EXHIBIT 4(I)

                                  ALPHARX, INC.

    UNITS CONSISTING OF SHARES OF COMMON STOCK AND WARRANTS FOR COMMON STOCK

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE  ISSUER  AND THE  TERMS OF THE  OFFERING,  INCLUDING  THE  MERITS  AND RISKS
INVOLVED.  THESE  SECURITIES  HAVE NOT BEEN  RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES  COMMISSION  OR  REGULATORY  AUTHORITY.  FURTHERMORE,  THE  FOREGOING
AUTHORITIES  HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED  THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON  TRANSFERABILITY  AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF
1933,  AS  AMENDED,  AND THE  APPLICABLE  STATE  SECURITIES  LAWS,  PURSUANT  TO
REGISTRATION OR EXEMPTIONS  THEREFROM.  INVESTORS SHOULD BE AWARE THAT THEY WILL
BE REQUIRED TO BEAR THE  FINANCIAL  RISKS OF THIS  INVESTMENT  FOR AN INDEFINITE
PERIOD OF TIME.






                             SUBSCRIPTION AGREEMENT

AlphaRx, Inc.,
200-168 Konrad Crescent
Markham, Ontario

Canada L3R9T9

Attn: Michael Lee, Chief Executive Officer
Fax Number:

Dear Mr. Lee:

      By  executing  this  Subscription   Agreement  (this   "Agreement"),   the
undersigned (the  "Investor")  hereby  irrevocably  subscribes for the number of
shares of Common Stock of AlphaRx, Inc., a Delaware corporation (the "Company"),
indicated on the  signature  page hereto,  together  with a warrant (in the form
attached  hereto as Exhibit A) to purchase  an equal  number of shares of Common
Stock (each share of Common  Stock and warrant for one share of Common Stock are
hereinafter  referred  to as a "Unit"  and all such  shares of Common  Stock and
warrants are collectively referred to as the "Units") at a subscription price of
U.S. $0.15 per Unit (the "Subscription  Price"). Prior to the acceptance of this
Agreement by the Company,  the Investor shall have wired or otherwise  delivered
to the Company  payment of the Total  Purchase  Price set forth on the signature
page hereto and all representations and warranties of the Investor shall be true
and  correct in all  aspects  as though  made on the date of  acceptance  by the
Company. The wiring instructions of the Company are set forth below:

J.P. Morgan Chase
55 Water Street
New York, NY

A/C # 323-838-693

ABA # 021 000 021

American Stock Transfer & Trust Company
As Escrow Agent
for ALPHARX

      This  Agreement  shall not be valid and binding on the Company  unless and
until accepted by the Company. If this Agreement is not accepted by the Company,
the purchase  price paid by the Investor to the Company shall be refunded to the
Investor.





      This  Agreement  is being  executed  together  with  similar  Subscription
Agreements in a series of transactions in which investors are purchasing  Units.
The consummation of the  transactions  contemplated by such Agreements will take
place in two closings as  contemplated  by this  Agreement  (hereinafter  each a
"Closing" and collectively the "Closings"). The Closings shall take place at the
offices of (Pedley Zielke  Gordinier & Pence,  PLLC, 2000 Meidinger  Tower,  462
South 4th Avenue,  Louisville,  KY 40202).  All funds of the  Investor  shall be
deposited in an escrow account  ("Escrow")  prior to the first  Closing.  At the
first  Closing,  the  Company  shall  sell  the  Units to the  investors  for an
aggregate  purchase  price of U.S.  $3,000,000  (exluding  Units  issued  on the
conversion of certain  convertible  promissory notes issued by the Company prior
to April 1, 2004). Funds released from Escrow will be released pro rata based on
the aggregate  subscriptions  accepted by the Company  before or after the first
Closing.  All remaining  funds will be held in Escrow  pending the final Closing
and shall be released to the Company upon the  completion of the final  Closing.
The final Closing shall be conditioned upon the Company's stockholders approving
an amendment to the Company's Certificate of Incorporation increasing the number
of authorized  shares of Common Stock from  100,000,000 to  250,000,000.  If the
final  Closing  does not occur on or before  August 15,  2004 the balance of the
Escrow will be released and returned to the appropriate investors.

      The Investor  understands that the Units may be acquired hereunder only by
investors  who are  able to make all  required  representations  and  warranties
below. The undersigned  also  understands and agrees that,  although the Company
will use its best  efforts to keep the  information  provided  in the answers to
this Agreement  strictly  confidential,  the Company may present this Agreement,
and the  information  provided  in  answers  to it, to such  parties as it deems
advisable  if called upon to  establish  the  availability  under any federal or
state securities laws of an exemption from  registration of a private  placement
or if the  contents  hereof  are  relevant  to any  issue in any  investigation,
action,  suit or proceeding to which the Company is a party or by which it is or
may be bound.

                         REPRESENTATIONS AND WARRANTIES

      The Investor  makes  representations  and  warranties in this Agreement in
order to permit the  Company to  determine  the  suitability  of the Units as an
investment for the Investor and to determine the  availability of the exemptions
relied  upon by the  Company  from  registration  under  Section 5 of the United
States  Securities  Act of 1933,  as amended,  and the  regulations  promulgated
thereunder (the "Securities Act"), and any applicable state securities laws.

      1.    INVESTOR REPRESENTATIONS, WARRANTIES AND COVENANTS.

            (a)   ACCREDITED  INVESTOR STATUS. TO ESTABLISH THAT THE INVESTOR IS
                  AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) PROMULGATED
                  UNDER THE SECURITIES  ACT, THE INVESTOR MUST MARK AT LEAST ONE
                  BOX BELOW,  THEREBY MAKING THE REPRESENTATION SET FORTH BESIDE
                  THE MARKED BOX.

            |_|   The Investor is a natural  person whose  individual net worth,
                  or joint net worth with that person's  spouse,  at the time of
                  the Investor's purchase exceeds $1,000,000.

            |_|   The Investor is a natural person who had an individual  income
                  in excess of $200,000 in each of the two most recent  years or
                  joint income with that  person's  spouse in excess of $300,000
                  in each of those  years and has a  reasonable  expectation  of
                  reaching the same income level in the current year.


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            |_|   The  Investor  is a bank as defined in Section  3(a)(2) of the
                  Securities Act or a savings and loan  association or any other
                  institution as defined in Section 3(a)(5)(A) of the Securities
                  Act.

            |_|   The Investor is a broker dealer registered pursuant to Section
                  15 of the United  States  Securities  Exchange Act of 1934, as
                  amended.

            |_|   The  Investor  is an  insurance  company as defined in Section
                  (2)(13) of the Securities Act.

            |_|   The Investor is an  investment  company  registered  under the
                  Investment  Company Act or a business  development  company as
                  defined in Section 2(a)(48) of that Act.

            |_|   The Investor is a Small Business  Investment  Company licensed
                  by the U.S. Small Business Administration under Section 301(c)
                  or (d) of the U.S. Small  Business  Investment Act of 1958, as
                  amended.

            |_|   The Investor is a plan  established  and maintained by a State
                  within the United States,  one or more political  subdivisions
                  of such a State,  or any agency or  instrumentality  of such a
                  State or its  political  subdivisions,  for the benefit of its
                  employees, with total assets in excess of $5,000,000.

            |_|   The Investor is an employee benefit plan within the meaning of
                  the United States Employee  Retirement  Income Security Act of
                  1974, as amended  ("ERISA"),  (i) the investment  decision for
                  which is made by a plan fiduciary, as defined in Section 3(21)
                  of  ERISA,   which  is  either  a  bank,   savings   and  loan
                  association,   insurance  company,  or  registered  investment
                  advisor or (ii) which has total assets in excess of $5,000,000
                  or  (iii)  which  is  a  self-directed  plan  with  investment
                  decisions   made  solely  by  persons   that  are   Accredited
                  Investors.

            |_|   The  Investor  is a private  business  development  company as
                  defined in Section  202(a)(22) of the United States Investment
                  Advisers Act of 1940.

            |_|   The Investor is an  organization  that is described in Section
                  501(c)(3) of the United States Internal  Revenue Code of 1986,
                  as amended, a corporation, a Massachusetts or similar business
                  trust, or a partnership  that, in any case, was not formed for
                  the specific  purpose of acquiring  the Interest and has total
                  assets in excess of $5,000,000.

            |_|   The  Investor  is an  executive  officer  (as  defined in Rule
                  501(f)  promulgated  under  the  Securities  Act)  or  general
                  partner of the Partnership or of the General Partner.


                                       3



            |_|   The Investor is a trust with total assets of  $5,000,000,  not
                  formed for the  specific  purpose of acquiring  the  Interest,
                  whose purchase of the Interest is directed by a  sophisticated
                  person as described in Rule  506(b)(2)(ii)  promulgated  under
                  the Securities Act.

            |_|   The  Investor  is an entity in which all of the equity  owners
                  are Accredited Investors.

            (b)   INVESTMENT  INTENTION AND  RESTRICTIONS  ON  DISPOSITION.  The
Investor  represents and warrants that the Investor is acquiring the Units being
purchased by him hereunder  solely for the Investor's own account for investment
and not with a view to, or for sale in connection with, any distribution thereof
in any transaction or series of  transactions  that would be in violation of the
securities  laws of the United States or any state thereof.  The Investor agrees
that he will  not,  directly  or  indirectly,  offer,  transfer,  sell,  pledge,
hypothecate  or otherwise  dispose of any of the Units (or solicit any offers to
buy,  purchase  or other  acquire  or take a pledge of any of the  Units) or any
interest therein or any rights relating  thereto,  except in compliance with (i)
the Securities Act and (ii) all applicable  state securities or "blue sky" laws.
The Investor further understands, acknowledges and agrees that none of the Units
or any economic or voting  rights  relating  thereto may be  transferred,  sold,
pledged,  hypothecated  or  otherwise  disposed  of unless such  disposition  is
pursuant to an effective  registration statement under the Securities Act and is
exempt from or in compliance with applicable  state securities laws. Any attempt
by the Investor,  directly or  indirectly,  to offer,  transfer,  sell,  pledge,
hypothecate  or  otherwise  dispose of any the Units or any  economic  or voting
rights relating thereto without  complying with the provisions of this Agreement
shall be void and of no effect.

