has executed an agreement to maintain the confidentiality of such
     Confidential  Information and has executed appropriate  agreements that are
     substantially  consistent with the Company's standard forms thereof. Except
     under confidentiality obligations, there has been no material disclosure of
     any of the Company's or its Subsidiaries'  Confidential  Information to any
     third party.

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

     3.12 No Materially  Adverse  Contracts,  Etc. The Company is not subject to
any charter,  corporate or other legal  restriction,  or any  judgment,  decree,
order,  rule or  regulation  which in the  reasonable  judgment of the Company's
officers has or is expected in the future,  individually or in the aggregate, to
have a Material  Adverse  Effect.  The Company is not a party to any contract or
agreement which in the reasonable  judgment of the Company's  officers has or is
expected to have a Material Adverse Effect.

                                       11
<PAGE>

     3.13 Tax  Status.  The  Company  has made or filed all  federal,  state and
foreign income and all other tax returns,  reports and declarations  required by
any  jurisdiction to which it is subject (unless and only to the extent that the
Company  has set  aside on its  books  provisions  reasonably  adequate  for the
payment  of all unpaid  and  unreported  taxes) and has paid all taxes and other
governmental  assessments  and charges  that are  material  in amount,  shown or
determined to be due on such  returns,  reports and  declarations,  except those
being  contested  in good  faith,  and has set  aside  on its  books  provisions
reasonably  adequate for the payment of all taxes for periods  subsequent to the
periods  to which such  returns,  reports or  declarations  apply.  There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any  jurisdiction,  and the Company  knows of no basis for any such  claim.  The
Company  has not  executed a waiver with  respect to the statute of  limitations
relating to the assessment or collection of any foreign, federal, state or local
tax. None of the Company's tax returns is presently  being audited by any taxing
authority.

     3.14 Certain  Transactions.  Except as disclosed in the SEC Documents,  and
other than the grant of stock options, employment agreements or the ownership of
other securities and rights disclosed in filings under the Exchange Act, none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company (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 employee  or, to the  knowledge  of the  Company,  any  corporation,
partnership,  trust or other entity in which any officer,  director, or employee
has a substantial interest or is an officer, director, trustee or partner.

     3.15  Environmental  Laws.  The  Company  (i)  is in  compliance  with  all
applicable foreign federal, state and local laws and regulations relating to the
protection  of human health and safety,  the  environment  or hazardous or toxic
substances or wastes,  pollutants or contaminants  ("Environmental  Laws"), (ii)
has  received all permits,  licenses or other  approvals  required of them under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit,  license or approval where, in
each of the three  foregoing  clauses,  the  failure  to so comply  would  have,
individually or in the aggregate, a Material Adverse Effect.

     3.16 Disclosure.  No information  relating to or concerning the Company set
forth in this  Agreement  or provided to the  Investors  pursuant to Section 2.4
hereof or otherwise  provided in connection with the  transactions  contemplated
hereby,  including  without  limitation any oral or written  statements  made or
given by the officers of the Company,  or any of the  Company's  agents,  to any
Investor,  or any  Investor's  agent,  taken as a whole,  contained  any  untrue
statement of a material fact nor omitted to state any material fact necessary in
order  to  make  the  statements  made  herein  or  therein,  in  light  of  the
circumstances  under  which  they  were  made,  not  misleading.   No  event  or
circumstance  has occurred or information  exists with respect to the Company or
its business,  properties,  operations  or financial  conditions,  which,  under
applicable  law, rule or regulation,  requires  immediate  public  disclosure or
announcement  by the  Company but which has not been so  publicly  announced  or
disclosed.  The Company  acknowledges  and agrees that no Investor  makes or has
made  any  representations  or  warranties  with  respect  to  the  transactions
contemplated hereby other than those specifically set forth in Article II hereof

                                       12
<PAGE>

     3.17  Acknowledgment  Regarding  Investors'  Purchase  of  Securities.  The
Company  acknowledges  and agrees  that each  Investor  is acting  solely in the
capacity of an arm's length  purchaser  with respect to this  Agreement  and the
transactions  contemplated  hereby.  The Company  further  acknowledges  that no
Investor is acting as a financial advisor or fiduciary of the Company (or in any
similar   capacity)  with  respect  to  this  Agreement  and  the   transactions
contemplated  hereby  and any  statement  made by any  Investor  or any of their
respective  representatives  or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to such Investor's purchase of the Securities and has not been relied
on by the Company in any way. The Company  further  represents  to each Investor
that the Company's  decision to enter into this  Agreement has been based solely
on an independent evaluation by the Company and its representatives. The Company
acknowledges  that the issuance of the  Securities may result in dilution of the
outstanding  shares of Common Stock,  which  dilution may be  substantial  under
certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents,  including without limitation its obligation to
issue  the  Warrant  Shares   pursuant  to  the   Transaction   Documents,   are
unconditional   and   absolute  and  not  subject  to  any  right  of  set  off,
counterclaim,  delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have  against any Investor  and  regardless  of the
dilutive  effect  that  such  issuance  may have on the  ownership  of the other
stockholders of the Company.  Anything in this Agreement or elsewhere  herein to
the contrary  notwithstanding (except for Section 2.11 hereof), it is understood
and  agreed by the  Company  (i) that none of the  Investors  have been asked to
agree, nor has any Investor 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
Investor, including short sales, and specifically including, without limitation,
short sales or "derivative" transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price of
the Company's publicly-traded  securities;  (iii) that any Investor, and counter
parties in  "derivative"  transactions  to which any such  Investor  is a party,
directly  or  indirectly,  presently  may have a "short"  position in the Common
Stock,  and (iv) that each Investor shall not be deemed to have any  affiliation
with  or  control  over  any  arm's  length  counter-party  in any  "derivative"
transaction.

     3.18 No Integrated Offering. Except for the rights of holders of the Bridge
Loan Shares,  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  in any  security  or  solicited  any  offers  to buy any  security  under
circumstances  that would require  registration  under the Securities Act of the
issuance of the Securities to the Investors.

     3.19 No Brokers.  The Company has taken no action  which would give rise to
any claim by any person for brokerage  commissions  or finder's fees relating to
this  Agreement or the  transactions  contemplated  hereby  other than  Sanders,
Morris, Harris, Inc.

                                       13
<PAGE>

     3.20 Permits;  Compliance.  The Company is in possession of all franchises,
grants,  authorizations,  licenses, permits, easements,  variances,  exemptions,
consents, certificates, approvals and orders necessary to own, lease and operate
its properties and to carry on its business as it is now being conducted, except
those  the  failure  of which  to  possess  would  not,  individually  or in the
aggregate, have a Material Adverse Effect (collectively, the "Company Permits"),
and there is no action  pending or, to the knowledge of the Company,  threatened
regarding  suspension or cancellation of any of the Company Permits. The Company
is not in  conflict  with,  or in default or  violation  of, any of the  Company
Permits,   except  for  any  such  conflicts,   defaults  or  violations  which,
individually  or in the  aggregate,  would not  reasonably be expected to have a
Material  Adverse  Effect.  Since October 31, 2004, the Company has not received
any notification with respect to possible  conflicts,  defaults or violations of
applicable laws, except for notices relating to possible conflicts,  defaults or
violations,  which  conflicts,  defaults or violations would not have a Material
Adverse  Effect.  None of the Company's  products have received the FDA approval
required to sell such products.

     3.21 Title to Property.  The Company has good and  marketable  title in fee
simple  to all  real  property  and good and  marketable  title to all  personal
property owned by it which is material to the business of the Company.  Any real
property  and  facilities  held under  lease by the Company are held by it under
valid and  enforceable  leases with such exceptions as would not have a Material
Adverse Effect.

     3.22 Insurance.  The Company is insured by insurers of recognized financial
responsibility  against  such losses and risks and in such amounts as is prudent
and customary in the businesses in which the Company is engaged.  To the best of
Company's  knowledge,  such  insurance  contracts  and policies are accurate and
complete. The Company has no reason to believe that it will not be able to renew
its existing  insurance  coverage as and when such coverage expires or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not have a Material Adverse Effect.

     3.23 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  maintains a system of internal  accounting
controls  sufficient,  in the judgment of the Company's  board of directors,  to
provide  reasonable  assurance that (a)  transactions are executed in accordance
with  management's  general or specific  authorizations,  (b)  transactions  are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted  accounting  principles and to maintain asset
accountability,  (c)  access to  assets is  permitted  only in  accordance  with
management's general or specific authorization,  (d) the recorded accountability
for assets is compared  with the existing  assets at  reasonable  intervals  and
appropriate  action is taken with respect to any differences,  and (e) financial
reporting and the preparation of financial  statements for external  purposes in
accordance with U.S. generally accepted accounting principles are reliable.

     3.24  Employment  Matters.  The Company is in compliance  with all federal,
state,  local  and  foreign  laws  and  regulations  respecting  employment  and
employment  practices,  terms and  conditions of employment  and wages and hours
except  where  failure to be in  compliance  would not have a  Material  Adverse
Effect.  There are no pending  investigations  involving the Company by the U.S.
Department  of  Labor  or any  other  governmental  agency  responsible  for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair  labor  practice  charge or complaint  against the Company  pending
before the National Labor  Relations  Board or any strike,  picketing,  boycott,
dispute,  slowdown or stoppage pending or,  threatened  against or involving the
Company.  No  representation  question  exists  respecting  the employees of the
Company,  and no  collective  bargaining  agreement or  modification  thereof is
currently  being  negotiated  by  the  Company.   No  grievance  or  arbitration
proceeding  is  currently  pending  under any  expired  or  existing  collective
bargaining  agreements  of the  Company.  No  material  labor  dispute  with the
employees  of the  Company  exists  or,  to the  knowledge  of the  Company,  is
imminent.

                                       14
<PAGE>

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

     3.26  No  Disagreements   with  Accountants  and  Lawyers.   There  are  no
disagreements of any kind presently existing,  or reasonably  anticipated by the
Company to arise,  between the  accountants  and lawyers  formerly or  presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers.

     3.27 Investment Company Status. The Company is not and upon consummation of
the  sale of the  Securities  will not be an  "investment  company,"  a  company
controlled  by  an  "investment  company"  or  an  "affiliated  person"  of,  or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.

     3.28 No General  Solicitation.  Neither  the  Company  nor any  distributor
participating on the Company's behalf in the  transactions  contemplated  hereby
(if any) nor any person  acting for the Company,  or any such  distributor,  has
conducted any "general  solicitation,"  as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.

     3.29  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  or other
similar anti-takeover provision under the laws of the state of its incorporation
which  is or  could  become  applicable  to the  Investors  as a  result  of the
transactions contemplated by this Agreement,  including, without limitation, the
Company's  issuance  of the  Securities  and  the  Investors'  ownership  of the
Securities.

                                       15
<PAGE>

                                   ARTICLE IV
                                    COVENANTS

     4.1 Best  Efforts.  Each  party  will use its best  efforts to satisfy in a
timely  fashion each of the  conditions to be satisfied by it under  Articles VI
and VII of this Agreement.

     4.2 Form D;  Blue Sky  Laws.  The  Company  will  file a Notice  of Sale of
Securities  on  Form D  with  respect  to  the  Securities,  as  required  under
Regulation  D, and will provide a copy thereof to each Investor  promptly  after
such filing.  The Company will, on or before the Closing Date,  take such action
as it reasonably  determines to be necessary to qualify the  Securities for sale
to the Investors  under this  Agreement  under  applicable  securities (or "blue
sky") laws of the states of the United  States (or to obtain an  exemption  from
such  qualification),  and will provide  evidence of any such action so taken to
the Investors on or prior to the date of the Closing. The Company will file with
the  SEC a  Current  Report  on  Form  8-K  disclosing  this  Agreement  and the
transactions  contemplated  hereby  within four  business days after the Closing
Date and will  make any  required  notice  filings  with  state  securities  law
authorities on a timely basis.

     4.3  Reporting  Status.  The  Company's  Common Stock is  registered  under
Section 12 of the Exchange Act.  Throughout the Registration  Period (as defined
in the Registration Rights Agreement),  the Company will use its best efforts to
timely  file all  reports,  schedules,  forms,  statements  and other  documents
required to be filed by it with the SEC under the reporting  requirements of the
Exchange  Act,  and the  Company  will not  terminate  its  status  as an issuer
required to file reports  under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.

     4.4 Use of Proceeds. The Company will use the proceeds from the sale of the
Securities to pay clinical trial expenses,  research and  development  expenses,
various  outstanding  liabilities,  working capital and overhead costs,  capital
expenditures to expand manufacturing, a license fee to the University of Chicago
as disclosed in the Private Placement Memorandum,  certain fees to the Placement
Agent as disclosed in the Private Placement Memorandum and for general corporate
purposes.

     4.5 Financial  Statements.  The financial statements of the Company will be
prepared  in  accordance  with  United  States  generally  accepted   accounting
principles,  consistently  applied,  and will  fairly  present  in all  material
respects the consolidated  financial  position of the Company and results of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited statements, to normal year-end audit adjustments).