            (c)   RESTRICTIONS ON TRANSFER. The Investor acknowledges receipt of
advice from the Company that (i) the Units being purchased by him hereunder have
not been  registered  under  the  Securities  Act or  qualified  under any state
securities or "blue sky" laws, (ii) the Units must be held  indefinitely and the
Investor must continue to bear the economic risk of the  investment in the Units
unless the Units are  subsequently  registered  under the  Securities  Act or an
exemption from such registration is available,  (iii) there is no assurance that
there will  continue to be any public  market for the Units in the future,  (iv)
Rule 144 promulgated  under the Securities Act may not be available with respect
to sales of any  securities  of the  Company,  (v) when and if the  Units may be
disposed of without registration in reliance upon Rule 144, such disposition can
be made only in limited  amounts and in accordance with the terms and conditions
of such  Rule,  (vi) if the  exemption  afforded  by Rule 144 is not  available,
public sale without  registration  will require the availability of an exemption
under the Securities  Act,  (vii) a restrictive  legend in the form set forth in
Section 5 shall be placed on the  certificates or instruments  representing  the
Units,  and (viii) a notation  shall be made in the  appropriate  records of the
Company  indicating  that the Units are subject to restrictions on transfer and,
if the Company  should in the future  engage the  services  of a stock  transfer
agent and the Units are not registered,  appropriate stop-transfer  instructions
will be issued to such  transfer  agent with  respect  to the  Units.  Except in
connection with a transfer of Common Stock pursuant to an effective registration
statement under the Securities Act, the Investor acknowledges and agrees that in
connection  with the transfer of any Units issued  pursuant to the terms of this
Agreement to provide an opinion to the Company in form and substance  acceptable
to the Company  providing  that such  transfer  is exempt from the  registration
requirements  of the  Securities  Act and of any other  applicable  jurisdiction
together with such additional written representations,  warranties and covenants
of the  transferee as the Company may  reasonably  require to ensure  continuing
compliance with applicable securities laws.


                                       4



            (d)   ACCESS TO  INFORMATION.  The Investor  represents and warrants
that (i) he is familiar with the business and financial  condition,  properties,
operation  and  prospects  of the  Company  and  that he has  been  granted  the
opportunity to ask questions of, and receive  answers from,  representatives  of
the Company  concerning  the terms and  conditions  of the purchase of the Units
hereunder and to obtain any additional  information  that he deems  necessary or
appropriate to evaluate an investment in the Company and all such questions have
been answered to the full satisfaction of the Investor,  (ii) the Investor,  his
attorney,  accountant  or other  financial  adviser has had access to the public
filings of the Company with the  Securities and Exchange  Commission,  including
without limitation its most recent filings on Forms 10KSB and 10QSB (the "Public
Filing  Documents"),  the Term  Sheet  attached  hereto as  EXHIBIT B (the "Term
Sheet"),  as well as such other books and  records of the Company and  contracts
and  documents  relating to the  Company,  its  business and the purchase of the
Units contemplated hereby as desired by the Investor,  his attorney,  accountant
or other financial adviser, (iii) no oral representations have been made or oral
information  furnished to the Investor or his adviser(s) in connection  with the
offering  of the  Units  which  were in any way  inconsistent  with  the  Public
Filings,  the Term Sheet or the books and records  and  material  contracts  and
documents of the Company made  available to the Investor or his  adviser(s)  for
review,  (iv) his knowledge and experience in financial and business  matters is
such that he is capable of evaluating  the merits and risk of the  investment in
the Units,  (v) he is a resident of the State listed below,  and (vi) if he is a
natural person, he is at least 21 years of age.

            (e)   ABILITY TO BEAR RISK.  The  Investor  represents  and warrants
that (i) the  financial  situation of the Investor is such that he can afford to
bear the economic  risk of holding the Units  purchased by him  hereunder for an
indefinite  period,  (ii) he can  afford  to  suffer  the  complete  loss of his
investment  in the Units,  (iii) he has adequate  means of providing for his and
his dependents' current needs and possible personal  contingencies,  (iv) he has
no need for liquidity in this investment,  and (v) he can afford a complete loss
of such investment.

            (f)   CURRENT  INFORMATION.  All information  which the Investor has
provided to the Company concerning his investor status and financial position is
correct and  complete  as of the date set forth at the end hereof,  and if there
should be any adverse change in such information prior to his subscription being
accepted by the Company, the Investor shall immediately provide the Company with
such information.

      2.    REPRESENTATIONS  AND  WARRANTIES OF THE COMPANY.  The Company hereby
represents and warrants to the Investor that except as set forth on a disclosure
schedule (the  "Disclosure  Schedule")  furnished by the Company to the Investor
herewith,  specifically  identifying the relevant Section and paragraph  hereof,
which exceptions shall be deemed to be representations and warranties as if made
hereunder:


                                       5



            (a)   ORGANIZATION AND  QUALIFICATION  OF COMPANY.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full power and authority to own, operate or lease
its properties and to conduct its business in the manner and in the places where
such  properties  are owned or leased or such  business is  conducted by it. The
Company is duly  qualified to do business  and is in good  standing as a foreign
corporation in each  jurisdiction in which the nature of the business  conducted
or property  owned by the Company  makes such  qualification  necessary,  except
where the  failure  to be so  licensed  or  qualified  would not have a Material
Adverse Effect. For purposes hereof, "Material Adverse Effect" means any change,
circumstance or effect which, individually or in the aggregate, has had or would
reasonably  be expected to have a material  adverse  change in, or effect on the
assets, liabilities, financial condition or results of operations of the Company
or on the ability of Company to consummate the transactions  contemplated hereby
or by the Transaction Documents,  provided;  however,  "Material Adverse Effect"
shall not include any material  adverse  change or effect  occurring  (i) to the
extent  that such  change or effect  is a result  of the  execution  and  public
announcement  of  this   Agreement,   the  pendency  of  the  Agreement  or  the
consummation of the  transactions  contemplated  hereby,  or (ii) as a result of
general  market or industry  conditions  (which  includes  facts  affecting  the
industry in which the Company  operates,  the Company's  customers or suppliers,
the  industries of the Company's  customers or suppliers,  or the economy in any
particular  region or  country).  For purposes of this  Agreement,  "Transaction
Documents"  means  this  Agreement,  and each  instrument  and  agreement  to be
executed with and delivered  pursuant to this  Agreement,  all as amended and in
effect at the time in question.

            (b)   CAPITALIZATION  OF COMPANY;  STOCKHOLDER  LIST.  The number of
shares and type of all authorized, issued and outstanding capital stock, options
and other securities of the Company  (whether or not presently  convertible into
or  exercisable or  exchangeable  for shares of capital stock of the Company) is
set forth in Schedule 2(b) of the Disclosure Schedule. All outstanding shares of
capital stock are duly authorized,  validly issued, fully paid and nonassessable
and have been issued in compliance with all applicable  securities laws,  except
where  the  failure  to be so  authorized,  issued  or in  compliance  could not
reasonably  be  expected  to  result in a  Material  Adverse  Effect.  Except as
disclosed in Schedule 2(b) of the Disclosure Schedule,  there are no outstanding
options,  warrants,  script rights to subscribe to, calls or  commitments of any
character   whatsoever  relating  to,  or  securities,   rights  or  obligations
convertible  into or exercisable or  exchangeable  for, or giving any Person any
right to subscribe  for or acquire,  any shares of Common  Stock,  or contracts,
commitments,  understandings  or  arrangements  by  which  the  Company  or  any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights  convertible or  exchangeable  into shares of Common Stock.
For purposes of this Agreement, "Subsidiary" means any corporation,  association
or  business  entity  more than a majority  of the voting  interest  of which is
hereafter owned or controlled, directly or indirectly, by the Company. Except as
set  forth  in  Schedule  2(b)  of  the  Disclosure   Schedule,   there  are  no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any  agreement  providing  rights to security  holders),  and
"Person" shall have the meaning set forth in Section 6(g) hereinbelow.

            (c)   SUBSIDIARIES;  OTHER  INVESTMENTS.  Except  as  set  forth  on
Schedule 2(c) of the Disclosure  Schedule,  the Company (i) has no Subsidiaries,
(ii) does not own,  directly or indirectly,  any securities  issued by any other
corporation, business organization or governmental authority, and (iii) is not a
partner or participant in any joint venture or partnership of any kind.


                                       6



            (d)   AUTHORIZATION OF TRANSACTION;  ISSUANCE OF SHARES. The Company
has the full power and authority to execute, deliver and perform this Agreement,
to  perform  its  obligations  hereunder,  and to  carry  out  the  transactions
contemplated hereby (subject, as applicable, to getting stockholder approval for
the  amendment of the Company's  Certificate  of  Incorporation).  All necessary
action,  corporate or otherwise,  has been taken by the Company to authorize the
execution,  delivery and  performance of this Agreement and  consummation of the
transactions  contemplated  hereby,  except  for  stockholder  approval  of  the
amendment of the Company's Certificate of Incorporation.  The Agreement has been
duly  executed and delivered by the Company.  The Agreement is the legal,  valid
and  binding  obligation  of the  Company,  enforceable  against  the Company in
accordance with its terms.

            (e)   PRESENT  COMPLIANCE  WITH  OBLIGATIONS  AND LAWS. For purposes
hereof,  "Knowledge" of the Company means  information,  facts or  circumstances
actually known by any executive officer of the Company or any information, facts
or circumstances  that are reasonably  available to any of the foregoing persons
and would in the ordinarily course of their  responsibilities to the Company (or
upon reasonable  investigation) be known by such persons. Except as set forth on
Schedule  2(e) of the  Disclosure  Schedule,  to the  Company's  Knowledge,  the
Company  is not:  (i) in  violation  of its  organizational  documents;  (ii) in
default in the performance of any obligation, agreement or condition of any debt
instrument  which  (with or without the passage of time or the giving of notice)
affords to any Person the right to accelerate any  indebtedness or terminate any
right;  (iii) in default of or in breach of (with or without the passage of time
or the giving of notice)  any other  contract to which it is a party or by which
it or its assets are bound;  or (iv) in violation of any court order,  judgment,
administrative or judicial order, writ, decree,  stipulation,  arbitration award
or injunction,  or any license, permit, order, franchise agreement,  concession,
grant,  authorization,  consent or approval ("Governmental  Authorization") from
any governmental body, whether national, state, provincial,  regional, local, or
any  subdivision  or agency of any of the foregoing  ("Governmental  Authority")
that is held by the Company  applicable to it or its business or assets.  To the
Company's Knowledge, it has conducted and is now conducting its business and the
ownership  and  operation  of its  assets  in  material  compliance  with  every
applicable  statute,  law,  ordinance,  rule  or  regulation  of a  Governmental
Authority  (collectively,   "Laws"),  including  maintenance  of  any  licenses,
permits,  consents  and  authorizations  required to be obtained by it under all
applicable Laws relating to its business,  the absence of which would reasonably
be  expected  to have,  individually  or in the  aggregate,  a Material  Adverse
Effect.

            (f)   NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS.  Neither
the execution,  delivery and performance of this Agreement,  nor the performance
of the transactions  contemplated  hereby, will, except as set forth on Schedule
2(f) of the  Disclosure  Schedule:  (i) conflict  with or constitute a breach or
violation of any provision of the organizational documents of the Company or any
resolutions of the Company's Board of Directors (assuming receipt of stockholder
approval for the amendment of the Company's Certificate of Incorporation);  (ii)
require any Governmental  Authorization;  (iii) require the consent of any other
party under any loans, contracts, leases, licenses and other agreements to which
the Company is a party or by which it is bound; (iv) constitute (with or without
the passage of time or the giving of notice) a breach of, or default under,  any
debt  instrument  to which the Company is a party,  or give any other Person the
right to accelerate any  indebtedness or terminate,  modify or cancel any right;


                                       7



(v)  constitute  (with or  without  the  passage  of time or giving of notice) a
default  under or breach of any other  agreement,  instrument  or  obligation to
which the Company is a party or by which it or its assets are bound; (vi) result
in the creation of any encumbrance  upon any Company capital stock or any of the
assets of the  Company  (including,  without  limitation,  any  patents,  patent
applications, trade marks or service marks (whether registered or unregistered),
trade mark or service mark  applications,  know how,  trade  names,  copyrights,
computer  software,  maskworks and manufacturing and other secret or proprietary
processes and technologies,  and other trade secrets ("Intellectual  Property ")
of the Company);  (vi) conflict with or result in a violation of any court order
or Law, or give or any other  Person the right to exercise  any remedy or obtain
any relief  under any court  order or Law, to which the Company is subject or by
which the  properties  or assets of the  Company  are bound,  (vii)  result in a
violation  of any of the  terms or  requirements  of,  or give any  Governmental
Authority  the right to revoke,  suspend or  otherwise  modify,  any  Government
Authorization, or (viii) require any consent, approval,  authorization or permit
of, or filing with or notification  to, any Governmental  Authority  pursuant to
any  applicable  Laws,  except for required  filings under the Securities Act or
state  "blue  sky" laws as a result  of the  exercise  of  rights or  fulfilling
obligations under this Agreement.

            (g)   SEC REPORTS;  Financial Statements.  The Company has filed all
reports  required to be filed by it under the  Securities  Act and the  Exchange
Act,  including  pursuant to Section 13(a) or 15(d)  thereof,  for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively  referred
to  herein as the "SEC  Reports"  and,  together  with  this  Agreement  and the
Schedules to this Agreement,  the  "Disclosure  Materials") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports  prior to the  expiration  of any such  extension.  The Company has made
available to the Investor true,  correct and complete  copies of all SEC Reports
filed within the ten (10) days preceding the date hereof. As of their respective
dates, the SEC Reports  complied in all material  respects with the requirements
of the Securities Act and the Exchange Act and the rules and  regulations of the
SEC promulgated  thereunder,  and none of the SEC Reports, when filed, contained
any  untrue  statement  of a material  fact or omitted to state a material  fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading.  The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting  requirements and the
rules and  regulations of the SEC with respect  thereto as in effect at the time
of filing.  Such  financial  statements  have been prepared in  accordance  with
United States generally accepted  accounting  principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such  financial  statements or the notes  thereto,  and fairly present in all
material  respects the  financial  position of the Company and its  consolidated
subsidiaries  as of and for the dates thereof and the results of operations  and
cash  flows  for the  periods  then  ended,  subject,  in the case of  unaudited
statements,  to normal,  immaterial,  year-end audit  adjustments.  All material
agreements  to which the  Company or any  Subsidiary  is a party or to which the
property or assets of the Company or any  Subsidiary are subject are included as
part of or specifically identified in the SEC Reports.


                                       8



            (h)   MATERIAL  CHANGES.  Since  the  date  of  the  latest  audited
financial  statements  included  within the SEC Reports,  except as specifically
disclosed in the SEC Reports, (i) to the Company's Knowledge,  there has been no
event, occurrence or development that, individually or in the aggregate, has had
or that could  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  Securities  and  Exchange  Commission  ("Commission"),  (iii) the
Company  has not  altered  its  method  of  accounting  or the  identity  of its
auditors,  and  (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, except as set forth in Schedule 2(h) of the Disclosure Schedule.

            (i)   FORM SB-2 ELIGIBILITY. The Company is eligible to register its
Common Stock for resale by the Investor  using Form SB-2  promulgated  under the
Securities Act.

            (j)   PAYMENT OF TAXES.(i)  Except as set forth on Schedule  2(j) of
the  Disclosure  Schedule,  the  Company  has duly and timely  filed all income,
excise,  gross  receipts and  franchise  tax  returns,  real estate and personal
property tax returns,  sales and use tax returns,  employee tax and contribution
returns and all other tax returns,  reports and  declarations  ("Tax  Returns"),
including  valid  extensions  therefor,  required  to be  filed  by it with  any
Governmental  Authority with respect to income, profit,  franchise,  sales, use,
real property,  personal property, ad valorem, value added, excise,  employment,
social security and wage withholding taxes, severance,  stamp,  occupation,  and
windfall  taxes,  of  every  kind,  character  or  description  imposed  by  any
Governmental  Authority  or  quasi-Governmental  Authority,  and any interest or
fines, and any and all penalties or additions  relating to such taxes,  charges,
fees, levies or assessments  ("Taxes").  All of the Tax Returns are complete and
correct  in all  material  respects;  and all Taxes  shown to be due on such Tax
Returns (including any estimated taxes required to be filed with the Tax Return)
have been paid or are being contested in good faith by the Company, and any such
contest is being diligently pursued.  All contested Taxes are listed on Schedule
2(j) of the Disclosure Schedule.

                  (ii)  With  respect to all other  Taxes for which no return is
required or which have not yet accrued or otherwise become due, to the Company's
Knowledge, adequate provision has been made therefor.

                  (iii) Except as set forth on Schedule  2(j) of the  Disclosure
Schedule,   the  Tax  Returns  have  never  been  examined  or  audited  by  any
Governmental Authority. The Company is not aware of any intention on the part of
a  Governmental  Authority  to  examine  or  audit  any of the Tax  Returns.  No
deficiency or adjustment for any Taxes has been threatened,  proposed,  asserted
or  assessed  against the Company or its  Subsidiaries  (if any).  Except as set
forth on Schedule 2(j) of the Disclosure Schedule,  there are no liens for Taxes
upon the assets of the Company or its  Subsidiaries  (if any),  except liens for
current Taxes not yet due.

                  (iv)  Neither Company nor its Subsidiaries (if any) have given
or been requested to give any waiver of statutes of limitations  relating to the
payment of Taxes or has executed powers of attorney with respect to Tax matters,
which will be outstanding as of the date of the Closing.


                                       9



                  (v)   Neither the Company nor its  Subsidiaries (if any) are a
party to, or are bound by any tax sharing,  cost sharing or similar agreement or
policy relating to Taxes.

                  (v)   Neither the Company nor its  Subsidiaries  (if any) have
entered  into  agreements  that  would  result  in the  disallowance  of any tax
deductions pursuant to any applicable Laws.

                  (vi)  The Company has not made any  elections  pursuant to any
Laws  relating to Taxes (other than  elections  that relate solely to methods of
accounting,  depreciation or amortization)  that would have,  individually or in
the aggregate, a Material Adverse Effect.

                  (vii) The Company has withheld or collected  from each payment
made to each of its  employees,  the amount of Taxes  required to be withheld or
collected  therefrom,  and has paid the same to the  proper tax  authorities  or
authorized tax depositaries.

            (k)   REAL AND PERSONAL  PROPERTY.  (i) The Company does not own any
real estate. Set forth on Schedule 2(k) of the Disclosure  Schedule is a listing
of all leases  under which the Company  leases real  property,  together  with a
description of such property,  the name of the landlord and a description of the
significant financial terms of each lease (collectively, "Real Property").

                  (ii)  Set forth on Schedule  2(k) of the  Disclosure  Schedule
are (i) a  listing  of the  machinery,  equipment  and other  tangible  personal
property  with an  original  cost in excess of $25,000  owned by the Company and
(ii) a listing  of all  leases  under  which the  Company  leases  any  personal
property  as of the  Closing  requiring  annual  rental  payments  in  excess of
$25,000,  together  with a  description  of  such  property  (collectively,  the
"Material Personal Property").  Schedule 2(k) lists all locations where Material
Personal Property or the Company's inventory (other than goods in transit in the
ordinary course of business) is located.

                  (iii) Except as described on Schedule  2(k) of the  Disclosure
Schedule, none of the real or personal property owned or used by the Company is,
to the Company's Knowledge, subject to any encumbrance (other than for Taxes not
yet due and payable), or other adverse claim or charge or interest of any kind.

                  (iv)  The Real  Property  and Material  Personal  Property are
sufficient to conduct the Company's business as currently conducted.

                        (v)   With respect to the property and assets it leases,
the Company is in compliance  in all material  respects with such leases and, to
its Knowledge,  holds a valid leasehold  interest free of any encumbrances.  The
properties,  assets and leasehold  interests  described in this Section 2(k) are
all of the  assets  used  in the  conduct  of the  business  of the  Company  as
presently  conducted  other  than  the  Intellectual  Property  of  the  Company
described in Section  2(k).  All  facilities,  machinery,  equipment,  fixtures,
vehicles and other  properties  owned,  leased or used by the Company to conduct
its business are in good operating condition and repair,  ordinary wear and tear
excepted,  and are reasonably fit and usable for the purposes for which they are
being used.


                                       10



            (l)   INTELLECTUAL  PROPERTY  RIGHTS.  Set forth on Schedule 2(l) of
the  Disclosure  Schedule is a true and complete list of all material  rights of
ownership  of, or material  licenses to use,  Intellectual  Property held by the
Company  and its  Subsidiaries  (if  any).  There are no  material  Intellectual
Property  rights,  other than those  listed on Schedule  2(l),  necessary  to or
regularly  used in the  conduct of the  business  of the  Company  as  presently
conducted.  Each of the Company and its  Subsidiaries (if any) owns or possesses
adequate  licenses or other rights to use all Intellectual  Property material to
its business as currently  conducted,  and except as set forth on Schedule 2(l),
neither  the  Company  nor any of its  Subsidiaries  (if any) has  received  any
written  notice of  infringement  of or conflict with asserted  rights of others
with  respect to the use of any  Intellectual  Property.  All licenses and other
rights to  Intellectual  Property of the Company and its  Subsidiaries  (if any)
material to its or their  business as currently  conducted and as proposed to be
conducted are valid and enforceable and the Company and/or its  Subsidiaries (if
any)  have  performed  all  acts and has paid  all  required  fees and  taxes to
maintain  in full  force and  effect all filed  registrations  and  applications
regarding such Intellectual  Property. To the Knowledge of the Company,  neither
the  Company  nor any of its  Subsidiaries  (if any),  in the  conduct  of their
business as now conducted or as proposed to be conducted, infringes or conflicts
with  any  right  of  any  third  party.  Neither  the  Company  nor  any of its
Subsidiaries  (if any)  is,  nor will it be as a  result  of the  execution  and
delivery of this Agreement, the Transaction Documents and any other agreement or
instrument  entered into pursuant to any of the foregoing or the  performance of
any obligations hereunder or thereunder, be in breach of any material license or
other agreement  relating to any Intellectual  Property.  Except as set forth on
Schedule 2(l), to the Knowledge of the Company,  no third party is infringing or
has infringed upon any Intellectual  Property of the Company or its Subsidiaries
(if any).