     4.6 Listing. On or before the day the registration statement for the resale
of the Common Shares and the sale of the Warrant Shares becomes  effective,  the
Company will secure the listing of the Common Shares and the Warrant Shares upon
each  national  securities  exchange or automated  quotation  system,  including
without  limitation the Nasdaq  (including the OTCBB), if any, upon which shares
of Common Stock are then listed  (subject to official  notice of  issuance).  So
long as any Investor owns any of the  Securities,  the Company will use its best
efforts  to obtain  and,  so long as any  Investor  owns any of the  Securities,
maintain  the listing and trading of its Common Stock on Nasdaq  (including  the
OTCBB),  the  American  Stock  Exchange or the New York Stock  Exchange and will
comply  in  all  respects  with  the  Company's  reporting,   filing  and  other
obligations under the bylaws or rules of the National  Association of Securities
Dealers, Inc. and such exchanges or automated quotation system, as applicable.

                                       16
<PAGE>

     4.7 Solvency;  Corporate Existence;  Compliance with Law. The Company (both
before  and  after  giving  effect  to the  transactions  contemplated  by  this
Agreement)  is solvent  (i.e.,  its assets have a fair market value in excess of
the amount  required to pay its probable  liabilities  on its existing  debts as
they become  absolute and matured) and currently the Company has no  information
that would lead it to reasonably  conclude that the Company would not have,  nor
does it intend to take any action that would impair its ability to pay its debts
from time to time  incurred in connection  therewith as such debts  mature.  The
Company will conduct its business in compliance with all applicable  laws, rules
and  regulations  of the  jurisdictions  in  which  it is  conducting  business,
including,   without  limitation,   all  applicable  local,  state  and  federal
environmental laws and regulations,  where the failure to comply with such would
have a Material Adverse Effect.

     4.8  Insurance.  The Company will  maintain  liability,  casualty and other
insurance  (subject to customary  deductions and  retentions)  with  responsible
insurance  companies  against  such  risk  of  the  types  and  in  the  amounts
customarily  maintained by companies of comparable size and in lines of business
of the Company.

     4.9 Reservation of Shares.  The Company will at all times have  authorized,
and  reserved  for the purpose of  issuance,  a  sufficient  number of shares of
Common  Stock to provide for the full  exercise of the Warrants and the issuance
of the Warrant Shares in connection  therewith (based upon the exercise price of
the  Warrants  in effect  from time to time).  The  Company  will not reduce the
number of shares of Common  Stock  reserved for  issuance  upon  exercise of the
Warrants, without the consent of all the Investors. If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the Warrant
Shares issued and issuable upon exercise of the Warrants  (based on the exercise
price of the  Warrants  then in effect),  the  Company  will  promptly  take all
corporate  action  necessary  to authorize  and reserve a  sufficient  number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize  additional  shares to meet the  Company's  obligations  under this
Section 4.11, in the case of an insufficient  number of authorized  shares,  and
using its best  efforts to obtain  stockholder  approval  of an increase in such
authorized number of shares.

     4.10 Pledge of  Securities.  The Company  acknowledges  and agrees that the
Securities  may be pledged by an Investor in connection  with a bona fide margin
agreement  or  other  loan  or  financing  arrangement  that is  secured  by the
Securities.  The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities  shall be required to provide the Company with any notice  thereof or
otherwise make any delivery to the Company pursuant to this Agreement;  provided
that an Investor and its pledgee shall be required to comply with the provisions
of  Section  2.6 hereof in order to effect a sale,  transfer  or  assignment  of
Securities  to such  pledgee.  The Company  hereby agrees to execute and deliver
such  documentation  as a pledgee of the Securities  may  reasonably  request in
connection with a pledge of the Securities to such pledgee by an Investor.

                                       17
<PAGE>

     4.11 Disclosure of Transactions and Other Material Information. The Company
shall, by 8:30 p.m. Eastern time on the earlier of July 1, 2005 or the Effective
Date (the "Required  Disclosure Date"),  issue a press release and by 12:00 p.m.
Eastern  time on the  same  day,  issue a  Current  Report  on  Form  8-K,  each
reasonably  acceptable to a majority in interest of the Investors disclosing (i)
any  material  nonpublic  information  provided  to any  Investor,  and (ii) the
material terms of the transactions contemplated hereby, and, with respect to the
Current Report, shall attach the Transaction Documents thereto as exhibits.  The
Company shall not, and shall cause each  Subsidiary  and each of its  respective
officers, directors, employees and agents, not to, provide any Investor with any
material nonpublic  information regarding the Company or any Subsidiary from and
after the Closing Date without the express written consent of such Investor.  In
the event of a breach of the foregoing covenant by the Company,  any Subsidiary,
or its each of respective officers, directors, employees and agents, in addition
to any other  remedy  provided  herein  or in the  Transaction  Documents,  such
Investor  shall  have  the  right  to  demand  that  the  Company  make a public
disclosure,  and if the Company  fails to do so within two  business  days,  the
Investor may make a public  disclosure,  in the form of a press release,  public
advertisement or otherwise,  of such material nonpublic  information without the
prior  approval  by the  Company,  each  Subsidiary,  or each of its  respective
officers,  directors,  employees or agents.  In such event,  such Investor shall
provide  a copy of such  public  disclosure  to the  Company  at or prior to the
dissemination  of such  disclosure  to the public.  No  Investor  shall have any
liability  to the Company,  any  Subsidiary,  or any of its or their  respective
officers, directors,  employees,  stockholders or agents for any such disclosure
unless such Investor acts with negligence or willful misconduct.  Subject to the
foregoing,  neither the Company nor any Investor  shall issue any press releases
or any other public  statements  with respect to the  transactions  contemplated
hereby  naming the other party  without the prior  approval of the other  party;
which approval shall not be unreasonably withheld or delayed; provided, however,
that the Company shall be entitled,  without the prior approval of any Investor,
to make any press  release  or other  public  disclosure  with  respect  to such
transactions  (i) in a  Current  Report  on  Form  8-K in  compliance  with  the
requirements  of the  Exchange  Act,  and (ii) as may  otherwise  be required by
applicable law and  regulations,  including the applicable rules and regulations
of the Nasdaq  (provided  that in the case of clause (i) each Investor  shall be
provided a copy of any  proposed  press  release to be issued by the  Company at
least one day prior to its  release).  In addition to any other rights or claims
an  Investor  may  have,  if the  Company  fails to make the  public  disclosure
required by the first  sentence of this Section,  then (i) the Company shall (a)
pay each  Investor an  aggregate  amount  equal to (1) five  percent (5%) of the
total purchase price paid by the Investor for the Securities  hereunder for each
thirty  (30)  day  period  (or  portion  thereof)  elapsing  from  the  Required
Disclosure  Date until Company makes the required  disclosure in accordance with
this Section 4.11 (the  "Disclosure  Date"),  plus (2) (b) in the event that the
VWAP on the first Trading Day after the Disclosure Date is less than the VWAP on
the Required  Disclosure  Date, the amount of such difference  multiplied by the
number of Securities and (ii) without any further action required,  the Exercise
Price of the Series A Warrants shall be automatically reduced to equal $1.50 per
share and the Expiration Date of the Series A Warrants shall be extended one day
for each day elapsing  from the Required  Disclosure  Date until the  Disclosure
Date.  The  amounts  payable  as partial  liquidated  damages  pursuant  to this
paragraph shall be payable in lawful money of the United States beginning on the
fifth day  following the Required  Disclosure  Date and on the fifth day of each
successive month thereafter.  If the Company fails to pay any partial liquidated
damages  pursuant  to this  Section  in full  within  seven  days after the date
payable,  the Company will pay interest  thereon at a rate 9% per annum (or such
lesser  maximum  amount that is permitted to be paid by  applicable  law) to the
Investor,  accruing daily from the date such partial  liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full.

                                       18
<PAGE>

     4.12 Sales by Investors.  Each Investor will sell any Securities sold by it
in compliance  with  applicable  prospectus  delivery  requirements,  if any, or
otherwise in compliance with the requirements for an exemption from registration
under the Securities Act and the rules and regulations  promulgated  thereunder.
No Investor will make any sale,  transfer or other disposition of the Securities
in violation of federal or state securities  laws.  Investor  acknowledges  that
Investor has been provided with material nonpublic information and agrees to not
publicly disclose such information  until it has been publicly  disclosed by the
Company.  Investor  further  acknowledges  that  Investor  may not  engage  in a
transaction  to  buy  or  sell  any  of  the  Company's  securities  until  such
information is publicly  disclosed by the Company pursuant to Section 4.11 above
or otherwise becomes public information.

     4.13  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 Investors.

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

     4.15 Prohibited Transactions.

          (a) From the date hereof until the  expiration of fifteen (15) Trading
     Days after a  registration  statement  filed  pursuant to the  Registration
     Rights  Agreement  has been  declared  effective,  the  Company  will  not,
     directly or  indirectly,  offer,  sell,  grant any option to  purchase,  or
     otherwise dispose of any of its equity securities or securities convertible
     into its equity securities. Notwithstanding the foregoing, the Company may,
     at any time,  (i) issue any  equity  securities  it is  obligated  to issue
     pursuant  to any  agreement  to which it is a party as of the date  hereof,
     including but not limited to all agreements  with the Investors,  placement
     agents,  consultants and licensors,  and any amendment  thereto  subsequent
     hereto,  provided any such amendment is approved by a majority of the Board
     of Directors,  (ii) issue options,  equity  securities or similar awards to
     employees,  consultants  and  directors of the Company  upon  approval of 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,  (iii) issue equity securities as a
     dividend or  distribution  with  respect to all of the  outstanding  Common
     Stock, (iv) issue equity  securities or securities  convertible into equity
     securities to any bank or equipment  lessor in connection  with a financing
     or equipment lease, or (v) issue Common Stock as a result of a reduction in
     the exercise  price of any of the Series A Warrants,  the Series B Warrants
     or Series C Warrants,  (vi) issue  Common Stock or options for Common Stock
     pursuant to the Amended and Restated  License  Agreement dated December 30,
     2004 with the  University  of Chicago,  including  any  amendments  thereto
     approved by a majority of the Board of Directors,  (vii) issue Common Stock
     pursuant to a "Strategic  Transaction"  approved by a majority of the Board
     of Directors. A "Strategic Transaction" shall mean (x) any transaction with
     an acquiror,  acquisition target company or merger partner,  or (y) a joint
     venture,  corporate alliance,  research agreement or licensing  transaction
     with  respect  to one or more  technologies,  assets,  compounds,  compound
     families,  and/or products or product  candidates,  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;  or (viii)  issue common stock and Warrants in a
     second  offering  (the  "Second  Offering")  on  terms  the  same as  those
     contained herein;  provided such Second Offering is for an aggregate amount
     no greater  than the  difference  of $10 million and the  aggregate  amount
     raised pursuant to this Agreement; and provided that the Second Offering is
     consummated within thirty days of the last Closing Date hereunder.

                                       19
<PAGE>

          (b) From the date hereof until the second  anniversary  of the Closing
     Date,  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 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.

Notwithstanding   anything  contained  herein  or  in  the  Registration  Rights
Agreement to the contrary,  either as part of the sale to Investors, or any time
subsequent to the Closing Date,  Company may offer shares of Common Stock,  at a
conversion  price of $1.50  per  share,  and the  Series  A  Warrants,  Series B
Warrants and Series C Warrants  plus up to 20,000  shares per $100,000 of Bridge
Note  principle  to holders of the Bridge Notes in exchange for the Bridge Notes
and the right to a warrant (the  "Bridge  Warrant")  associated  with the Bridge
Notes;  provided the Company reserves the right to issue an additional number of
shares to the Bridge  Warrant  holders as  approved  by the  Company's  Board of
Directors  in  order to  facilitate  such an  exchange.  Such  Warrants  will be
exercisable for the same number of shares (i.e. warrant coverage) as if they had
been sold pursuant to this  Agreement,  with the same exercise  prices and other
terms  and  shall be  coterminous  with the other  Series A  Warrants,  Series B
Warrants and Series C Warrants,  as the case may be. In such event,  the Company
may offer the Bridge Note  holders the same  registration  rights as provided in
the Registration Rights Agreement.  Notwithstanding anything contained herein or
in the Registration Rights Agreement to the contrary, the Company may include in
the Registration  Statement filed pursuant to the Registration  Rights Agreement
the resale of: (i) all shares issued to the Bridge Note holders, both previously
and upon conversion or exchange of the Bridge Notes and Bridge Warrants, or upon
exercise of the Bridge Warrants or any Warrants issued to them, (ii) shares, and
shares  issuable upon exercise of warrants,  issued to the placement  agents and
consultants in connection  with the sale of the Notes and the sale of securities
pursuant  to this  Agreement;  (iii)  shares  issued to  Sanders  Morris  Harris
pursuant to the Company's engagement letter and Placement Agent Agreement;  (iv)
shares issued to the  University of Chicago  pursuant to an Amended and Restated
License  Agreement  dated  December  30,  2004;  as  may be  amended;  (v) up to
approximately 1,812,000 shares held by Mr. George Jarkesy and Brewer & Pritchard
PC and (vi) shares issued to purchasers in a Second  Offering  including  shares
issuable to such  purchasers  upon  exercise  of  Warrants  issued in the Second
Offering.