            (m)   PROPRIETARY INFORMATION.  Except as set forth on Schedule 2(m)
of  the  Disclosure  Schedule,   each  material  current  and  former  employee,
consultant and officer of the Company has executed an agreement with the Company
regarding  confidentiality  and proprietary  information.  The Company has taken
reasonable  security measures to maintain the  confidentiality  of the Company's
proprietary  information.  The  Company is not  obligated  to make any  material
royalty or fee payments to any owner or licensor of any patent, trademark, trade
name, copyright or other intangible asset.

            (n)   CONTRACTS   AND   COMMITMENTS.(i)    Except   for   contracts,
commitments,  plans,  agreements and licenses  described in Schedule 2(n) of the
Disclosure  Schedule,  the Company is not a party to or subject to any contract,
agreement or  commitment  (whether  written or oral) (i) for the purchase by the
Company of any commodity,  material,  equipment or asset,  except for contracts,
agreements  or purchase  orders in the  ordinary  course of  business  involving
payments of less than $50,000 each; (ii) creating any obligations of the Company
which call for payments by the Company of more than $25,000 during any month for
agreements  which do not have a fixed term,  or for more than  $50,000  over the
term of the agreement for agreements with a fixed term;  (iii) providing for the
purchase by the Company of all or  substantially  all of its  requirements  of a
particular  product,  component,  item or service from a single  supplier;  (iv)


                                       11



which by its terms does not  terminate  or is not  terminable  without  material
premium or penalty by the  Company  (or its  successor  or assign)  upon 30 days
notice;  (v) for the sale,  lease or  license  of its  products  not made in the
ordinary  course  of  business;  (vi)  with any sales  agent or  distributor  of
products of the Company;  (vii) containing covenants limiting the freedom of the
Company to  compete in any line of  business  or with any  Person;  (viii) for a
license or franchise (as licensor or licensee or franchisor or franchisee) other
than non-exclusive  licenses of the Company's products in the ordinary course of
business;  or (ix) involving any  arrangement or obligation  with respect to the
return  of  inventory  or  merchandise  other  than on  account  of a defect  in
condition,  or failure to conform to the  applicable  contract.  The  contracts,
commitments,  agreements and licenses  required to be listed on Schedule 2(n) of
the Disclosure Schedule are referred to as the "Material Contracts".

                  (ii)  Each of the  Material  Contracts  is valid,  binding and
enforceable  against the Company and, to the  Knowledge of the Company,  against
the other parties  thereto,  and the Company is in material  compliance with all
terms and  conditions  of each such  Material  Contract.  Except as set forth on
Schedule 2(n) of the Disclosure Schedule,  no event has occurred or circumstance
exists  that  (with or  without  notice or the  passage  of time or both)  would
constitute a violation of or default under any Material  Contract by the Company
or, to the Company's  Knowledge,  by the other party or parties thereto; and the
Company has neither  given nor  received  notice of any alleged  violation of or
default under any such Material Contract.

            (o)   LITIGATION.  Except  as set  forth  on  Schedule  2(o)  of the
Disclosure Schedule, there is no action, suit, claim, proceeding,  investigation
or  arbitration  proceeding  pending  (or,  to the  Knowledge  of  the  Company,
threatened)  against or  otherwise  involving  the Company or any of the Company
capital stock or any of the officers,  directors,  former officers or directors,
employees,  shareholders or agents of the Company (in their  capacities as such)
and there are no outstanding  court orders to which the Company is a party or by
which any of its assets are bound, any of which (i) question,  threaten, seek to
enjoin, prevent the consummation of or otherwise challenge this Agreement or any
of the  Transaction  Documents  or any  action to be taken  hereby or thereby or
affect the transactions  contemplated  hereby,  or (ii) materially  restrict the
present  business  properties,   operations,  prospects,  assets  or  condition,
financial  or  otherwise,  of the Company or (iii) if adversely  decided,  could
reasonably be expected to result in a Material  Adverse  Effect.  The Company is
unaware of any reason to believe that any such action, suit, claim,  proceeding,
investigation or arbitration proceeding may be brought against the Company.

            (p)   LABOR AND EMPLOYEE  RELATIONS.  (i) Shown on Schedule  2(p) of
the  Disclosure  Schedule is the name of each officer,  employee or agent of the
Company. Except as shown on Schedule 2(p) of the Disclosure Schedule,  there are
no currently effective  consulting or employment  agreements or other agreements
with  individual  consultants or employees to which the Company is a party or of
which the Company is a beneficiary (including noncompetition covenants) that are
not  terminable  without  penalty  immediately  upon  notice.  To the  Company's
Knowledge,  no employee of the Company, nor any consultant with whom the Company
has  contracted,  is in  violation  of  any  term  of any  employment  contract,
proprietary  information  agreement or any other agreement relating to the right
of any such  individual  to be  employed  by, or to contract  with,  the Company
because of the nature of the business to be conducted by the Company; and to the


                                       12



Company's  Knowledge,  the  continued  employment  by the Company of its present
employees,  and the performance of the Company's  contracts with its independent
contractors, will not result in any such violation. The Company has not received
any notice alleging that any such violation has occurred.  Except as provided in
the contracts listed in Schedule (p) no employee of the Company has been granted
the right to continued employment by the Company or to any material compensation
following  termination of employment with the Company.  The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate his, her or their  employment  with the Company,  nor does the Company
have a present  intention  to  terminate  the  employment  of any  officer,  key
employee or group of key employees.

                  (ii)  None of the  employees  of the Company is covered by any
collective  bargaining  agreement  with any  trade or  labor  union,  employees'
association or similar association.  No labor organization or group of employees
has made a pending  demand for  recognition;  there are no labor  representation
questions involving the Company; and, to the Knowledge of the Company,  there is
no organizing  activity  involving the Company pending by any labor organization
or group of employees.

                  (iii) The Company has complied in all material  respects  with
all  applicable  Laws  relating to the  employment of labor,  including  without
limitation   those   relating  to  wages,   hours,   unfair   labor   practices,
discrimination, civil rights, plant closings, immigration and the collection and
payment of social security and similar taxes.

                  (iv)  There are no complaints, proceedings,  investigations or
charges  against  the  Company  pending  or  threatened  before  any  Government
Authority by or on behalf of any employee or former employee of the Company.

                  (v)   The  Company  has paid in full (or made  provisions  for
payment  in  full)  to its  employees,  agents  and  contractors  of all  wages,
salaries,  commissions,  bonuses and other direct  compensation for all services
performed by them. The Company does not have any  contingent  liability for sick
leave,  vacation  time,  holiday pay,  severance pay or similar items (except as
accrued  in the  ordinary  course of  business).  The  execution,  delivery  and
performance  of  this  Agreement  and  the   consummation  of  the  transactions
contemplated  hereby will not trigger any  severance  pay  obligation  under any
contract or by operation of law.

                  (vi)  There has not been any citation, fine or penalty imposed
or asserted against the Company under any foreign,  federal,  state or local Law
relating to employment, immigration or occupational safety matters.

            (q)   ERISA AND  EMPLOYEE  BENEFITS.  The  Company  does not have or
otherwise  contribute  to or  participate  in any benefit  plan other than those
listed on Schedule 2(q) of the Disclosure Schedule. The Company is in compliance
with all Laws applicable to each such Benefit Plan under ERISA, the violation of
which, singly or in the aggregate, could have a Material Adverse Effect.


                                       13



            (r)   ENVIRONMENTAL  MATTERS.  (i) All hazardous  materials  used or
generated by the Company have always been and are being generated, used, stored,
treated and disposed of at any of the  properties or facilities  owned or leased
by the  Company  (or any former  parent  corporation  of the  Company or, to the
Knowledge  of the  Company,  any  predecessors-in-interest  of the  Company)  in
material  compliance with all applicable  Environmental  Laws, court orders, and
government authorizations. For purposes of this Agreement,  "Environmental Laws"
means those laws related to the protection of public health,  worker safety, the
environment  or the  management of pollution or hazardous  materials and include
the Comprehensive  Environmental  Response,  Compensation and Liability Act, the
Resource  Conservation and Recovery Act, the Clean Air Act, the Clean Water Act,
the  Toxic  Substances   Control  Act,  the  Emergency  Planning  and  Community
Right-to-Know  Act of 1986,  the  Hazardous  Materials  Transportation  Act, the
Federal Water Pollution  Control Act, the  corresponding  Canadian,  provincial,
state and local statutes, ordinances, and amendments or successor legislation.

                  (ii)  Each of the Company and its  Subsidiaries (if any) is in
compliance with all Environmental Laws, except where such  non-compliance  would
not reasonably be expected to have a Material  Adverse  Effect,  and the Company
has not  received  or become to its  Knowledge  subject  to any  claim,  notice,
complaint, court order, or request for information from any Government Authority
or private party (i) alleging violation of, or asserting any noncompliance with,
any  Environmental  Law by it or its former parent  corporation,  (ii) asserting
potential   liability,   (iii)  requesting   information,   or  (iv)  requesting
investigation or clean-up of any site under any Environmental Law.

                  (iii) No hazardous  materials have ever been shipped by or for
the Company (or by any former  parent  corporation  or, to the  Knowledge of the
Company,  any   predecessor-in-interest  to  the  Company)  to  other  sites  or
facilities for treatment,  storage or disposal. The Company has not received any
notice that any sites or  facilities  to which any such wastes have been shipped
or sent are not in  compliance  with  Environmental  Laws.  The  Company  is not
subject to or, to its  Knowledge  threatened  to become  subject to any response
action or clean up order of any Governmental Authority.

            (s)   GOVERNMENT  AUTHORIZATIONS.  The Company holds all  government
authorizations  that are required to own its properties and assets and to permit
it to  conduct  its  businesses  as  presently  conducted.  All such  government
authorizations are listed on Schedule 2(s) of the Disclosure Schedule,  together
with the applicable expiration date, and are now, and will be after the Closing,
valid  and in full  force  and  effect.  No  proceeding  is  pending,  or to the
Knowledge of the Company threatened, seeking the revocation or limitation of any
government authorization.

            (t)   INSURANCE.  The Company  maintains (i) insurance on all of its
real property and material personal property that insures against loss or damage
by fire or other  casualty,  sufficient in amount  (subject to  deductibles)  to
allow it to replace any of its properties that might be damaged or destroyed and
(ii)  insurance  against  liabilities,   claims  and  risks  (including  without
limitation workers'  compensation  risks), in both cases of a nature and in such
amounts as are normal and customary in its industry.

            (u)   BORROWINGS  AND  GUARANTEES.  Except as set forth on  Schedule
2(u)  of the  Disclosure  Schedule,  there  are no  agreements  or  undertakings
pursuant  to which the  Company  (a) is  borrowing  or is entitled to borrow any
money,  (b) is lending or has  committed  itself to lend any money,  or (c) is a
guarantor or surety with respect to the obligations of any Person.


                                       14



            (v)   MINUTE  BOOKS.  The  minute  books  and stock  records  of the
Company  accurately  record  all  material  action  taken  by the  incorporator,
shareholders,  board of directors and committees  thereof of the Company and all
issuances and transfers of record of capital stock of the Company since the date
of incorporation  of the Company.  Accurate copies of all minute books and stock
records of the Company have been made available for inspection by counsel to the
Investor.

            (w)   TRANSACTIONS WITH INTERESTED  PERSONS.  Except as set forth on
Schedule  2(w) of the  Disclosure  Schedule,  no  present  officer,  supervisory
employee,  director or  stockholder of the Company,  or any of their  respective
spouses or children,  to the  Knowledge of the  Company,  (i) owns,  directly or
indirectly,  on an individual  or joint basis,  any interest in, or serves as an
officer or director of, any  customer,  competitor or supplier of the Company or
any organization which has a contract or arrangement  (written or oral) with the
Company,  or (ii) has any  contract  or  agreement  (written  or oral)  with the
Company and all agreements set forth on Schedule 2(x) of the Disclosure Schedule
are on arms-length terms.

            (x)   ABSENCE OF SENSITIVE PAYMENTS. The Company has not, nor to the
Knowledge of the Company have any of the Company's directors,  officers, agents,
stockholders  or employees  or any other  Persons  associated  with or acting on
behalf of the Company:

                  (i)   made or agreed to make any solicitations, contributions,
payments or gifts of funds or property to any governmental official, employee or
agent  where   either  the   payment  or  the  purpose  of  such   solicitation,
contribution,  payment  or gift was or is  illegal  under the laws of the United
States, any state thereof, or any other jurisdiction  (foreign or domestic),  or
prohibited by the policy of the Company or of any of its suppliers or customers;

                  (ii)  established or maintained  any unrecorded  fund or asset
for any purpose, or has made any false or artificial entries on any of its books
or records for any reason; or

                  (iii) made or agreed to make any  contribution or expenditure,
or reimbursed any political  gift or  contribution  or  expenditure  made by any
other Person to candidates for public office,  whether  federal,  state or local
(foreign or domestic),  where such contributions were or would be a violation of
applicable Law.

            (y)   REGISTRATION  RIGHTS.  Except as set forth on Schedule 2(y) of
the Disclosure  Schedule and as provided in Article 6, no holder of any security
issued by the Company, nor any holder of rights to acquire any security from the
Company, has any right to require the Company to file, or to join the Company in
the filing of, a registration statement under the Securities Act.

            (z)   BROKERAGE.  Except for the fees to Sunrise  Securities Corp, a
registered  broker-dealer,  there are no valid claims for brokerage commissions,
finder's  fees or  similar  compensation  in  connection  with the  transactions
contemplated  by this Agreement  based upon any arrangement or agreement made by
or on behalf of the Company, and the Company has not taken any action that would
cause the Investor to be liable for any such fees or commissions.


                                       15



            (aa)  DISCLOSURE OF MATERIAL  INFORMATION.  Neither this  Agreement,
nor any of the Transaction Documents, nor the Disclosure Schedule, nor any other
exhibit,  document  or  certificate  delivered  by or on behalf  of the  Company
pursuant  hereto,  contains any untrue  statement of a material  fact, or to the
Company's  Knowledge,  omits  to state a  material  fact  necessary  to make the
statements herein or therein not misleading.  To the Company's Knowledge,  there
is no fact,  which would have a Material  Adverse Effect or would  constitute an
Event of Default that has not been set forth herein.

            (bb)  PRIVATE OFFERING.  No form of general  solicitation or general
advertising was used by the Company and its representatives  with respect to the
securities  offered  herein,  including,  but not  limited  to,  advertisements,
articles,  notices or other communications published in any newspaper,  magazine
or similar  medium or  broadcast  over  television  or radio,  or any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising.

            (cc)  OBLIGATIONS OF MANAGEMENT.  Each officer of the Company listed
on Schedule 2(cc) is currently devoting one hundred percent (100%) of his or her
business time to the conduct of the business of the Company.  The Company is not
aware of any officer or key  employee  of the  Company  that is planning to work
less than full time at the Company in the future.

            (dd)  OBLIGATIONS  TO RELATED  PARTIES.  There are no obligations of
the Company to  officers,  directors,  stockholders  or employees of the Company
other than (i) for payment of salary for services  rendered,  (ii) reimbursement
for  reasonable  expenses  incurred on behalf of the Company and (iii) for other
standard employee benefits made generally available to all employees  (including
stock option agreements  outstanding under any stock option plan approved by the
Board  of  Directors  of the  Company).  None  of  the  officers,  directors  or
stockholders  of the  Company or any  members of their  immediate  families  are
indebted  to the  Company  or, to the  Company's  Knowledge,  have any direct or
indirect ownership interest in any firm or corporation with which the Company is
Affiliated or with which the Company has a business relationship, or any firm or
corporation  which competes with the Company,  except that  officers,  directors
and/or  stockholders of the Company may own stock in publicly  traded  companies
which may compete with the Company. No officer, director or stockholder,  or, to
the Company's Knowledge, any member of their immediate families, is, directly or
indirectly,  interested in any material  contract  with the Company  (other than
such  contracts as relate to any such  Person's  ownership  of capital  stock or
other securities of the Company or employment with the Company).  The Company is
not a guarantor or indemnitor of any indebtedness of any other Person.

            (ee)  LISTING  AND  MAINTENANCE  REQUIREMENTS.  The  Company  is  in
compliance  with the listing or  maintenance  requirements  of the OTC  Bulletin
Board and will take all steps  necessary  for a period of at least two (2) years
from the date hereof to have its shares continue to be traded and listed on such
market or another  Eligible  Market (as defined in Section 6(f). The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such listing and maintenance requirements.


                                       16



            (ff)  USE OF FUNDS.  The Company  shall use the  proceeds of sale of
the Units for general  working  capital  requirements  of the  Company,  and the
payment  of the  expenses  of the  Company  in  complying  with its  obligations
hereunder.

      3.    STATE SECURITIES LAWS. Notwithstanding anything in this Agreement to
the contrary, the Company shall not have any obligation to sell the Units to the
Investor if the  Investor is a resident of a  jurisdiction  in which the sale of
the Units to the Investor would constitute a violation of the securities laws of
such jurisdiction.

      4.    TAX MATTERS.

            (a)   INDIVIDUAL RISK. The Investor  represents and warrants that he
understands  the  tax  consequences  of the  transactions  contemplated  by this
Agreement,  including  his  purchase of the Units,  and any  disposition  of the
Units, and acknowledges  that he will be solely  responsible for any and all tax
liabilities  payable  by him in  connection  with  the  ownership  of the  Units
including  the  purchase,  ownership and  disposition  of any of the Units.  The
Investor acknowledges that the Company has made no representation or warranty as
to  the  tax  consequences  of  any of the  transactions  contemplated  by  this
Agreement  and the Company shall have no liability or obligation to the Investor
with respect to any liability or obligations  the Investor may incur as a result
of such transactions.

            (b)   WITHHOLDING.  The Company  shall have the right to withhold or
require the  Investor to remit to the  Company an amount  sufficient  to satisfy
federal,  state  and  local  withholding  tax  requirements  incurred  upon  the
purchase,  ownership or disposition  of any of Units,  and the Company may defer
any  issuance  of stock or  payment of cash from any  source  whatsoever  to the
Investor until such requirements are satisfied.

      5.    STOCK CERTIFICATE LEGENDS. The certificates  representing the Common
Stock and the Warrants being purchased by the Investor  hereunder shall bear the
following legend as well as any additional  legends  reasonably  required by the
Company:

      THE  SECURITIES  REPRESENTED  HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR
      ANY APPLICABLE  STATE  SECURITIES LAWS. SUCH SECURITIES AND ANY SECURITIES
      ISSUED  HEREUNDER  OR  THEREUNDER  MAY NOT BE SOLD OR  TRANSFERRED  IN THE
      ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION  THEREFROM UNDER SAID ACT AND
      APPLICABLE LAWS.

      6.    SHELF REGISTRATION


                                       17



            (a)   As promptly as possible  but in any case within 45 days of the
first Closing, the Company shall prepare and file with the Commission (a "Shelf"
Registration  Statement covering the resale of all Registrable  Securities owned
by the  Investor for an offering to be made on a  continuous  basis  pursuant to
Rule  415.  The  Registration  Statement  shall be on Form SB-2  (except  if the
Company is not then eligible to register for resale the  Registrable  Securities
on Form SB-2, in which case such  registration  shall be on another  appropriate
form in accordance herewith as a majority, measured on a fully diluted basis, in
interest of the investors (the "Majority  Investors") may reasonably consent and
shall contain (except if otherwise  directed by the Majority  Investors) a "Plan
of  Distribution"  in  substantially  the form of  Exhibit  C. The  Registration
Statement  shall be amended within 10 days after the Offer  Termination  Date to
include all Common Stock sold in the Closings after the initial Closing, and the
Common Stock issuable upon the Warrants sold in such Closings.

            (b)   The Company shall use its commercially  reasonably  efforts to
cause the Registration  Statement to be declared  effective by the Commission as
promptly as  possible  after the filing  thereof,  but in any event prior to the
Required  Effectiveness Date as defined below in Sec. 6(g)(xi) and shall use its
best efforts to keep the Registration Statement continuously effective under the
Securities Act until the first anniversary of the Effective Date or such earlier
date when either (i) all Registrable  Securities of the Investor covered by such
Registration  Statement have been sold (the "Effectiveness  Period") or (ii) all
Registrable  Securities  owned  by the  Investor  may be sold  pursuant  to Rule
144(k).