                                       20
<PAGE>

                                   ARTICLE V
                TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS

     5.1 Issuance of Certificates. The Company shall instruct its transfer agent
to issue  certificates,  registered in the name of each Investor or its nominee,
for Common Shares and Warrant  Shares in such amounts as specified  from time to
time by each  Investor to the Company  issuable upon exercise of the Warrants in
accordance  with their terms.  All costs and expenses  related to the removal of
the legends and the reissuance of any Securities  shall be borne by the Company.
So long as  required  by this  Article  V, all such  certificates  will bear the
restrictive  legend  described in Section 2.7, except as otherwise  specified in
this  Article  V.  Nothing  in  this  Section  5.1  will  affect  in any way the
Investors'  obligations  and agreement set forth in Section 2.7 hereof to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Common Shares and the Warrant Shares.

     5.2 Unrestricted Securities.

          (a) Subject to Section 4.12 hereof, certificates evidencing the Common
     Shares and  Warrant  Shares  shall not contain  any legend  (including  the
     legend set forth in Section 2.7 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
     Common  Shares or Warrant  Shares  pursuant  to Rule 144,  or (iii) if such
     Common Shares or Warrant Shares are eligible for sale under Rule 144(k), or
     (iv) if such legend is not required under  applicable  requirements  of the
     Securities  Act  (including  judicial  interpretations  and  pronouncements
     issued by the staff of the Commission).  If all or any portion of a Warrant
     is  converted  or  exercised  (as  applicable)  at a time when  there is an
     effective  registration  statement to cover the resale of the Common Shares
     or Warrant  Shares,  or if such Common Shares or Warrant Shares may be sold
     under  Rule  144(k)  or if such  legend  is not  otherwise  required  under
     applicable   requirements   of  the  Securities  Act  (including   judicial
     interpretations  thereof)  then such Common  Shares or Warrant  Shares,  as
     applicable,  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 5.2, it will,  no later than five Trading Days
     following  the  delivery by an  Investor  to the  Company or the  Company's
     transfer  agent of a  certificate  representing  Common  Shares or  Warrant
     Shares, as applicable, issued with a restrictive legend (such third Trading
     Day, the "Legend Removal  Date"),  deliver or cause to be delivered to such
     Investor  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 Securities  subject to legend removal  hereunder shall be
     transmitted  by the  transfer  agent of the  Company  to the  Investors  by
     crediting the account of the  Investor's  prime broker with the  Depository
     Trust Company System.

                                       21
<PAGE>

          (b) In addition  to such  Investor's  other  available  remedies,  the
     Company shall pay to an Investor,  in cash, as partial  liquidated  damages
     and not as a penalty,  for each $1,000 of Common Shares (or Warrant  Shares
     underlying a Warrant tendered for legend removal) (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 5.2(a), $10 per Trading Day (increasing to $20 per Trading Day 5
     Trading  Days after such damages have begun to accrue) for each Trading Day
     after the Legend Removal Date until such certificate is delivered without a
     legend.  Nothing herein shall limit such Investor'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  Investor
     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,  without the necessity of showing economic loss
     and without any bond or other security being required.

          (c) Each Investor, severally and not jointly with the other Investors,
     agrees  that  the  removal  of the  restrictive  legend  from  certificates
     representing Securities as set forth in this Section 5.2 is predicated upon
     the Company's reliance that the Investor will sell any Securities  pursuant
     to either the  registration  requirements of the Securities Act,  including
     any applicable prospectus delivery requirements, or an exemption therefrom.

                                   ARTICLE VI
                 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL

     The  obligation  of the  Company  to issue and sell the  Common  Shares and
Warrants to each Investor at the Closing is subject to the  satisfaction by such
Investor,  on or before the Closing Date,  of each of the following  conditions.
These  conditions  are for the  Company's  sole benefit and may be waived by the
Company at any time in its sole discretion:

     6.1 The Investor  will have executed  this  Agreement and the  Registration
Rights Agreement and will have delivered those agreements to the Company.

     6.2 The Investor  will have  delivered  the  purchase  price for the Common
Shares to the Company in accordance with this Agreement.

     6.3 The  representations  and  warranties  of the Investor must be true and
correct in all  material  respects as of the Closing Date as though made at that
time  (except for  representations  and  warranties  that speak as of a specific
date, which representations and warranties must be correct as of such date), and
the Investor will have performed and complied in all material  respects with the
covenants and conditions  required by this Agreement to be performed or complied
with by the Investor at or prior to the Closing.

     6.4 No litigation,  statute,  rule,  regulation,  executive order,  decree,
ruling or injunction will have been enacted, entered, promulgated or endorsed by
or in any court or  governmental  authority  of  competent  jurisdiction  or any
self-regulatory  organization  having  authority  over the matters  contemplated
hereby which prohibits the consummation of any of the transactions  contemplated
by this Agreement.

                                       22
<PAGE>

                                  ARTICLE VII
               CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE

     The  obligation  of each  Investor  hereunder to purchase the Common Shares
from the Company at the Closing is subject to the satisfaction, on or before the
Closing Date, of each of the following conditions. These conditions are for each
Investor's  respective  benefit and may be waived by any Investor at any time in
its sole discretion:

     7.1 The Company will have  executed  this  Agreement  and the  Registration
Rights Agreement and each such Agreement will have been delivered the Investor.

     7.2  The  Company  will  have  delivered  to the  Investors  duly  executed
certificates  representing  the Common Shares and duly executed  Warrants in the
amounts and forms specified in Sections 1.1 and 1.4 hereof.

     7.3 The  representations  and  warranties  of the Company  must be true and
correct in all  material  respects as of the Closing as though made at that time
(except for  representations  and  warranties  that speak as of a specific date,
which  representations  and warranties must be true and correct as of such date)
and the Company must have  performed and complied in all material  respects with
the  covenants  and  conditions  required by this  Agreement  to be performed or
complied with by the Company at or prior to the Closing.  The Investor must have
received a certificate or certificates dated as of the Closing Date and executed
by the Chief  Executive  Officer or the Chief  Financial  Officer of the Company
certifying  as to the matters in  contained  in this  Section 7.3 and as to such
other matters as may be reasonably  requested by such Investor,  including,  but
not limited to, the Company's  Certificate of Incorporation,  By-laws,  Board of
Directors' resolutions relating to the transactions  contemplated hereby and the
incumbency and signatures of each of the officers of the Company who may execute
on  behalf  of  the  Company  any  document  delivered  at the  Closing.

     7.4 No litigation,  statute,  rule,  regulation,  executive order,  decree,
ruling or injunction will have been enacted, entered, promulgated or endorsed by
or in any court or  governmental  authority  of  competent  jurisdiction  or any
self-regulatory  organization  having  authority  over the matters  contemplated
hereby which prohibits the consummation of any of the transactions  contemplated
by this Agreement.

     7.5 Trading and  listing of the Common  Stock on the Nasdaq  OTCBB must not
have been suspended by the SEC or the Nasdaq, nor shall Nasdaq have notified the
Company of any  failure  of the  Company  to meet any of the  continued  listing
standards.

     7.6 The Investors  will have received an opinion of the Company's  counsel,
dated  as  of  the  Closing  Date,  in  form,  scope  and  substance  reasonably
satisfactory to the Investors.

                                       23
<PAGE>

                                  ARTICLE VIII
                                 INDEMNIFICATION

     8.1  Indemnification  by  Company.  In  consideration  of  each  Investor's
execution and delivery of this  Agreement and its  acquisition of the Securities
hereunder,  and in addition to all of the Company's other obligations under this
Agreement, the Registration Rights Agreement, and the Warrants, the Company will
defend, protect, indemnify and hold harmless each Investor and each other holder
of the Securities and all of their stockholders, officers, directors, employees,
advisors  and direct or indirect  investors  and any of the  foregoing  person's
agents or other representatives (including,  without limitation,  those retained
in  connection   with  the   transactions   contemplated   by  this   Agreement)
(collectively,  the "Indemnitees") from and against any and all actions,  causes
of action,  suits,  claims,  losses,  costs,  penalties,  fees,  liabilities and
damages,  and expenses in connection  therewith  (regardless of whether any such
Indemnitee  is a party to the  action  for which  indemnification  hereunder  is
sought),  and including  reasonable  attorneys' fees and  disbursements  and the
costs of  collection  and  enforcement  of the terms of this  Agreement  and the
Transaction Documents (the "Indemnified  Liabilities"),  incurred or suffered by
an  Indemnitee  as a result of, or arising out of, or relating to (a) any breach
of any  representation  or warranty  made by the Company  herein or in any other
certificate,  instrument  or document  contemplated  hereby or thereby,  (b) any
breach of any covenant,  agreement or obligation of the Company contained herein
or in any other  certificate,  instrument  or  document  contemplated  hereby or
thereby,  or (c) any cause of action, suit or claim brought or made against such
Indemnitee  and  arising  out of or  resulting  from  the  execution,  delivery,
performance,  breach or enforcement of this Agreement,  the Registration  Rights
Agreement or the Warrants by the Company; provided,  however, that, with respect
to this  clause  (c),  the  Company  shall  not be  liable  to the  extent  such
Indemnified   Liabilities  are  finally  determined  by  a  court  of  competent
jurisdiction  to have  resulted  primarily  and  directly  from  the  Investors'
negligence or willful misconduct.  To the extent that the foregoing  undertaking
by the  Company is  unenforceable  for any  reason,  the  Company  will make the
maximum  contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law.

                                   ARTICLE IX
                                   DEFINITIONS

     9.1 "Additional Shares" has the meaning set forth in Section 4.13.

     9.2 "Bridge  Loan  Shares"  means those  shares of Common  Stock  issued in
connection with the Bridge Notes.

     9.3 "Bridge Notes" means those promissory notes for an aggregate  principal
amount  of $6.1  million  issued  by the  Company  between  September  2004  and
February, 2005.

     9.4  "Closing"  means the  closing of the  purchase  and sale of the Common
Shares.

     9.5 "Closing Date" has the meaning set forth in Section 1.3.

     9.6 "Common Shares" has the meaning set forth in the recitals.

                                       24
<PAGE>

     9.7 "Common  Stock" means the common stock,  par value $0.05 per share,  of
the Company.

     9.8 "Company" means PharmaFrontiers Corp.

     9.9 "Company Permit" has the meaning set forth in Section 3.19.

     9.10  "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 SEC.

     9.11 "Environmental Laws" has the meaning set forth in Section 3.14.

     9.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     9.13  "Indebtedness for Borrowed Money" shall include only (i) indebtedness
of the Company and its Subsidiaries incurred as the result of a direct borrowing
of  money,   and  (ii)  guarantees  by  the  Company  and  its  Subsidiaries  of
indebtedness  of third  parties,  and shall not include  any other  indebtedness
including,  but not  limited to,  indebtedness  incurred  with  respect to trade
accounts, equipment leases, and intercompany loans.

     9.14 "Indemnified Liabilities" has the meaning set forth in Article VIII.

     9.15 "Indemnitees" has the meaning set forth in Article VIII.

     9.16 "Intellectual Property" has the meaning set forth in Section 3.10.

     9.17  "Investors"  means  the  investors  whose  names are set forth on the
signature pages of this Agreement, and their permitted transferees.

     9.18 "Material  Adverse Effect" means a material  adverse effect on (a) the
assets,  liabilities,  business,  properties,  operations,  financial condition,
prospects or results of operations of the Company and its Subsidiaries, taken as
a whole, or (b) the ability of the Company to perform its  obligations  pursuant
to the  transactions  contemplated  by this Agreement or under the agreements or
instruments to be entered into or filed in connection herewith.

     9.19 "Nasdaq" means the Nasdaq SmallCap Market.

     9.20 "Option  Plan" means the Company's  2004 Stock Option Plan,  including
all amendments thereto.

     9.21  "OTCBB"  means  the  OTC  Bulletin  Board  operated  by the  National
Association of Security Dealers, Inc.

     9.22 "Private Placement  Memorandum" means the Private Placement Memorandum
dated  March 1, 2005 issued by the  Company  and to which this  Agreement  is an
Exhibit.

                                       25
<PAGE>

     9.23  "Registration   Rights  Agreement"  means  the  Registration   Rights
Agreement,  dated as of the date of this Agreement and among the parties to this
Agreement, in the form attached hereto as Exhibit C.

     9.24  "Regulation D" means Regulation D as promulgated by the SEC under the
Securities Act.

     9.25  "Rule  144"  and  "Rule  144(k)"  mean  Rule  144  and  Rule  144(k),
respectively, promulgated under the Securities Act, or any successor rule.

     9.26 "SEC" means the Securities and Exchange Commission.

     9.27 "SEC Documents" has the meaning set forth in Section 3.7.

     9.28 "Securities" means the Common Shares, Warrants and Warrant Shares.

     9.29 "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute.

     9.30  "Subsidiaries"  means any entity in which the  Company,  directly  or
indirectly, owns capital stock or holds an equity or similar interest.