            (c)   The Company shall notify the Investor in writing promptly (and
in any event  within one  Trading  Day) after  receiving  notification  from the
Commission that the Registration Statement has been declared effective.

            (d)   As  promptly as  possible,  and in any event no later than the
Post-Effective  Amendment  Filing  Deadline,  the Company shall prepare and file
with the Commission a Post-Effective  Amendment.  The Company shall use its best
efforts to cause the  Post-Effective  Amendment to be declared  effective by the
Commission as promptly as possible  after the filing  thereof,  but in any event
prior to the fifteenth  Trading Day after the  Post-Effective  Amendment  Filing
Deadline.  The Company shall notify the Investor in writing promptly (and in any
event within one business day) after receiving  notification from the Commission
that the Post-Effective Amendment has been declared effective.

            (e)   Should any Registration  Statement not be filed within 45 days
of the Closing or not be declared  effective on or before the Required Effective
Date,  the Company  shall issue and deliver to the  Investor an amount of Common
Stock equal to 2% of the amount purchased by the Investor at the Closing, for no
additional  consideration.  For each  subsequent  thirty  (30) day  period,  the
Company shall issue and deliver to the Investor an  additional  amount of Common
Stock equal to 2% of the amount purchased by the Investor until the Registration
Statement is declared effective.

            (f)   The  Company  shall not,  prior to the  Effective  Date of the
Registration  Statement,  prepare and file with the  Commission  a  registration
statement  relating to an offering  for its own account or the account of others
under the Securities Act of any of its equity securities.


                                       18



            (g)   For the purposes of Sections 6, 7 and 8 of this Agreement, the
following definitions shall apply:

                  (i)   "Effective  Date"  means the date that the  Registration
Statement is first declared effective by the Securities and Exchange Commission.

                  (ii)  "Eligible  Market"  means  any of  the  New  York  Stock
Exchange,  the American Stock Exchange,  the NASDAQ National Market,  the NASDAQ
Small Cap Market or the OTC Bulletin Board.

                  (iii) "Losses"  means  any and all  losses,  claims,  damages,
liabilities settlement costs and expenses,  including, without limitation, costs
of preparation and reasonable attorneys' fees.

                  (iv)  "Offer  Termination  Date"  means  that date which is 30
days after the first Closing of the purchase and sale of Units to investors, or,
if such date is not a business day, the next business day.

                  (v)   "Person"   means   any   individual   or    corporation,
                        partnership,   trust,   incorporated  or  unincorporated
association,  joint venture,  limited  liability  company,  joint stock company,
government  (or agency or  subdivision  thereof) or any court or other  federal,
state, local or other governmental authority entity of any kind.

                  (vi)  "Post  Effective   Amendment"   means  a  post-effective
amendment to the Registration Statement.

                  (vii) "Post  Effective  Amendment  Filing  Deadline" means the
fifth  Trading  Day  after the  Registration  Statement  ceases to be  effective
pursuant  to  applicable  securities  laws  due to the  passage  of  time or the
occurrence of an event requiring the Company to file a Post-Effective Amendment.

                  (viii)"Prospectus"  means  the  prospectus   included  in  the
Registration  Statement  (including,   without  limitation,  a  prospectus  that
includes any information  previously  omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A promulgated under
the  Securities  Act of 1933),  as amended  or  supplemented  by any  prospectus
supplement,  with  respect to the terms of the  offering  of any  portion of the
Registrable  Securities  covered by the  Registration  Statement,  and all other
amendments  and   supplements  to  the  Prospectus,   including   post-effective
amendments,  and  all  material  incorporated  by  reference  or  deemed  to  be
incorporated by reference in such Prospectus.

                  (ix)  "Registrable Securities" means the Common Stock acquired
under this  Agreement  and the other  Agreements  and the Common Stock issued or
issuable  upon the  exercise of Warrants  contained in the Units sold under this
Agreement or the other Agreements.

                  (x)   "Registration   Statement"   means   each   registration
statement including Prospectus,  amendments and supplements to such registration
statement or Prospectus,  including any pre- and post-effective  amendments, all
exhibits  thereto,  and all material  incorporated  by reference or deemed to be
incorporated by reference.


                                       19



                  (xi)  "Required Effective Date" means 90 days after the filing
of the Registration Statement described in Section 6(a).

                  (xii) "Trading  Day"  means  (a) any day on which  the  Common
Stock is listed or quoted and traded on its primary trading  market,  (b) if the
Common  Stock is not then  listed or quoted and traded on any  Eligible  Market,
then a day on which  trading  occurs  on the  NASDAQ  Small Cap  Market  (or any
successor  thereto),  or (c) if  trading  does not occur on the NSADQ  Small Cap
Market (or any successor thereto),  any day other than Saturday,  Sunday, or any
other  day on  which  commercial  banks in the  City of New  York,  New York are
authorized or required by law to remain closed.

                  (xiii)"Trading  Market"  means the OTC  Bulletin  Board or any
other Eligible Market on which the Common Stock of the Company is then listed or
quoted.

      7.    REGISTRATION   PROCEDURES.   In   connection   with  the   Company's
registration obligations pursuant to Section 6(a) hereof, the Company shall:

            (a)   Not less than  three  Trading  Days  prior to the  filing of a
Registration  Statement or any related Prospectus or any amendment or supplement
thereto  (including  any  document  that would be  incorporated  or deemed to be
incorporated  therein  by  reference),  the  Company  shall (i)  furnish  to the
Investor and any counsel designated by the Investor (an "Investor Counsel"),  to
the extent requested by the Investor,  copies of all such documents  proposed to
be  filed,  which  documents  (other  than  those  incorporated  or deemed to be
incorporated  by  reference)  will be subject to the review of the  Investor and
Investor  Counsel,  and (ii)  cause its  officers  and  directors,  counsel  and
independent  certified public  accountants to respond to such inquiries as shall
be  necessary,  in the  reasonable  opinion of  Investor  Counsel,  to conduct a
reasonable  investigation  within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any amendments
or supplements thereto to which the Majority Investors shall reasonably object.

            (b)   (i)  Prepare  and file with the  Commission  such  amendments,
including  post-effective  amendments,  to each  Registration  Statement and the
Prospectus  used  in  connection  therewith  as may be  necessary  to  keep  the
Registration  Statement  filed  pursuant  to Section  6(a)  hereof  continuously
effective as to the  applicable  Registrable  Securities  for the  Effectiveness
Period and prepare and file with the  Commission  such  additional  Registration
Statements in order to register for resale under the  Securities  Act all of the
Registrable  Securities;  (ii)  cause the  related  Prospectus  to be amended or
supplemented by any required  Prospectus  supplement,  and as so supplemented or
amended to be filed pursuant to Rule 424  promulgated  under the Securities Act;
(iii)  respond as promptly as reasonably  possible,  and in any event within ten
days,  to  any  comments  received  from  the  Commission  with  respect  to the
Registration  Statement or any  amendment  thereto and as promptly as reasonably
possible  provide the Investor  true and complete  copies of all  correspondence
from and to the  Commission  relating to the  Registration  Statement;  and (iv)
comply in all material  respects with the  provisions of the  Securities Act and
the Exchange Act with respect to the disposition of all  Registrable  Securities
covered by the Registration Statement during the applicable period in accordance
with the intended  methods of disposition  by the Investor  thereof set forth in
the  Registration   Statement  as  so  amended  or  in  such  Prospectus  as  so
supplemented.


                                       20



            (c)   Notify  the  Investor  (if   requested  by  the  Investor)  of
Registrable Securities to be sold and Investor Counsel as promptly as reasonably
possible,  and (if requested by any such Person)  confirm such notice in writing
no later than one Trading Day thereafter,  of any of the following  events:  (i)
the  Commission  notifies  the Company  whether  there will be a "review" of any
Registration  Statement;   (ii)  the  Commission  comments  in  writing  on  any
Registration  Statement (in which case the Company shall deliver to the Investor
(if  requested  by the  Investor)  a copy of such  comments  and of all  written
responses  thereto);  (iii) any  Registration  Statement  or any  post-effective
amendment is declared  effective;  (iv) the  Commission  or any other Federal or
state  governmental  authority  requests  any  amendment  or  supplement  to any
Registration  Statement or Prospectus or requests additional information related
thereto;  (v) the Commission  issues any stop order suspending the effectiveness
of any Registration Statement or initiates any proceeding for that purpose; (vi)
the Company receives notice of any suspension of the  qualification or exemption
from  qualification of any Registrable  Securities for sale in any jurisdiction,
or the  initiation or threat of any  Proceeding  for such purpose;  or (vii) the
financial  statements  included in any Registration  Statement become ineligible
for inclusion  therein or any statement  made in any  Registration  Statement or
Prospectus or any document  incorporated or deemed to be incorporated therein by
reference  is untrue in any material  respect or any revision to a  Registration
Statement,  Prospectus or other document is required so that it will not contain
any 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,  in
the light of the circumstances under which they were made, not misleading.

            (d)   Use its  reasonable  efforts to avoid the  issuance  of or, if
issued,  obtain the withdrawal of (i) any order suspending the  effectiveness of
any  Registration  Statement,  or (ii) any suspension of the  qualification  (or
exemption from  qualification) of any of the Registrable  Securities for sale in
any jurisdiction, at the earliest practicable moment.

            (e)   Furnish to the Investor and Investor Counsel,  without charge,
at least one conformed  copy of each  Registration  Statement and each amendment
thereto,   including   financial   statements  and   schedules,   all  documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously  furnished or
incorporated by reference)  promptly after the filing of such documents with the
Commission (access to such documents over the Commission website shall be deemed
delivery for purposes hereof).


                                       21



            (f)   Promptly deliver to the Investor and Investor Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as the Investor or Investor
Counsel may reasonably  request.  The Company hereby consents to the use of such
Prospectus  and  each  amendment  or  supplement  thereto  by  the  Investor  in
connection with the offering and sale of the Registrable  Securities  covered by
such Prospectus and any amendment or supplement thereto.

            (g)   (i) In the time and manner  required by each  Trading  Market,
prepare  and  file  with  such  Trading  Market  an  additional  shares  listing
application  covering  all of the  Registrable  Securities;  (ii) take all steps
necessary  to cause such  Registrable  Securities  to be approved for listing on
each  Trading  Market  as soon as  possible  thereafter;  (iii)  provide  to the
Investor  evidence  of such  listing;  and (iv)  maintain  the  listing  of such
Registrable Securities on each such Trading Market or another Eligible Market.