     9.31  "Trading  Day" means a day on which the OTC  Bulletin  Board,  Nasdaq
SmallCap Market, American Stock Exchange or such other securities market, in any
such case which at the time constitutes the principal  securities market for the
Common Stock, is open for general trading of securities.

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

     9.33  "Transaction  Documents"  shall have the meaning set forth in Section
10.16.

     9.34 "VWAP" means,  for any date, the price  determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common  Stock is then listed or quoted as reported by Bloomberg  Financial  L.P.
(based on a Trading Day from 9:30 a.m.  Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading  Market and if
prices for the  Common  Stock are then  quoted on the OTC  Bulletin  Board,  the
volume weighted  average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin  Board;  (c) if the Common Stock is not then
listed or quoted on the OTC  Bulletin  Board and if prices for the Common  Stock
are then reported in the "Pink Sheets"  published by the 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 (c) in
all other cases,  the fair market value of a share of Common Stock as determined
by an  independent  appraiser  selected  in  good  faith  by the  Investors  and
reasonably acceptable to the Company.

                                       26
<PAGE>

     9.35 "Warrant  Shares"  means the shares of Common Stock  issuable upon the
exercise (or otherwise) of the Warrants.

     9.36 "Warrants" means the Series A Warrants, Series B Warrants and Series C
Warrants to purchase  shares of Common Stock,  in the forms  attached  hereto as
Exhibits C, D and E, respectively.

                                   ARTICLE X
                    TERMINATION; GOVERNING LAW; MISCELLANEOUS

     10.1 Termination.  This Agreement may be terminated by any Investor,  as to
such Investor's  obligations hereunder only and without any effect whatsoever on
the obligations  between the Company and the other Investors,  by written notice
to the other parties,  if the Closing has not been  consummated on or before May
6, 2005;  provided,  however,  that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).

     10.2  Governing Law;  Jurisdiction.  This Agreement will be governed by and
interpreted in accordance  with the laws of the State of New York without regard
to the  principles of conflict of laws.  The parties hereto hereby submit to the
jurisdiction  of the United States federal and state courts located in the State
of New York with  respect  to any  dispute  arising  under this  Agreement,  the
agreements entered into in connection herewith or the transactions  contemplated
hereby or thereby.

     10.3 Counterparts;  Signatures by Facsimile. This Agreement may be executed
in two or more  counterparts,  all of  which  are  considered  one and the  same
agreement and will become effective when  counterparts  have been signed by each
party and delivered to the other  parties.  This  Agreement,  once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement  bearing the signature of the party so delivering  this
Agreement.

     10.4  Headings.  The  headings of this  Agreement  are for  convenience  of
reference  only,  are  not  part  of  this  Agreement  and  do  not  affect  its
interpretation.

     10.5  Severability.  If any  provision  of this  Agreement  is  invalid  or
unenforceable  under any applicable  statute or rule of law, then such provision
will be deemed  modified in order to conform  with such  statute or rule of law.
Any provision hereof that may prove invalid or unenforceable  under any law will
not affect the validity or enforceability of any other provision hereof.

     10.6 Payment Set Aside.  To the extent that the Company  makes a payment or
payments to any  Investor  pursuant to any  Transaction  Document or an Investor
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.

                                       27
<PAGE>

     10.7 Entire Agreement.  This Agreement,  the Registration  Rights Agreement
and the Warrants  (including all schedules and exhibits thereto)  constitute the
entire  agreement  among the parties  hereto with respect to the subject  matter
hereof  and  thereof.  There  are  no  restrictions,   promises,  warranties  or
undertakings,  other than those set forth or referred to herein or therein. This
Agreement  supersedes all prior agreements and understandings  among the parties
hereto with respect to the subject matter hereof.

     10.8 Investor Approvals.  Except as otherwise specifically provided herein,
in each case in which approval of the Investors is required by the terms of this
Agreement,  such requirement shall be satisfied only upon receipt of the written
consent of each Investor.

     10.9  Amendments,  Changes,  Waivers,  etc.  Neither this Agreement nor any
provision  hereof may be amended,  changed,  waived,  discharged  or  terminated
orally,  but only by a  statement  in writing  signed by  Investors  agreeing to
purchase,  or after the  Closing,  holding  not less  than 80% of the  shares of
Common  Stock  sold  hereunder;  notwithstanding  the  foregoing  the  following
provisions  may not be amended  except in a writing  signed by the party against
which  enforcement of the amendment is sought:  Article 1, Sections 4.10 through
4.16,  Article V, Article VII, Section 10.1, 10.8, 10.9, 10.13,  10.17 and 10.18
and any  provisions  herein that specify  liquidated  damages or penalties.  The
terms  of the  agreements  attached  as  Exhibits  hereto  may  only be  amended
according to the terms of such agreements.

     10.10  Notices.  Any notices  required or  permitted  to be given under the
terms of this  Agreement  must be sent by certified or  registered  mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight  delivery  service) or by facsimile  and will be  effective  five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered  personally,  by courier (including a recognized overnight delivery
service) or by facsimile,  in each case addressed to a party.  The addresses for
such communications are:

           If to the Company: PharmaFrontiers Corp.
                              2408 Timberloch Place, Suite B-7
                              The Woodlands, Texas 77380
                              Attn: David McWilliams, President
                              Facsimile: (281) 272-1088

           With a copy to:    Vinson & Elkins L.L.P.
                              1001 Fannin, Suite 2300
                              Houston, Texas 77002
                              Attn: Michael C. Blaney
                              Facsimile: (713) 615-5487

     If to an  Investor:  To  the  address  set  forth  immediately  below  such
Investor's name on the signature pages hereto`

                                       28
<PAGE>

     Each party will provide  written  notice to the other parties of any change
in its address.

     10.11 Successors and Assigns.  This Agreement is binding upon and inures to
the benefit of the parties and their  successors  and assigns.  The Company will
not assign this  Agreement or any rights or  obligations  hereunder  without the
prior  written  consent  of the  Investors,  and no  Investor  may  assign  this
Agreement  or any rights or  obligations  hereunder  without  the prior  written
consent of the Company.  Notwithstanding  the foregoing,  an Investor may assign
all or part of its rights and obligations  hereunder to any of its "affiliates,"
as that term is defined  under the  Securities  Act,  without the consent of the
Company so long as the affiliate is an accredited  investor  (within the meaning
of Regulation D under the  Securities  Act) and agrees in writing to be bound by
this Agreement.  This provision does not limit the Investor's  right to transfer
the  Securities  pursuant  to the  terms  of this  Agreement  or to  assign  the
Investor's rights hereunder to any such transferee pursuant to the terms of this
Agreement.

     10.12 Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit  of, nor may any  provision  hereof be  enforced  by, any
other person.

     10.13 Survival.  All representations and warranties  contained herein shall
survive the execution and delivery of this Agreement,  any  investigation at any
time made by the Investors or on their behalf,  and the sale and purchase of the
Common Shares and the Warrants and payment therefor. All statements contained in
any  certificate,  instrument or other writing  delivered by or on behalf of the
Company   pursuant  hereto  or  in  connection  with  or  contemplation  of  the
transactions  herein  contemplated  (other than legal opinions) shall constitute
representations and warranties by the Company hereunder.

     10.14  Publicity.  The Company may make any press  release or SEC or Nasdaq
filings with respect to such  transactions as are required by applicable law and
regulations  (including  NASD  requirements)  without the prior  approval of the
Investors (although the Company will make reasonable efforts to consult with the
Investors in  connection  with any such press  release  prior to its release and
filing).

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

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

     10.17 Equitable Relief. The Company recognizes that, if it fails to perform
or discharge any of its obligations under this Agreement,  any remedy at law may
prove to be inadequate  relief to the Investors.  The Company  therefore  agrees
that the Investors are entitled to temporary and permanent  injunctive relief in
any such case without the necessity of proving actual damages.

                                       29
<PAGE>

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

     10.19  Independent  Nature  of  Investors'   Obligations  and  Rights.  The
obligations  of each  Investor  under any of the  Warrant,  Registration  Rights
Agreement or this Agreement  (collectively,  the  "Transaction  Documents")  are
several  and not  joint  with the  obligations  of any  other  Investor,  and no
Investor shall be responsible in any way for the  performance of the obligations
of any other  Investor  under any  Transaction  Document.  The  decision of each
Investor to purchase  Common Shares  pursuant to the  Transaction  Documents has
been  made  by  each  Investor  independently  of any  other  Investor.  Nothing
contained  herein or in any  Transaction  Document,  and no action  taken by any
Investor  pursuant  thereto,  shall be deemed to  constitute  the Investors as a
partnership,  an  association,  a joint venture or any other kind of entity,  or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the  transactions  contemplated by the
Transaction  Document.  Each Investor shall be entitled to independently protect
and enforce its rights,  including without  limitation the rights arising out of
this Agreement or out of the other  Transaction  Documents,  and it shall not be
necessary  for any other  Investor  to be joined as an  additional  party in any
proceeding for such purpose.  Each Investor  acknowledges that no other Investor
has acted as agent for the  Investor in  connection  with making its  investment
hereunder and that no other  Investor will be acting as agent of the Investor in
connection  with monitoring its investment in the Common Shares or enforcing its
rights under the Transaction  Documents.  Each Investor has been  represented by
its  own  separate  legal  counsel  in  their  review  and  negotiation  of  the
Transaction Documents. The Company has elected to provide all Investors 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 Investors.

                                       30
<PAGE>

     IN WITNESS WHEREOF,  the undersigned  Investors and the Company have caused
this Agreement to be duly executed as of the date first above written.

                                              COMPANY:

                                              PHARMAFRONTIERS CORP.

                                              By: /s/ David B. McWilliams
                                                  ------------------------------
                                                  David B. McWilliams, President

                       [Signatures continued on next page]

                                       31
<PAGE>

                                              INVESTOR:

                                              INVESTOR'S NAME:
                                                              ------------------

                                              By: /s/
                                                  ------------------------------
                                              Print Name:
                                                         -----------------------
                                              Title:
                                                    ----------------------------

Number of Shares:
                 ---------------------
Aggregate Purchase Amount:  $
                             ------------------

INVESTOR'S ADDRESS:

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

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

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

(any notice hereunder to this Investor shall include a copy to):

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

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

    -------------------------------
    Attn:
         --------------------------

     [Signature Page to PharmaFrontiers Corp. Securities Purchase Agreement]

                                       32
<PAGE>

                                  SCHEDULE 3.1
                                       TO
                          SECURITIES PURCHASE AGREEMENT

                                  SUBSIDIARIES
                                  ------------

1.   Opexa Pharmaceuticals, Inc. a Delaware corporation

2.   Al Magnus, Inc., a Texas corporation

                                       33Exhibit 10.19

                          REGISTRATION RIGHTS AGREEMENT

     THIS  REGISTRATION  RIGHTS AGREEMENT (the  "Agreement") is made and entered
into  as  of  the  17th  day  of  June,  2005  (the  "Effective  Date")  between
PharmaFrontiers Corp., a Texas corporation (the "Company"),  and the parties set
forth on the  signature  pages and Exhibit A hereto  (each,  an  "Investor"  and
collectively,  the "Investors").  The Company shall amend Exhibit A as necessary
to reflect new signatories hereto.

                                    RECITALS:

     A. The Investors  have purchased  shares of the Company's  Common Stock (as
defined below) pursuant to Securities  Purchase  Agreements (each, a "Securities
Purchase Agreement" and collectively,  the "Securities Purchase  Agreements") by
and between the Company and each Investor.

     B. In connection  with their  purchase of the Common  Stock,  the Investors
also received  warrants  (the  "Investor  Warrants")  to purchase  shares of the
Common Stock;

     C. Between  September 2004 and February 2005, the Company sold  convertible
notes (the "Notes"), 612,486 shares ("Note Shares") of Common Stock and warrants
(the "Note Warrants") to purchase shares of Common Stock;

     D. The Company previously  entered into two Registration  Rights Agreements
(the "Note Holders  Registration  Agreements") with the purchasers of the Notes;
one granting  registration  rights with respect to shares issued upon conversion
of the Notes and the other  granting  registration  rights  with  respect to the
shares issued upon exercise of the Note Warrants;

     E. The  Company  has  also  issued  warrants  (together  with the  Purchase
Warrants,  the "Warrants") to purchase  shares of the Company's  common stock to
Sanders Morris Harris Inc., a Texas corporation (the "Placement Agent").

     F. The Company, the Investors,  and the Placement Agent desire to set forth
the  registration  rights to be granted by the Company to the  Investors and the
Placement Agent.

     NOW, THEREFORE,  in consideration of the mutual promises,  representations,
warranties,  covenants,  and  conditions  set forth herein and in the Securities
Purchase Agreements, the parties mutually agree as follows:

                                   AGREEMENT:

     1. CERTAIN  DEFINITIONS.  As used in this  Agreement,  the following  terms
shall have the following respective meanings:

     "APPROVED  MARKET"  means  the NASD OTC  Bulletin  Board,  Nasdaq  National
Market,  the Nasdaq SmallCap Market,  the New York Stock Exchange,  Inc., or the
American Stock Exchange, Inc.

                                       1
<PAGE>

     "BLACKOUT PERIOD" means,  with respect to a registration,  a period in each
case commencing on the day immediately  after the Company notifies the Investors
and the  Placement  Agent that it is  required,  pursuant  to Section  4(h),  to
suspend offers and sales of Registrable  Securities during which the Company, in
the good faith  judgment of its Board of Directors,  determines  (because of the
existence of, or in anticipation of, any  acquisition,  financing  activity,  or
other  transaction  involving  the Company,  or the  unavailability  for reasons
beyond the Company's control of any required financial statements, disclosure of
information which is in its best interest not to publicly disclose, or any other
event or condition of similar significance to the Company) that the registration
and   distribution  of  the  Registrable   Securities  to  be  covered  by  such
registration  statement,  if any, would be seriously  detrimental to the Company
and its  stockholders  and ending on the  earlier of (1) the date upon which the
material  nonpublic  information  commencing the Blackout Period is disclosed to
the public or ceases to be material  and (2) such time as the  Company  notifies
the selling  Holders  that the Company  will no longer  delay such filing of the
Registration  Statement,  recommence  taking  steps  to make  such  Registration
Statement effective,  or allow sales pursuant to such Registration  Statement to
resume;  provided,  however,  that the  Company  shall limit its use of Blackout
Periods, in the aggregate, to 20 Trading Days in any 12 month period.

     "BUSINESS DAY" means any day of the year, other than a Saturday, Sunday, or
other day on which the Commission is required or authorized to close.

     "CLOSING  DATE"  means the date on which the sale  referred to in Recital A
above is closed.

     "COMMISSION"  means the  Securities  and Exchange  Commission  or any other
federal agency at the time administering the Securities Act.

     "COMMON  STOCK" means the common stock,  par value $0.05 per share,  of the
Company and any and all shares of capital stock or other equity  securities  of:
(i) the Company  which are added to or exchanged or  substituted  for the Common
Stock by reason of the  declaration  of any stock  dividend or stock split,  the
issuance   of   any   distribution   or  the   reclassification,   readjustment,
recapitalization  or other such  modification  of the capital  structure  of the
Company;  and (ii) any other corporation,  now or hereafter  organized under the
laws of any state or other  governmental  authority,  with which the  Company is
merged,  which results from any  consolidation  or  reorganization  to which the
Company is a party, or to which is sold all or  substantially  all of the shares
or assets of the  Company,  if  immediately  after such  merger,  consolidation,
reorganization  or sale,  the  Company or the  stockholders  of the  Company own
equity  securities  having in the  aggregate  more than 50% of the total  voting
power of such other corporation.

     "EFFECTIVENESS  DATE" means (a) with respect to the Registration  Statement
required to be filed under Section 3(a)(i),  the earlier of: (a)(i) the 90th day
following  the Closing  Date, or 120th day following the Closing Date if the SEC
elects to review the  Registration  Statement,  and (ii) the fifth  Trading  Day
following the date on which the Company is notified by the  Commission  that the
First  Registration  Statement  will not be reviewed or is no longer  subject to
further review and comments and (b) with respect to any additional  Registration
Statements that may be required pursuant to Section 3(b)(ii), the earlier of (i)
the 90th day following (x) if such  Registration  Statement is required  because
the  Commission  shall  have  notified  the  Company

                                       2
<PAGE>

in writing that certain  Registrable  Securities were not eligible for inclusion
on a  previously  filed  Registration  Statement,  the date or time on which the
Commission  shall indicate as being the first date or time that such Registrable
Securities  may then be included  in a  Registration  Statement,  or (y) if such
Registration  Statement  is required for a reason other than as described in (x)
above,  the date on which the Company  first knows,  or  reasonably  should have
known, that such additional Registration  Statement(s) is required, and (ii) the
fifth  Trading  Day  following  the date on which the Company is notified by the
Commission that such additional  Registration  Statement will not be reviewed or
is no longer subject to further review and comment.

     "EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 3(a).

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

     "FAMILY MEMBER" means (a) with respect to any individual, such individual's
spouse,  any  descendants  (whether  natural or  adopted),  any trust all of the
beneficial  interests of which are owned by any of such individuals or by any of
such individuals  together with any organization  described in Section 501(c)(3)
of the  Internal  Revenue  Code of 1986,  as  amended,  the  estate  of any such
individual, and any corporation,  association,  partnership or limited liability
company all of the equity  interests of which are owned by those above described
individuals,  trusts or  organizations  and (b) with  respect to any trust,  the
owners of the beneficial interests of such trust.

     "HOLDER"  means  each  Investor,  the  Placement  Agent,  or  any  of  such
Investor's  respective  successors  and Permitted  Assigns who acquire rights in
accordance  with this  Agreement  with  respect  to the  Registrable  Securities
directly or indirectly from an Investor or the Placement  Agent,  including from
any Permitted Assignee.

     "INSPECTOR" means any attorney,  accountant,  or other agent retained by an
Investor for the purposes provided in Section 4(j).

     "MAJORITY  HOLDERS"  means  at  any  time  Holders  of a  majority  of  the
Registrable Securities (assuming exercise of all the Warrants).

     "OFFERING PRICE" means $1.50 per share of Company's Common Stock.

     "PERMITTED ASSIGNEE" means (a) with respect to a partnership,  its partners
or former  partners in accordance  with their  partnership  interests,  (b) with
respect to a corporation,  its stockholders in accordance with their interest in
the corporation, (c) with respect to a limited liability company, its members or
former  members in  accordance  with their  interest  in the  limited  liability
company,  (d) with respect to an  individual  party,  any Family  Member of such
party, (e) an entity that is controlled by, controls, or is under common control
with a transferor, or (f) a party to this Agreement.

     "PURCHASED SHARES" means the shares of the Company's Common Stock purchased
pursuant to the Securities Purchase Agreement.

                                       3
<PAGE>

     The  terms  "REGISTER,"   "REGISTERED,"  and  "REGISTRATION"  refers  to  a
registration  effected  by  preparing  and filing a  registration  statement  in
compliance  with the  Securities  Act,  and the  declaration  or ordering of the
effectiveness of such registration statement.

     "REGISTRABLE  SECURITIES"  means shares of Common Stock (1) that constitute
Purchased  Shares (2) are issuable  upon exercise of any of the Warrants and (3)
that  constitute  Note  Shares,  but  excluding  (i) any  otherwise  Registrable
Securities  that  have been  publicly  sold or may be sold  immediately  without
registration or any other  restriction  under the Securities Act either pursuant
to  Rule  144(k)  of  the  Securities  Act  or  otherwise;  (ii)  any  otherwise
Registrable  Securities  sold  by  a  person  in  a  transaction  pursuant  to a
registration  statement  filed under the Securities  Act; or (iii) any otherwise
Registrable Securities that are at the time subject to an effective registration
statement under the Securities Act.

     "REGISTRATION   DEFAULT   PERIOD"   means  the  period   during  which  any
Registration Event occurs and is continuing.

     "REGISTRATION EVENT" means the occurrence of any of the following events:

          (a)  the  Company  fails to file with the  Commission  a  Registration
               Statement on or before the applicable Registration Filing Date,

          (b)  the  Company  fails to file with the  Commission  a  request  for
               acceleration in accordance  with Rule 461  promulgated  under the
               Securities  Act,  within five  Trading  Days of the date that the
               Company is notified (orally or in writing,  whichever is earlier)
               by the  Commission  that a  Registration  Statement  will  not be
               "reviewed," or not subject to further review,

          (c)  prior to the SEC  Effective  Date,  the  Company  fails to file a
               pre-effective  amendment  and  otherwise  respond  in  writing to
               comments made by the  Commission in respect of such  Registration
               Statement  within 15 calendar  days after the receipt of comments
               by or notice from the Commission  that such amendment is required
               in order for a Registration Statement to be declared effective,

          (d)  a Registration  Statement covering Registrable  Securities is not
               declared  effective by the Commission on or before the applicable
               Effectiveness Date,

          (e)  after the SEC  Effective  Date,  sales cannot be made pursuant to
               the  Registration  Statement  for any reason  (including  without
               limitation by reason of a stop order, or the Company's failure to
               update the Registration  Statement) for more than an aggregate of
               20 Trading Days in any 12 month period, or

          (f)  the  Common  Stock  generally  or  the   Registrable   Securities
               specifically  are not  listed or  included  for  quotation  on an
               Approved  Market,  or trading of the Common Stock is suspended or
               halted on the Approved Market,  which at the time constitutes the
               principal  market for the Common  Stock,  for more than two full,
               consecutive Trading Days; provided, however, a Registration Event
               shall not be deemed to occur if all or substantially  all trading
               in equity securities (including the Common Stock) is suspended or
               halted on the Approved Market for any length of time.

                                       4
<PAGE>

     "REGISTRATION   FILING   DATE"  means  (a)  with  respect  to  the  initial
Registration  Statement required to be filed under Section 3(a)(i), the 30th day
following the Closing Date and (b) with respect to any  additional  Registration
Statements  that may be  required  pursuant  to Section  3(b)(ii),  the 30th day
following (x) if such Registration  Statement is required because the Commission
shall have notified the Company in writing that certain  Registrable  Securities
were not eligible for inclusion on a previously  filed  Registration  Statement,
the date or time on which the Commission  shall indicate as being the first date
or time that such Registrable  Securities may then be included in a Registration
Statement,  or (y) if such Registration Statement is required for a reason other
than as  described  in (x) above,  the date on which the Company  first knows or
reasonably should have known that such additional  Registration  Statement(s) is
required.

     "REGISTRATION  STATEMENT" means the registration  statement  required to be
filed by the Company pursuant to Section 3(a).

     "SECURITIES  ACT" means the  Securities  Act of 1933,  as  amended,  or any
similar federal statute  promulgated in replacement  thereof,  and the rules and
regulations of the Commission thereunder,  all as the same shall be in effect at
the time.

     "SEC EFFECTIVE DATE" means the date the Registration  Statement is declared
effective by the Commission.

     "TRADING DAY" means a day on which the OTC Bulletin Board,  Nasdaq SmallCap
Market,  American Stock Exchange or such other  securities  market,  in any such
case  which at the time  constitutes  the  principal  securities  market for the
Common Stock, is open for general trading of securities.

     "WARRANTS" has the meaning provided in the Recitals.

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

     2.   TERM.  This  Agreement  shall  continue in full force and effect for a
          period of three (3) years from the Effective Date,  unless  terminated
          sooner hereunder.

     3.   REGISTRATION.

          (a)  REGISTRATION ON FORM SB-2.

                 (i)    As promptly  as  reasonably  practicable  after the date
               hereof, but in any event not later than 30 days after the Closing
               Date (the  "Registration  Filing  Date"),  the Company shall file
               with the Commission a shelf  registration  statement on Form SB-2
               relating  to the  resale by the  Holders  of all of the  Purchase
               Shares  and the Note  Shares and the sale of the  Warrant  Shares
               issued  pursuant to the  Warrants.  The Company  shall cause each
               Registration   Statement  to  be  declared  effective  under  the
               Securities  Act as soon as possible  but, in any event,  no later
               than its  Effectiveness  Date, and,  subject to Section 5 herein,
               shall use its best  efforts to keep each  Registration  Statement
               continuously  effective under the Securities Act until the second
               year after the date that the  Registration  Statement is declared
               effective  by the  Commission  or  such  earlier  date  when  all
               Registrable Securities covered by the Registration Statement have
               been sold or may be sold without volume restrictions  pursuant to
               Rule 144(k) as determined by the counsel to the Company  pursuant
               to a  written  opinion  letter  to  such  effect,  addressed  and
               acceptable  to the  Company's  transfer  agent  and the  affected
               Holders (the "Effectiveness Period").

                                       5
<PAGE>

                 (ii)   If (i) for any  reason the  Commission  does not permit
               all  of  the  Registrable   Securities  to  be  included  in  the
               Registration  Statement filed pursuant to Section 3(a) or for any
               other  reason  all  such  Registrable  Securities  are  not  then
               included in an effective  Registration Statement or (ii) from and
               after the date such terms as the anti-dilution  provisions of the
               Warrants would alter the Exercise Price,  thereby  resulting in a
               greater  number of Registrable  Securities  being issuable to the
               Holders,  then  the  Company  shall  prepare  and file as soon as
               possible after the date on which the Commission shall indicate as
               being the first date or time that such filing may be made, but in
               any event by the Registration Filing Date therefor, an additional
               Registration  Statement  covering  the resale of all  Registrable
               Securities  not  already  covered by an  existing  and  effective
               Registration Statement for an offering to be made on a continuous
               basis  pursuant  to Rule 415, on Form SB-2 or Form S-3 (except if
               the  Company  is not then  eligible  to  register  for resale the
               Registrable  Securities  on Form SB-2 or Form S-3,  in which case
               such registration  shall be on another  appropriate form for such
               purpose).