            (h)   Prior to any public  offering of Registrable  Securities,  use
its best  efforts to  register or qualify or  cooperate  with the  Investor  and
Investor  Counsel in  connection  with the  registration  or  qualification  (or
exemption  from  such   registration  or   qualification)  of  such  Registrable
Securities  for offer and sale  under  the  securities  or blue sky laws of such
jurisdictions  within the United States as the Investor requests in writing,  to
keep each such registration or qualification (or exemption  therefrom) effective
during  the  Effectiveness  Period  and to do any and all  other  acts or things
necessary or advisable to enable the  disposition in such  jurisdictions  of the
Registrable Securities covered by a Registration Statement;  provided,  however,
that the Company  shall not be obligated to file any general  consent to service
of process or to qualify as a foreign  corporation  or as a dealer in securities
in any  jurisdiction  in which it is not so  qualified  or to subject  itself to
taxation  in respect of doing  business in any  jurisdiction  in which it is not
otherwise subject.

            (i)   Cooperate   with  the  Investor  to   facilitate   the  timely
preparation and delivery of certificates  representing Registrable Securities to
be  delivered  to a  transferee  pursuant  to a  Registration  Statement,  which
certificates  shall be free, to the extent  permitted by this Agreement,  of all
restrictive  legends,  and to enable such  Registrable  Securities to be in such
denominations and registered in such names as the Investor may request.

            (j)   Reasonably  cooperate  with  any due  diligence  investigation
undertaken  by  the  Investor  in  connection   with  the  sale  of  Registrable
Securities,  including without  limitation by making available any documents and
information; provided that the Company will not deliver or make available to the
Investor  material,  nonpublic  information  unless  the  Investor  specifically
requests in advance to receive material, nonpublic information in writing.

            (k)   If  the  Majority   Investors  select   underwriters  for  the
offering,  the Company  shall enter into and  perform its  obligations  under an
underwriting  agreement,  in  usual  and  customary  form,  including,   without
limitation,   by  providing  customary  legal  opinions,   comfort  letters  and
indemnification and contribution  obligations;  provided, that no such agreement
shall obligate the Company to pay any amount not otherwise  contemplated by this
Section 7.


                                       22



            (l)   Comply  with  all  applicable  rules  and  regulations  of the
Commission.

      8.    REGISTRATION  EXPENSES.  The  Company  shall pay (or  reimburse  the
Investor for) all fees and expenses incident to the performance of or compliance
with  this  Agreement  by the  Company,  including  without  limitation  (a) all
registration and filing fees and expenses,  including  without  limitation those
related to filings with the  Commission,  any Trading  Market and in  connection
with  applicable  state  securities  or Blue Sky  laws,  (b)  printing  expenses
(including without limitation expenses of printing  certificates for Registrable
Securities  and  of  printing  prospectuses  requested  by  the  Investor),  (c)
messenger,  telephone  and  delivery  expenses,  (d) fees and  disbursements  of
counsel for the Company and up to U.S. $10,000 in the aggregate for the Investor
Counsels (incurred in preparing the initial filing of the Registration Statement
contemplated  by Section  6(a)  hereof for the  Registrable  Securities  and all
amendments thereto prior to it being declared effective),  (e) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions  contemplated by this Agreement, and (f) all listing fees to
be paid by the Company to the Trading Market. In all events,  the Investor shall
be solely responsible for paying all brokerage fees, underwriter  commissions or
similar  compensation  relating to their sale of Registrable  Securities and any
income taxes resulting from any such sale of Registrable Securities.

      9.    INDEMNIFICATION.

            (a)   INDEMNIFICATION   BY   THE   COMPANY.   The   Company   shall,
notwithstanding  any termination of this Agreement,  indemnify and hold harmless
the Investor,  the  officers,  directors,  partners,  members,  agents,  brokers
(including  brokers who offer and sell Registrable  Securities as principal as a
result of a pledge  or any  failure  to  perform  under a margin  call of Common
Stock),  investment  advisors  and  employees  of each of them,  each Person who
controls any such Investor  (within the meaning of Section 15 of the  Securities
Act or Section 20 of the Exchange  Act) and the officers,  directors,  partners,
members,  agents and employees of each such controlling  Person,  to the fullest
extent  permitted by  applicable  law,  from and against any and all Losses,  as
incurred,  arising out of or relating to any untrue or alleged untrue  statement
of a material fact contained in the  Registration  Statement,  any Prospectus or
any form of  prospectus  or in any  amendment  or  supplement  thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact  required to be stated  therein or necessary to make
the  statements  therein (in the case of any Prospectus or form of prospectus or
supplement  thereto,  in the light of the  circumstances  under  which they were
made) not  misleading,  except to the extent,  that (i) such untrue  statements,
alleged untrue statements,  omissions or alleged omissions are based solely upon
information  regarding  the Investor  furnished in writing to the Company by the
Investor  expressly  for use  therein,  or to the extent  that such  information
relates to the Investor or the Investor's  proposed  method of  distribution  of
Registrable Securities and was reviewed and expressly approved in writing by the
Investor  expressly for use in the  Registration  Statement,  such Prospectus or
such form of Prospectus or in any amendment or supplement  thereto or the use by
the  Investor  of an  outdated  or  defective  Prospectus  after the Company has
notified the Investor in writing  that the  Prospectus  is outdated or defective
and prior to the receipt by the Investor of the Advice  contemplated in Section.
The Company  shall notify the Investor  promptly of the  institution,  threat or
assertion of any proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.


                                       23



            (b)   INDEMNIFICATION  BY  INVESTOR.  By  virtue of  executing  this
document,  the Investor  shall  indemnify  and hold  harmless  the Company,  its
directors,  officers, agents and employees, each Person who controls the Company
(within  the meaning of Section 15 of the  Securities  Act and Section 20 of the
Exchange  Act),  and  the  directors,  officers,  agents  or  employees  of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses (as  determined  by a court of  competent  jurisdiction  in a
final judgment not subject to appeal or review) arising solely out of any untrue
statement  of a material  fact  contained  in the  Registration  Statement,  any
Prospectus,  or any  form  of  prospectus,  or in any  amendment  or  supplement
thereto, or arising solely out of any omission of a material fact required to be
stated therein or necessary to make the  statements  therein (in the case of any
Prospectus  or form of prospectus  or  supplement  thereto,  in the light of the
circumstances under which they were made) not misleading to the extent, but only
to the extent,  that such untrue  statement  or  omission  is  contained  in any
information so furnished in writing by the Investor to the Company  specifically
for inclusion in such Registration Statement or such Prospectus or to the extent
that (i) such untrue  statements or omissions are based solely upon  information
regarding  the  Investor  furnished  in writing to the  Company by the  Investor
expressly for use therein, or to the extent that such information relates to the
Investor  or the  Investor's  proposed  method of  distribution  of  Registrable
Securities  and was reviewed and  expressly  approved in writing by the Investor
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement  thereto or the use by the Investor
of an outdated or  defective  Prospectus  after the  Company  has  notified  the
Investor in writing that the  Prospectus  is outdated or defective  and prior to
the receipt by the  Investor of the Advice.  In no event shall the  liability of
the Investor  hereunder  be greater in amount than the dollar  amount of the net
proceeds  received by the Investor upon the sale of the  Registrable  Securities
giving rise to such indemnification obligation.

            (c)   CONDUCT  OF  INDEMNIFICATION  PROCEEDINGS.  If any  proceeding
shall be brought or asserted against any Person entitled to indemnity  hereunder
(an  "Indemnified  Party"),  such  Indemnified  Party shall promptly  notify the
Person from whom indemnity is sought (the "Indemnifying  Party") in writing, and
the  Indemnifying  Party  shall  assume  the  defense  thereof,   including  the
employment of counsel  reasonably  satisfactory to the Indemnified Party and the
payment of all fees and expenses  incurred in connection  with defense  thereof;
provided,  that the failure of any  Indemnified  Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this  Agreement,  except  (and  only) to the  extent  that it  shall be  finally
determined  by a court of competent  jurisdiction  (which  determination  is not
subject to appeal or further  review) that such failure  shall have  proximately
and materially adversely prejudiced the Indemnifying Party.

      An Indemnified  Party shall have the right to employ  separate  counsel in
any such proceeding and to participate in the defense thereof,  but the fees and
expenses of such counsel  shall be at the expense of such  Indemnified  Party or
Parties  unless:  (i) the  Indemnifying  Party has agreed in writing to pay such
fees and expenses;  or (ii) the Indemnifying Party shall have failed promptly to
assume  the  defense  of  such  Proceeding  and  to  employ  counsel  reasonably


                                       24



satisfactory  to such  Indemnified  Party in any such  Proceeding;  or (iii) the
named parties to any such Proceeding  (including any impleaded  parties) include
both such  Indemnified  Party and the  Indemnifying  Party, and such Indemnified
Party shall have been  advised by counsel  that a conflict of interest is likely
to exist if the same counsel were to represent  such  Indemnified  Party and the
Indemnifying  Party (in which  case,  if such  Indemnified  Party  notifies  the
Indemnifying  Party in writing that it elects to employ separate  counsel at the
expense of the Indemnifying  Party,  the  Indemnifying  Party shall not have the
right to assume the defense  thereof and such counsel shall be at the expense of
the  Indemnifying  Party).  The  Indemnifying  Party shall not be liable for any
settlement of any such Proceeding  effected without its written  consent,  which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,  unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

      All fees and expenses of the Indemnified Party (including  reasonable fees
and  expenses  to the  extent  incurred  in  connection  with  investigating  or
preparing  to defend  such  Proceeding  in a manner not  inconsistent  with this
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying  Party (regardless of whether
it is  ultimately  determined  that an  Indemnified  Party  is not  entitled  to
indemnification  hereunder;  provided,  that the Indemnifying  Party may require
such  Indemnified  Party to undertake to reimburse all such fees and expenses to
the extent it is finally  judicially  determined that such Indemnified  Party is
not entitled to indemnification hereunder).

            (d)   CONTRIBUTION. If a claim for indemnification under Section (a)
or (b) is  unavailable  to an  Indemnified  Party  (by  reasons  other  than the
specified exclusions to indemnification),  then each Indemnifying Party, in lieu
of indemnifying such Indemnified  Party,  shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative  fault of the  Indemnifying  Party and
Indemnified  Party in connection with the actions,  statements or omissions that
resulted in such Losses as well as any other relevant equitable  considerations.
The relative fault of such  Indemnifying  Party and  Indemnified  Party shall be
determined by reference to, among other things,  whether any action in question,
including any untrue or alleged untrue  statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information  supplied by, such Indemnifying  Party or Indemnified Party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such  action,  statement  or  omission.  The amount  paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the  limitations set forth in Section  6.4(c),  any reasonable  attorneys' or
other reasonable fees or expenses  incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the  indemnification  provided for in this Section was  available to
such party in accordance with its terms.