               Each  such  Registration   Statement  shall  contain  (except  if
               otherwise required pursuant to written comments received from the
               Commission  upon a review  of such  Registration  Statement)  the
               "Plan of  Distribution"  attached  hereto as ANNEX A. The Company
               shall  cause  each such  Registration  Statement  to be  declared
               effective  under the  Securities  Act as soon as possible but, in
               any event, no later than its Effectiveness  Date, and, subject to
               Section  5  herein,  shall  use its  best  efforts  to keep  such
               Registration   Statement   continuously   effective   under   the
               Securities Act during the entire Effectiveness Period.

               (b) PIGGYBACK REGISTRATION.  If the registration required by 3(a)
          is not effected and kept effective and the Company shall  determine to
          register  for  sale  for cash  any of its  Common  Stock,  for its own
          account or for the account of others (other than the  Holders),  other
          than (i) a registration  relating solely to employee  benefit plans or
          securities issued or issuable to employees, consultants (to the extent
          the  securities  owned  or to be owned  by such  consultants  could be
          registered  on Form S-8) or any of their Family  Members  (including a
          registration on Form S-8) or (ii) a registration  relating solely to a
          Commission  Rule  145  transaction,  a  registration  on  Form  S-4 in
          connection with a merger, acquisition, divestiture, reorganization, or
          similar event,  the Company shall promptly give to the Holders written
          notice  thereof  (and in no event shall such notice be given less than
          twenty  (20)  calendar  days prior to the filing of such  registration
          statement),  and  shall,  subject  to  Section  3(c),  include in such
          registration  (and any  related  qualification  under blue sky laws or
          other compliance) (a "Piggyback Registration"), all of the Registrable
          Securities specified in a written request or requests, made within ten
          (10)  calendar  days after  receipt of such  written  notice  from the
          Company, by any Holder or Holders.  However,  the Company may, without
          the consent of the Holders, withdraw such registration statement prior
          to its becoming  effective  if the Company or such other  stockholders
          have  elected to abandon  the  proposal  to  register  the  securities
          proposed to be registered thereby.

                                       6
<PAGE>

               (c) UNDERWRITING. If a Piggyback Registration is for a registered
          public offering involving an underwriting, the Company shall so advise
          the  Holders  in  writing  or as a part of the  written  notice  given
          pursuant  to  Section  3(b).  In such event the right of any Holder to
          registration  pursuant to Section 3(b) shall be conditioned  upon such
          Holder's  participation in such underwriting and the inclusion of such
          Holder's  Registrable  Securities  in the  underwriting  to the extent
          provided herein.  All Holders proposing to distribute their securities
          through such  underwriting  shall  (together  with the Company and any
          other  stockholders  of  the  Company  distributing  their  securities
          through such  underwriting)  enter into an  underwriting  agreement in
          customary form with the underwriter or underwriters  selected for such
          underwriting  by the Company or selling  stockholders,  as applicable.
          Notwithstanding  any other  provision  of this  Section  3(c),  if the
          underwriter or the Company determines that marketing factors require a
          limitation of the number of shares to be underwritten, the underwriter
          may exclude some or all Registrable  Securities from such registration
          and  underwriting.  The Company  shall so advise all  Holders  (except
          those  Holders  who  failed  to  timely  elect  to  distribute   their
          Registrable  Securities through such underwriting or have indicated to
          the Company their  decision not to do so), and the number of shares of
          Registrable  Securities that may be included in the  registration  and
          underwriting,  if any,  shall  be  allocated  among  such  Holders  as
          follows:

                 (i)    In  the  event  of a  Piggyback  Registration  that  is
               initiated  by the  Company,  the  number  of  shares  that may be
               included in the registration and underwriting  shall be allocated
               first  to the  Company  and  then,  subject  to  obligations  and
               commitments  existing  as of the  date  hereof,  to  all  selling
               stockholders,  including the Holders,  who have requested to sell
               in the  registration  on a pro rata basis according to the number
               of shares requested to be included; and

                 (ii)   In the  event  of a  Piggyback  Registration  that  is
               initiated  by the  exercise  of demand  registration  rights by a
               shareholder  or  stockholders  of the  Company  (other  than  the
               Holders),  then the number of shares  that may be included in the
               registration  and  underwriting  shall be allocated first to such
               selling  stockholders who exercised such demand and then, subject
               to obligations and commitments existing as of the date hereof, to
               all other selling  stockholders,  including the Holders, who have
               requested  to  sell  in the  registration,  on a pro  rata  basis
               according to the number of shares requested to be included.

               No  Registrable  Securities  excluded  from the  underwriting  by
          reason of the underwriter's  marketing limitation shall be included in
          such registration.  If any Holder disapproves of the terms of any such
          underwriting,  such Holder may elect to withdraw  therefrom by written
          notice to the Company and the underwriter.  The Registrable Securities
          and/or other securities so withdrawn from such underwriting shall also
          be withdrawn from such registration;  provided,  however,  that, if by
          the  withdrawal  of such  Registrable  Securities a greater  number of
          Registrable  Securities  held by other Holders may be included in such
          registration  (up to the  maximum  of any  limitation  imposed  by the
          underwriters),  then the  Company  shall offer to all Holders who have
          included  Registrable  Securities  in the  registration  the  right to
          include additional  Registrable  Securities  pursuant to the terms and
          limitations  set forth  herein in the same  proportion  used  above in
          determining the underwriter limitation.

                                       7
<PAGE>

               (d) REGISTRATION  DEFAULTS.  If a Registration Event occurs, then
          the  Company  will  make  payments  to  each  Investor  (a  "Qualified
          Investor"),  as partial  liquidated  damages for the minimum amount of
          damages to the  Qualified  Investor  by reason  thereof,  and not as a
          penalty, at a rate equal to one percent (1%) of the aggregate Offering
          Price  paid for the  shares of  Common  Stock  held by such  Qualified
          Investor per month,  for the first calendar month of the  Registration
          Default  Period  (pro rated for any period less than 30 days) plus two
          percent (2%) of the  aggregate  Offering  Price paid for the shares of
          Common  Stock held by such  Qualified  Investor  per  month,  for each
          calendar  month,  after the first month, in the  Registration  Default
          Period  (pro rated for any period  less than 30 days) with  respect to
          each Registration  Event;  provided,  however, if a Registration Event
          occurs  (or is  continuing)  on a date more  than two years  after the
          Qualified  Investor acquired the Registrable  Securities (and thus the
          two-year  holding  period under Rule 144(k) has  elapsed),  liquidated
          damages shall be paid only with respect to that portion of a Qualified
          Investor's  Registrable  Securities  that cannot  then be  immediately
          resold  without  restriction  in  reliance on Rule  144(k).  Each such
          payment  shall be due and  payable  within  five days after the end of
          each  calendar  month of the  Registration  Default  Period  until the
          termination  of the  Registration  Default Period and within five days
          after such termination. Such payments shall be in partial compensation
          to the  Qualified  Investor,  and shall not  constitute  the Qualified
          Investor's  exclusive remedy for such events. The Registration Default
          Period  shall  terminate  upon  (i)  the  filing  of the  Registration
          Statement in the case of clause (a) of the definition of "Registration
          Event," (ii) the SEC Effective Date in the case of clauses (b), (c) or
          (d) of the  definition of  "Registration  Event," (iii) the ability of
          the Qualified  Investor to effect sales  pursuant to the  Registration
          Statement in the case of clause (e) of the definition of "Registration
          Event,"  (iv) the listing or  inclusion  and/or  trading of the Common
          Stock on an Approved Market, as the case may be, in the case of clause
          (f) of the definition of "Registration  Event," and (v) in the case of
          the events  described  in  clauses  (d) and (e) of the  definition  of
          "Registration  Event," the  earlier  termination  of the  Registration
          Default  Period.  The amounts  payable as partial  liquidated  damages
          pursuant  to this  paragraph  shall be payable in lawful  money of the
          United  States.  If the Company  fails to pay any  partial  liquidated
          damages  pursuant to this  Section in full within seven days after the
          date  payable,  the Company will pay interest  thereon at a rate of 9%
          per annum (or such lesser  maximum amount that is permitted to be paid
          by applicable  law) to the Holder,  accruing  daily from the date such
          partial liquidated  damages are due until such amounts,  plus all such
          interest  thereon,  are paid in full. The partial  liquidated  damages
          pursuant to the terms hereof shall apply on a daily pro-rata basis for
          any  portion  of a month  prior to the cure of a  Registration  Event,
          including in the case of the first Registration Event. Amounts payable
          as partial  liquidated  damages to each Qualified  Investor  hereunder
          with  respect  to each share of  Registrable  Securities  shall  cease
          accruing  (but shall  still be  payable  in respect of prior  periods,
          together  with  interest  thereon)  following  the  expiration  of the
          Effectiveness Period.

                                       8
<PAGE>

               (e)  RE-REGISTER  ON  FORM  S-3.  For  two  years  after  the SEC
          Effective  Date,  to the extent the  registration  of the  Registrable
          Securities  pursuant  to this  Section 3 is not made on Form S-3,  the
          Company shall use reasonable  efforts to re-register  the  Registrable
          Securities on Form S-3 when the Company  becomes  eligible to register
          such Registrable Securities thereon.

          4.  REGISTRATION  PROCEDURES.   In  the  case  of  each  registration,
     qualification,  or compliance effected by the Company pursuant to Section 3
     hereof,  the Company  will keep each Holder  reasonably  advised in writing
     (which may  include  e-mail)  as to the  initiation  of each  registration,
     qualification,  and  compliance and as to the  completion  thereof.  At its
     expense  with  respect to any  registration  statement  filed  pursuant  to
     Section 3, the Company will:

               (a) prepare  and file with the  Commission  with  respect to such
          Registrable  Securities,  a registration statement on Form SB-2 or any
          other form for which the Company then  qualifies or which  counsel for
          the Company shall deem appropriate,  and which form shall be available
          for the sale of the  Registrable  Securities  in  accordance  with the
          intended method(s) of distribution  thereof,  and use its commercially
          reasonable efforts to cause such registration  statement to become and
          remain effective throughout the Effectiveness Period;

               (b) if a  registration  statement  is  subject  to  review by the
          Commission,  promptly  respond to all comments and  diligently  pursue
          resolution of any comments to the satisfaction of the Commission;

               (c)  upon  telephonically  confirming  with  the  Commission  the
          effectiveness  of  the  Registration  Statement,   the  Company  shall
          immediately and simultaneously notify all Holders via facsimile of the
          effectiveness  of the  Registration  Statement.  The Company shall, by
          9:30 am Eastern Time on the Trading Day after the Effectiveness,  file
          a Form 424(b)(5) with the Commission.  Failure to so notify the Holder
          within 1  Trading  Day of such  notification  from the  Commission  of
          effectiveness shall be deemed a Registration Event.

               (d)  prepare and file with the  Commission  such  amendments  and
          supplements to such registration  statement and the prospectus used in
          connection  therewith as may be  necessary  to keep such  registration
          statement effective during the Effectiveness Period;

               (e)  furnish,  without  charge,  to each  Holder  of  Registrable
          Securities covered by such registration  statement,  by 9:00 a.m. (New
          York  City  time)  on the  day  following  the  Effective  Date  (i) a
          reasonable number of copies of such registration  statement (including
          any exhibits  thereto other than exhibits  incorporated by reference),
          each subsequent  amendment and supplement  thereto and such additional
          copies as such Holder may reasonably request, (ii) a reasonable number
          of copies of the prospectus  included in such  registration  statement
          (including each preliminary  prospectus and any other prospectus filed
          under Rule 424 under the Securities Act) and such additional copies as
          such  Holders  may  reasonably   request,   in  conformity   with  the
          requirements  of the Securities Act, and (iii) such other documents as
          such  Holder  may  reasonably  request  in  order  to  facilitate  the
          disposition of the Registrable  Securities  owned by such Holder,  but
          only during the Effectiveness Period;

                                       9
<PAGE>

               (f) use its  commercially  reasonable best efforts to register or
          qualify  such  Registrable  Securities  under  such  other  applicable
          securities  or blue sky laws of such  jurisdictions  as any  Holder of
          Registrable   Securities   covered  by  such  registration   statement
          reasonably  requests as may be necessary for the  marketability of the
          Registrable  Securities  (such  request  to be  made by the  time  the
          applicable   registration   statement  is  deemed   effective  by  the
          Commission)  and do any and all  other  acts and  things  which may be
          reasonably  necessary or advisable to enable such Holder to consummate
          the disposition in such  jurisdictions  of the Registrable  Securities
          owned by such Holder;  provided that the Company shall not be required
          to (i) qualify  generally to do business in any jurisdiction  where it
          would not otherwise be required to qualify but for this paragraph (e),
          (ii)  subject  itself to taxation in any such  jurisdiction,  or (iii)
          consent to general service of process in any such jurisdiction;

               (g) as  promptly  as  practicable  after  becoming  aware of such
          event,  notify each Holder of such Registrable  Securities at any time
          when a prospectus  relating  thereto is required to be delivered under
          the  Securities  Act of the  happening of any event which comes to the
          Company's  attention  if as a  result  of such  event  the  prospectus
          included in such registration  statement  contains an untrue statement
          of a material  fact or omits to state any material fact required to be
          stated  therein  or  necessary  to make  the  statements  therein  not
          misleading and the Company shall promptly  prepare and furnish to such
          Holder a supplement  or amendment to such  prospectus  (or prepare and
          file  appropriate   reports  under  the  Exchange  Act)  so  that,  as
          thereafter delivered to the purchasers of such Registrable Securities,
          such  prospectus  shall not contain an untrue  statement of a material
          fact or omit to state any material fact required to be stated  therein
          or necessary to make the  statements  therein not  misleading,  unless
          suspension  of the  use of such  prospectus  otherwise  is  authorized
          herein  or in the  event  of an  Blackout  Period,  in  which  case no
          supplement  or  amendment  need be  furnished  (or Exchange Act filing
          made) until the termination of such suspension or Blackout Period;

               (h) comply,  and  continue to comply  during the period that such
          registration  statement is effective  under the Securities Act, in all
          material  respects  with the  Securities  Act and the Exchange Act and
          with all  applicable  rules and  regulations  of the  Commission  with
          respect  to  the  disposition  of  all  securities   covered  by  such
          registration statement;

               (i) as  promptly  as  practicable  after  becoming  aware of such
          event,  notify each Holder of Registrable  Securities being offered or
          sold  pursuant to the  Registration  Statement  of the issuance by the
          Commission of any stop order or other  suspension of  effectiveness of
          the Registration Statement at the earliest possible time;

                                       10
<PAGE>

               (j) use its best efforts to cause all the Registrable  Securities
          covered  by the  Registration  Statement  to be quoted on the NASD OTC
          Bulletin  Board or such  other  principal  securities  market on which
          securities  of the same class or series issued by the Company are then
          listed or traded;

               (k) provide a transfer agent and registrar, which may be a single
          entity, for the Registrable Securities at all times;

               (l) cooperate  with the Holders of Registrable  Securities  being
          offered  pursuant to the  Registration  Statement to issue and deliver
          certificates  (not  bearing  any  restrictive  legends)   representing
          Registrable  Securities  to be offered  pursuant  to the  Registration
          Statement  within five Trading Days after delivery of  certificates to
          the Company and enable such  certificates to be in such  denominations
          or amounts as the Holders may  reasonably  request and  registered  in
          such names as the Holders may request;

               (m) during the Effectiveness Period,  refrain from bidding for or
          purchasing  any Common Stock or any right to purchase  Common Stock or
          attempting to induce any Person to purchase any such security or right
          if such bid,  purchase or attempt  would in any way limit the right of
          the  Holders  to  sell   Registrable   Securities  by  reason  of  the
          limitations set forth in Regulation M under the 1934 Act; and

               (n) take all other reasonable  actions  necessary to expedite and
          facilitate  disposition by the Holders of the  Registrable  Securities
          pursuant to the Registration Statement.

          5.  SUSPENSION  OF  OFFERS  AND  SALES.  Each  Holder  of  Registrable
     Securities agrees that, upon receipt of any written notice from the Company
     of the happening of any event of the kind  described in Section 4(g) hereof
     or  of  the  commencement  of  any  Blackout  Period,   such  Holder  shall
     discontinue   disposition  of  Registrable   Securities   pursuant  to  the
     registration  statement  covering such  Registrable  Securities  until such
     Holder's  receipt of the copies of the  supplemented or amended  prospectus
     contemplated  by Section  4(g) hereof or notice of the end of the  Blackout
     Period.  In  the  event  the  Company  shall  give  any  such  notice,  the
     Effectiveness  Period  shall be extended by the greater of (i) ten business
     days or (ii) the number of days  during the period from and  including  the
     date of the giving of such notice  pursuant  to Section  4(f) hereof to and
     including the date when each Holder of  Registrable  Securities  covered by
     such  registration   statement  shall  have  received  the  copies  of  the
     supplemented or amended prospectus contemplated by Section 4(g) hereof. The
     Company will use its best efforts to ensure that the use of the  Prospectus
     may be  resumed as  promptly  as is  practicable.  The  Company  agrees and
     acknowledges  that any  periods  during  which the  Holder is  required  to
     discontinue the disposition of the Registrable  Securities  hereunder shall
     be subject to the provisions of Section 3(d).

          6.  REGISTRATION  EXPENSES.  The  Company  shall pay all  expenses  in
     connection  with  any  registration,  including,  without  limitation,  all
     registration,  filing, stock exchange fees, printing expenses, all fees and
     expenses of complying  with  securities or blue sky laws,  and the fees and
     disbursements   of  counsel  for  the   Company  and  of  its   independent
     accountants;  provided that, in any underwritten  registration,  each party
     shall pay for its own  underwriting  discounts and

                                       11
<PAGE>

     commissions and transfer taxes.  Except as provided above in this Section 6
     and Section 9, the Company shall not be responsible for the expenses of any
     attorney or other advisor employed by a Holder of Registrable Securities.

          7.  ASSIGNMENT  OF RIGHTS.  No Holder may assign its rights under this
     Agreement to any party  without the prior  written  consent of the Company;
     provided, however, that a Holder may assign its rights under this Agreement
     without  such  restrictions  to a  Permitted  Assignee  as long as (a) such
     transfer or assignment is effected in accordance with applicable securities
     laws; (b) such  transferee or assignee  agrees in writing to become subject
     to the terms of this Agreement; and (c) the Company is given written notice
     by such Holder of such transfer or assignment, stating the name and address
     of the transferee or assignee and identifying  the  Registrable  Securities
     with respect to which such rights are being transferred or assigned.

          8.  INFORMATION  BY  HOLDER.  The  Holder or  Holders  of  Registrable
     Securities  included in any registration  shall furnish to the Company such
     information  regarding such Holder or Holders and the distribution proposed
     by such Holder or Holders as the Company may request in writing.

          9. INDEMNIFICATION.

             (a)   In the event of the offer and sale of Registrable  Securities
          held by Holders  under the  Securities  Act,  the Company  shall,  and
          hereby  does,  indemnify  and hold  harmless,  to the  fullest  extent
          permitted by law, each Holder, its directors, officers, partners, each
          other person who  participates  as an  underwriter  in the offering or
          sale of such securities,  and each other person,  if any, who controls
          or is under common  control  with such Holder or any such  underwriter
          within the meaning of Section 15 of the  Securities  Act,  against any
          losses, claims, damages or liabilities, joint or several, and expenses
          to  which  the  Holder  or any  such  director,  officer,  partner  or
          underwriter  or  controlling  person  may  become  subject  under  the
          Securities Act or otherwise,  insofar as such losses, claims, damages,
          liabilities or expenses (or actions or proceedings,  whether commenced
          or threatened,  in respect thereof) arise out of or are based upon any
          untrue  statement or alleged  untrue  statement  of any material  fact
          contained in any  registration  statement under which such shares were
          registered under the Securities Act, any preliminary prospectus, final
          prospectus or summary prospectus  contained therein,  or any amendment
          or supplement  thereto,  or any omission or alleged  omission to state
          therein a material fact required to be stated  therein or necessary to
          make the  statements  therein in light of the  circumstances  in which
          they were made not  misleading,  and the Company  shall  reimburse the
          Holder,  and each such director,  officer,  partner,  underwriter  and
          controlling  person  for any  legal or any other  expenses  reasonably
          incurred  by them  in  connection  with  investigating,  defending  or
          settling  any  such  loss,  claim,   damage,   liability,   action  or
          proceeding;  provided that the Company shall not be liable in any such
          case (i) to the extent that any such loss,  claim,  damage,  liability
          (or action or proceeding in respect  thereof) or expense arises out of
          or is based upon an untrue statement or alleged untrue statement in or
          omission or alleged  omission from such  registration  statement,  any
          such preliminary  prospectus,  final prospectus,  summary  prospectus,
          amendment  or  supplement  in  reliance  upon and in  conformity  with
          written  information  furnished to the Company  through an  instrument
          duly executed by or on behalf of such

                                       12
<PAGE>

          Holder  specifically  stating  that it is for  use in the  preparation
          thereof or (ii) if the person asserting any such loss, claim,  damage,
          liability (or action or  proceeding in respect  thereof) who purchased
          the  Registrable  Securities  that  are the  subject  thereof  did not
          receive  a copy of an  amended  preliminary  prospectus  or the  final
          prospectus (or the final  prospectus as amended or supplemented) at or
          prior to the  written  confirmation  of the  sale of such  Registrable
          Securities  to such  person  because of the  failure of such Holder or
          underwriter to so provide such amended preliminary or final prospectus
          and the untrue  statement or alleged  untrue  statement or omission or
          alleged   omission  of  a  material  fact  made  in  such  preliminary
          prospectus   was  corrected  in  the  amended   preliminary  or  final
          prospectus (or the final  prospectus as amended or  supplemented)  and
          such amended  preliminary  or final  prospectus  was  furnished to the
          Holder in accordance with the terms of this Agreement.  Such indemnity
          shall remain in full force and effect  regardless of any investigation
          made by or on behalf of the Holders,  or any such  director,  officer,
          partner,  underwriter  or  controlling  person and shall  survive  the
          transfer of such shares by the Holder.

             (b)   As a condition to including any Registrable  Securities to be
          offered by a Holder in any  registration  statement  filed pursuant to
          this  Agreement,  each such Holder  agrees to be bound by the terms of
          this  Section 9 and to  indemnify  and hold  harmless,  to the fullest
          extent permitted by law, the Company, its directors and officers,  and
          each other person, if any, who controls the Company within the meaning
          of Section 15 of the  Securities  Act,  against  any  losses,  claims,
          damages or liabilities,  joint or several, to which the Company or any
          such  director  or officer or  controlling  person may become  subject
          under the  Securities  Act or  otherwise,  to the extent that any such
          losses,  claims,  damages or liabilities  (or actions or  proceedings,
          whether  commenced or threatened,  in respect thereof) arise out of or
          are based upon any untrue  statement or alleged untrue statement in or
          omission or alleged  omission from such  registration  statement,  any
          preliminary   prospectus,   final  prospectus  or  summary  prospectus
          contained  therein,  or any amendment or supplement  thereto,  if such
          statement  or alleged  statement  or omission or alleged  omission was
          made in reliance upon and in conformity with written information about
          such Holder as a Holder of the Company  furnished to the Company,  and
          such Holder  shall  reimburse  the  Company,  and each such  director,
          officer,  and  controlling  person  for any  legal or  other  expenses
          reasonably   incurred  by  them  in  connection  with   investigating,
          defending,  or  settling  and such  loss,  claim,  damage,  liability,
          action,  or  proceeding;   provided,   however,  that  such  indemnity
          agreement  found in this  Section  9(b)  shall in no event  exceed the
          gross  proceeds  from  the  offering  received  by such  Holder.  Such
          indemnity  shall  remain in full force and effect,  regardless  of any
          investigation  made  by or on  behalf  of  the  Company  or  any  such
          director, officer or controlling person and shall survive the transfer
          by any Holder of such shares.

             (c)   Promptly after receipt by an  indemnified  party of notice of
          the  commencement  of any  action  or  proceeding  involving  a  claim
          referred to in Section 9(a) or (b) hereof  (including any governmental
          action),  such indemnified  party shall, if a claim in respect thereof
          is to be made against an  indemnifying  party,  give written notice to
          the indemnifying  party of the  commencement of such action;  provided
          that the failure of any  indemnified  party to give notice as provided
          herein  shall not relieve the  indemnifying  party of its  obligations
          under  Section  9(a) or (b)  hereof,  except  to the  extent

                                       13
<PAGE>

          that the indemnifying party is actually  prejudiced by such failure to
          give notice. In case any such action is brought against an indemnified
          party,   unless  in  the  reasonable   judgment  of  counsel  to  such
          indemnified  party a conflict of interest between such indemnified and
          indemnifying  parties  may  exist or the  indemnified  party  may have
          defenses not  available to the  indemnifying  party in respect of such
          claim, the indemnifying  party shall be entitled to participate in and
          to assume the defense thereof, with counsel reasonably satisfactory to
          such indemnified  party and, after notice from the indemnifying  party
          to such  indemnified  party of its  election  so to assume the defense
          thereof,   the  indemnifying   party  shall  not  be  liable  to  such
          indemnified  party  for  any  legal  or  other  expenses  subsequently
          incurred by the latter in connection with the defense thereof,  unless
          in such indemnified party's reasonable judgment a conflict of interest
          between such indemnified and indemnifying parties arises in respect of
          such  claim  after  the  assumption  of the  defenses  thereof  or the
          indemnifying  party fails to defend  such claim in a diligent  manner,
          other than reasonable costs of  investigation.  Neither an indemnified
          nor an  indemnifying  party shall be liable for any  settlement of any
          action or proceeding  effected  without its consent.  No  indemnifying
          party shall,  without the consent of the indemnified party, consent to
          entry of any  judgment  or enter into any  settlement,  which does not
          include as an unconditional term thereof the giving by the claimant or
          plaintiff to such indemnified party of a release from all liability in
          respect of such claim or litigation.  Notwithstanding  anything to the
          contrary set forth herein,  and without limiting any of the rights set
          forth above, in any event any party shall have the right to retain, at
          its own expense, counsel with respect to the defense of a claim.

             (d)   In the  event  that  an  indemnifying  party  does  or is not
          permitted to assume the defense of an action  pursuant to Section 9(c)
          or in the case of the expense  reimbursement  obligation  set forth in
          Section 9(a) and (b), the indemnification required by Section 9(a) and
          (b) hereof  shall be made by periodic  payments of the amount  thereof
          during the course of the  investigation or defense,  as and when bills
          received or expenses, losses, damages, or liabilities are incurred.

             (e)   If the indemnification provided for in this Section 9 is held
          by  a  court  of  competent  jurisdiction  to  be  unavailable  to  an
          indemnified party with respect to any loss,  liability,  claim, damage
          or expense  referred to herein,  the  indemnifying  party,  in lieu of
          indemnifying such indemnified party hereunder, shall (i) contribute to
          the amount  paid or payable by such  indemnified  party as a result of
          such loss,  liability,  claim,  damage or expense as is appropriate to
          reflect the proportionate  relative fault of the indemnifying party on
          the one hand and the  indemnified  party on the other  (determined  by
          reference to, among other things, whether the untrue or alleged untrue
          statement  of a  material  fact or  omission  relates  to  information
          supplied by the  indemnifying  party or the indemnified  party and the
          parties'  relative  intent,  knowledge,   access  to  information  and
          opportunity to correct or prevent such untrue  statement or omission),
          or  (ii)  if the  allocation  provided  by  clause  (i)  above  is not
          permitted  by  applicable   law  or  provides  a  lesser  sum  to  the
          indemnified party than the amount hereinafter calculated, not only the
          proportionate  relative  fault  of  the  indemnifying  party  and  the
          indemnified  party,  but also the  relative  benefits  received by the
          indemnifying  party on the one hand and the  indemnified  party on the
          other,  as well as any other  relevant  equitable  considerations.  No
          indemnified party guilty of fraudulent  misrepresentation  (within the
          meaning of Section 11(f) of the  Securities  Act) shall be entitled to
          contribution  from any  indemnifying  party who was not guilty of such
          fraudulent misrepresentation.

                                       14
<PAGE>

             (f)    Other  Indemnification.   Indemnification  similar  to  that
          specified  in the  preceding  subsections  of  this  Section  9  (with
          appropriate  modifications)  shall be given  by the  Company  and each
          Holder  of  Registrable   Securities  with  respect  to  any  required
          registration or other qualification of securities under any federal or
          state law or  regulation  or  governmental  authority  other  than the
          Securities Act.

          10. RULE 144.  Following  the Closing  Date,  the Company will use its
     commercially  reasonable  best  efforts  (a) to  timely  file  all  reports
     required  to be filed  by the  Company  after  the date  hereof  under  the
     Securities  Act and the Exchange  Act  (including  the reports  pursuant to
     Section 13(a) or 15(d) of the Exchange Act referred to in subparagraph (c)(
     1) of Rule 144) and the rules and  regulations  adopted  by the  Commission
     thereunder), (b) if the Company is not required to file reports pursuant to
     such  sections,  it will  prepare  and  furnish to the  Investors  and make
     publicly  available in accordance  with Rule 144(c) such  information as is
     required  for the  Investors to sell shares of Common Stock under Rule 144,
     and (c) to take such further action as any holder of shares of Common Stock
     may  reasonably  request,  all to the extent  required from time to time to
     enable the  Investors to sell shares of Common Stock  without  registration
     under the Securities  Act within the limitation of the exemptions  provided
     by Rule 144,  including  causing  its  attorneys  to issue and  deliver any
     appropriate  legal opinion required to permit an Investor to sell shares of
     Common  Stock  under  Rule 144 upon  receipt of  appropriate  documentation
     relating to such sale.

          11. INDEPENDENT NATURE OF EACH INVESTOR'S  OBLIGATIONS AND RIGHTS. The
     obligations of each Investor under this Agreement are several and not joint
     with the obligations of any other Investor,  and each Investor shall not be
     responsible in any way for the  performance of the obligations of any other
     Investor  under this  Agreement.  The decision of each Investor to purchase
     Common Stock and enter into this  Agreement  has been made by each Investor
     independently of any other Investor. Nothing contained herein and no action
     taken by any Investor  pursuant hereto,  shall be deemed to constitute such
     Investors as a partnership,  an association,  a joint venture, or any other
     kind of entity,  or create a presumption  that the Investors are in any way
     acting in  concert or as a group with  respect to such  obligations  or the
     transactions  contemplated  by this Agreement.  Each Investor  acknowledges
     that no other  Investor has acted as agent for the  Investor in  connection
     with making its  investment in Common Stock and that no other Investor will
     be  acting as agent of the  Investor  in  connection  with  monitoring  its
     investment  in  the  Common  Stock  or  enforcing  its  rights  under  this
     Agreement.  Each Investor  shall be entitled to  independently  protect and
     enforce its rights,  including without limitation the rights arising out of
     this Agreement,  and it shall not be necessary for any other Investor to be
     joined as an additional party in any proceeding for such purpose.

          12. NO PIGGYBACK ON REGISTRATIONS. Except as set forth in Schedule 12,
     neither the Company nor any of its security holders (other than the Holders
     in such capacity pursuant hereto) may include  securities of the Company in
     a Registration  Statement  other than the Registrable  Securities,  and the
     Company shall not during the  Registration  Period enter into any agreement
     providing any such right to any of its security holders.

                                       15
<PAGE>

          13. MISCELLANEOUS.

              (a)  GOVERNING  LAW. All questions  concerning  the  construction,
          validity,  enforcement and  interpretation  of this Agreement shall be
          determined  in  accordance  with  the  provisions  of  the  Securities
          Purchase Agreement.

              (b)  SUCCESSORS AND ASSIGNS.  Except as otherwise provided herein,
          the  provisions  hereof  shall inure to the benefit of, and be binding
          upon, the successors,  Permitted Assigns, executors and administrators
          of the parties  hereto.  In the event the Company  merges with,  or is
          otherwise  acquired by, a direct or indirect  subsidiary of a publicly
          traded company,  the Company shall condition the merger or acquisition
          on the assumption by such parent company of the Company's  obligations
          under this Agreement.

              (c)  ENTIRE  AGREEMENT.  This Agreement  constitutes  the full and
          entire  understanding and agreement between the parties with regard to
          the subjects hereof.

              (d)  NOTICES,  ETC. All notices or other  communications which are
          required or  permitted  under this  Agreement  shall be in writing and
          sufficient  if  delivered  by  hand,  by  facsimile  transmission,  by
          registered or certified mail, postage pre-paid, by electronic mail, or
          by courier or overnight  carrier,  to the persons at the addresses set
          forth below (or at such other  address as may be provided  hereunder),
          and  shall  be  deemed  to  have  been  delivered  as of the  date  so
          delivered:

         If to the Company:         PharmaFrontiers Corp.
                                    2408 Timberloch Place, Suite B-7
                                    The Woodlands, Texas 77380
                                    Attention:  President
                                    Facsimile:  (281) 272-9331
                                    e-mail:  dmcwilliams@pharmafrontiers.net
         with a copy to:            Vinson & Elkins LLP
                                    1001 Fannin, Suite 2300
                                    Houston, Texas 77002
                                    Attention:  Michael C. Blaney
                                    Facsimile:  (713) 615-5147
                                    Email:  mblaney@velaw.com

         If to the Investors:       To each Investor at the address
                                    set forth on Exhibit A

         with a copy to:            Sanders Morris Harris Inc.
                                    320 Park Ave., 17th Floor
                                    New York, NY 10022
                                    Attention:  Snehal Patel
                                    Facsimile:  (510) 740-3649
                                    email:  snehal.patel@smhgroup.com

                                       16
<PAGE>

     or at such other  address as any party  shall have  furnished  to the other
     parties in writing.

               (e) DELAYS OR  OMISSIONS.  No delay or omission  to exercise  any
          right,  power or remedy  accruing  to any  Holder  of any  Registrable
          Securities,  upon any  breach or  default  of the  Company  under this
          Agreement, shall impair any such right, power or remedy of such Holder
          nor  shall it be  construed  to be a  waiver  of any  such  breach  or
          default, or an acquiescence therein, or of or in any similar breach or
          default  thereunder  occurring;  nor  shall any  waiver of any  single
          breach or  default  be deemed a waiver of any other  breach or default
          theretofore or thereafter occurring.  Any waiver,  permit,  consent or
          approval  of any kind or  character  on the part of any  Holder of any
          breach or default under this  Agreement,  or any waiver on the part of
          any Holder of any provisions or conditions of this Agreement,  must be
          in writing and shall be effective only to the extent  specifically set
          forth in such writing. All remedies,  either under this Agreement,  or
          by law or otherwise  afforded to any holder,  shall be cumulative  and
          not alternative.

               (f) COUNTERPARTS. This Agreement may be executed in any number of
          counterparts,  each of which shall be enforceable  against the parties
          actually executing such counterparts,  and all of which together shall
          constitute one instrument.

               (g)  SEVERABILITY.  In the case any  provision of this  Agreement
          shall be invalid, illegal or unenforceable, the validity, legality and
          enforceability  of the  remaining  provisions  shall not in any way be
          affected or impaired thereby.

               (h)  AMENDMENTS.  The provisions of this Agreement may be amended
          at any time and from time to time, and  particular  provisions of this
          Agreement may be waived, with and only with an agreement or consent in
          writing  signed by the Company  and Holders  holding a majority of the
          then   outstanding   Registrable   Securities.   Notwithstanding   the
          foregoing,  the following  provisions  may not be amended  except in a
          writing signed by the party against which enforcement of the amendment
          is sought:  Section 3, Paragraph 13(h) and any provisions  herein that
          specify liquidated damages or penalties.

               (i) REGISTRATION RIGHTS GRANTED TO OTHERS. After the date of this
          Agreement, the Company shall not, without the prior written consent of
          a Holder  enter  into any  agreement  with any  holder or  prospective
          holder of any  securities  of the Company that would grant such holder
          registration rights, with respect to shares of Common Stock, senior to
          those granted to the Holder hereunder.

               (j) ADDITION OF NOTE HOLDERS.  The  registration  statement filed
          for the Registrable  Securities  hereunder may also include any or all
          of the shares of Common  Stock  issued or issuable to the Note holders
          including those subject to the Note holders  Registration  Agreements.
          Further  any or all of the  Note  holders  may  become a party to this
          Agreement  as  an  "Investor"  by  executing  a  counterpart  of  this
          Agreement.  Upon such execution by a Note holder the Note holder shall
          be an  "Investor"  hereunder  and the shares of Common Stock issued or
          issuable  to the Note  holder,  in  connection  with the  issuance  or
          conversion  of the Note or the  exercise of the Note  Warrants,  shall
          become

                                       17
<PAGE>

          "Registrable   Securities"  hereunder  and  such  Note  holder's  Note
          Warrants shall become "Warrants" hereunder.

                         [SIGNATURES ON FOLLOWING PAGE]

                                       18
<PAGE>

          This  Registration  Rights Agreement is hereby executed as of the date
     first above written.

                                    COMPANY:

                                    PHARMAFRONTIERS CORP.

                                    By: /S/DAVID B. MCWILLIAMS
                                        ------------------------------
                                    David B. McWilliams, President

                                    INVESTOR:

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

                                    --------------------------------------------
                                                   (PRINT NAME)

                                    By:      /S/
                                       -----------------------------------------
                                    Name:
                                         ---------------------------------------
                                    Title:
                                         ---------------------------------------

                               SIGNATURE PAGE TO
                          REGISTRATION RIGHTS AGREEMENT

                                       19
<PAGE>
<

                                   SCHEDULE 12

           TO THE PHARMAFRONTIERS CORP. REGISTRATION RIGHTS AGREEMENT
           ----------------------------------------------------------

             SHARES THAT MAY BE INCLUDED IN A REGISTRATION STATEMENT
             -------------------------------------------------------

1.  Shares  issued to  holders  ("Noteholders")  of 15%  Convertible  Notes (the
"Notes")  at the time of the  purchase  of the Notes and shares  issuable to the
Noteholders upon conversion of the notes.

2. Shares issued upon exercise of warrants issued to the Noteholders at the time
of the purchase of the Notes,  and shares,  if any, issued to the Noteholders as
part of an exchange for such warrants.

3.  Shares,  and  shares  issuable  upon  exercise  of  warrants,  issued to the
placement  agents and  consultants in connection  with the sale of the Notes and
the sale of securities pursuant to the Securities Purchase Agreement.

4. Shares issued to Sanders Morris Harris  pursuant to the Company's  engagement
letter and Placement Agent Agreement.

5.  Shares  issued to the  University  of Chicago  pursuant  to an  Amended  and
Restated License Agreement dated December 30, 2004.

6. Up to approximately  1,812,000 shares held by Mr. George Jarkesy and Brewer &
Pritchard PC.

7. Shares  issued to  purchasers  in a Second  Offering  as provided  for in the
Securities  Purchase Agreement including shares issuable to such purchasers upon
exercise of Warrants issued in the Second Offering.

                                    Schedule 12 to Registration Rights Agreement

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00087-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00087-of-00352.parquet"}]]