                                       25



      The  parties  hereto  agree  that it would  not be just and  equitable  if
contribution  pursuant  to  this  Section  9(d)  were  determined  by  pro  rata
allocation or by any other method of allocation  that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding  the  provisions of this Section 9(d), the Investor shall not be
required to contribute,  in the aggregate, any amount in excess of the amount by
which  the  proceeds  actually  received  by the  Investor  from the sale of the
Registrable  Securities  subject  to the  Proceeding  exceeds  the amount of any
damages that the Investor has  otherwise  been required to pay by reason of such
untrue or alleged untrue  statement or omission or alleged  omission.  No Person
guilty of fraudulent  misrepresentation  (within the meaning of Section 11(f) of
the Securities  Act) shall be entitled to  contribution  from any Person who was
not guilty of such fraudulent misrepresentation.

      The indemnity and contribution agreements contained in this Section are in
addition  to any  liability  that  the  Indemnifying  Parties  may  have  to the
Indemnified Parties.

      10.   DISPOSITIONS.  The  Investor  agrees  that he will  comply  with the
prospectus  delivery  requirements of the Securities Act as applicable to him in
connection  with sales of Registrable  Securities  pursuant to the  Registration
Statement.  the Investor  further agrees that, upon receipt of a notice from the
Company,   the  Investor  will  discontinue   disposition  of  such  Registrable
Securities under the Registration  Statement until the Investor's receipt of the
copies of the supplemented  Prospectus and/or amended Registration  Statement if
necessary,  or until it is advised in writing (the "Advice") by the Company that
the use of the applicable  Prospectus  may be resumed,  and, in either case, has
received copies of any additional or supplemental  filings that are incorporated
or deemed to be  incorporated  by reference in such  Prospectus or  Registration
Statement.  The  Company  may  provide  appropriate  stop  orders to enforce the
provisions of this paragraph.

      11.   PIGGY-BACK  REGISTRATIONS.  If at any time during the  Effectiveness
Period  there is not an  effective  Registration  Statement  covering all of the
Registrable  Securities and the Company shall determine to prepare and file with
the  Commission  a  registration  statement  relating to an offering for its own
account or the account of others under the  Securities  Act of any of its equity
securities,  other than on Form S-4 or Form S-8 (each as  promulgated  under the
Securities Act) or their then  equivalents  relating to equity  securities to be
issued solely in connection  with any  acquisition  of any entity or business or
equity  securities  issuable in connection  with stock option or other  employee
benefit  plans,  then the Company shall send to the Investor  written  notice of
such determination and if, within fifteen days after receipt of such notice, the
Investor  shall so  request  in  writing,  the  Company  shall  include  in such
registration  statement  all or any  part of  such  Registrable  Securities  the
Investor requests to be registered.

                                  MISCELLANEOUS

      1.    NOTICES.  Any and all notices,  other  communications  or deliveries
required or permitted to be given under this  Agreement  shall be in writing and
shall  be  deemed  given  and  effective  on the  earliest  of (a)  the  date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number  specified on the signature  page prior to 6:30 p.m. (New York
City  time)  on a  Trading  Day,  (b) the next  Trading  Day  after  the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number specified on the signature page on a day that is not a Trading
Day or later than 6:30 p.m.  (New York City time) on any  Trading  Day,  (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service,  or (d) upon actual receipt by the party to whom such
notice is  required  to be given.  If to the  Investor,  to the  Investor at the
address  and  facsimile  number  set  forth  under  the  Investor's  name on the
Signature Page; and if to the Company, to it at the address and facsimile number
first set forth above.


                                       26



      2.    BINDING EFFECT;  BENEFITS.  This Agreement shall be binding upon and
inure to the  benefit of the  parties  to this  Agreement  and their  respective
heirs, successors and assigns. Nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties to this
Agreement and their  respective  heirs or  successors  or permitted  assigns any
legal or equitable  right,  remedy or claim under or in respect of any agreement
or any provision contained herein.

      3.    WAIVER;  AMENDMENT.  No action  taken  pursuant  to this  Agreement,
including,  without  limitation,  any  investigation  by or on  behalf of either
party,  shall be deemed to  constitute a waiver by such party taking such action
of compliance by the other party with any representations, warranties, covenants
or agreements contained herein. The waiver by either party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any  preceding or  succeeding  breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or  privileges  hereunder or shall be deemed a waiver of such party's  rights to
exercise  the same at any  subsequent  time or  times  hereunder.  The  delay or
omission of either party in exercising any right under this Agreement  shall not
in any manner  impair the  exercise  of any other  right  under this  Agreement.
Neither  this  Agreement  nor any  terms or  provision  hereof  may be  amended,
modified,  waived  or  supplemented  orally,  but only by a  written  instrument
executed by the Company and the Investor.

      4.    ASSIGNABILITY. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns.  Neither this
Agreement nor any right, remedy, obligation or liability arising hereunder or by
reason  hereof  shall be  assignable  by the Company  without the prior  written
consent of the Investor or by the Investor  without the prior written consent of
the Company.

      5.    Governing Law; Venue; Waiver of Jury Trail. ALL QUESTIONS CONCERNING
THE  CONSTRUCTION,  VALIDITY,  ENFORCEMENT AND  INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED  AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF
THE STATE OF NEW YORK. THE COMPANY AND INVESTOR HEREBY IRREVOCABLY SUBMIT TO THE
EXCLUSIVE  JURISDICTION  OF THE STATE AND FEDERAL  COURTS SITTING IN THE CITY OF
NEW YORK,  BOROUGH OF MANHATTAN FOR THE  ADJUDICATION  OF ANY DISPUTE BROUGHT BY
THE  COMPANY  OR  INVESTOR  HEREUNDER,   IN  CONNECTION  HEREWITH  OR  WITH  ANY
TRANSACTION  CONTEMPLATED  HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE  TRANSACTION  DOCUMENTS),  AND HEREBY  IRREVOCABLY
WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING  BROUGHT BY THE
COMPANY  OR  INVESTOR,  ANY  CLAIM  THAT  IT IS NOT  PERSONALLY  SUBJECT  TO THE
JURISDICTION  OF ANY SUCH  COURT,  OR THAT SUCH SUIT,  ACTION OR  PROCEEDING  IS
IMPROPER.  EACH PARTY HEREBY  IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND


                                       27



CONSENTS  TO PROCESS  BEING  SERVED IN ANY SUCH SUIT,  ACTION OR  PROCEEDING  BY
MAILING A COPY THEREOF VIA  REGISTERED OR CERTIFIED  MAIL OR OVERNIGHT  DELIVERY
(WITH  EVIDENCE OF  DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS  AGREEMENT AND AGREES THAT SUCH SERVICE SHALL  CONSTITUTE  GOOD
AND SUFFICIENT  SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN
SHALL BE  DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE  PROCESS  IN ANY  MANNER
PERMITTED BY LAW. THE COMPANY AND PURCHASERS  HEREBY WAIVE ALL RIGHTS TO A TRIAL
BY JURY.

      6.    SECTION AND OTHER HEADINGS. The section and other headings contained
in this  Agreement  are for  reference  purposes  only and shall not  affect the
meaning or interpretation of this Agreement. The language used in this Agreement
will be deemed to be the language  chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied again either party.

      7.    COUNTERPARTS.  This  Agreement  may be  executed  in any  number  of
counterparts,  each of which shall be deemed to be an original  and all of which
together shall be deemed to be one and the same instrument. Facsimile signatures
shall be acceptable to the fullest extent permitted by law.

      8.    PRONOUNS.  Any use of masculine  pronouns  herein shall be deemed to
include the feminine and neuter cases, and vice versa, as applicable.

      9.    ENTIRE  AGREEMENT.   This  Agreement  shall  constitute  the  entire
agreement  of the parties  hereto with  respect to the subject  hereof and shall
supersede all prior agreements or understandings, whether written or oral.

      10.   SEVERABILITY.  In case  any  provision  of this  Agreement  shall be
invalid or unenforceable in any jurisdiction, the validity and enforceability of
the remaining provisions shall not in any way be affected thereby.

                      [SIGNATURE PAGE FOLLOWS ON NEXT PAGE]


                                       28





                                Signature Page to

                           Subscription Agreement for

                                    UNITS of

                                  ALPHARX, INC.

Executed at __________, _________ this _____day of ________, 2004.



                                                _______________________________*
                                                [If Entity Print Name Above]

                                                By:_____________________________
                                                   Name:
                                                  Title (if applicable):

                                                Number of Units
                                                   Subscribed For:

                                                Total Purchase Price:

                                                Taxpayer I.D. Number or
                                                Social Security Number:_________

                                                Address:________________________

                                                ________________________________
                                                Telephone:______________________
                                                Facsimile:______________________



Accepted this ___ day of __________, 2004

ALPHARX, INC.

By:______________________________
Title:___________________________




*     If the Investor is a  corporation,  trust,  partnership,  or other entity,
please attach a copy of the resolutions, trust instrument, partnership agreement
or similar  document  (or in lieu  thereof,  an opinion of counsel)  showing the
corporation,  trust,  partnership  or other entity has authority to purchase the
Shares and showing that the signatory above may act on its behalf in making this
investment.





                                    EXHIBIT A

                                 FORM OF WARRANT






                                    EXHIBIT B

                                   TERM SHEET






                                    EXHIBIT C

                              PLAN OF DISTRIBUTION

      The selling  stockholders may, from time to time, sell any or all of their
shares of common  stock on any stock  exchange,  market or trading  facility  on
which the shares are traded or in private  transactions.  These  sales may be at
fixed or negotiated prices. The selling  stockholders may use any one or more of
the following methods when selling shares:

o     ordinary   brokerage   transactions   and   transactions   in  which   the
      broker-dealer solicits purchasers;

o     block trades in which the broker-dealer will attempt to sell the shares as
      agent but may  position  and resell a portion of the block as principal to
      facilitate the transaction;

o     purchases by a broker-dealer as principal and resale by the  broker-dealer
      for its account;

o     an exchange  distribution  in accordance  with the rules of the applicable
      exchange;

o     privately negotiated transactions;

o     short sales;

o     broker-dealers may agree with the selling stockholders to sell a specified
      number of such shares at a stipulated price per share;

o     a combination of any such methods of sale; and

o     any other method permitted pursuant to applicable law.

      The selling  stockholders  may also sell  shares  under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

      The selling  stockholders  may also engage in short sales against the box,
puts and calls and other  transactions  in our  securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.

      Broker-dealers  engaged by the selling  stockholders may arrange for other
brokers-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the selling  stockholders  (or, if any  broker-dealer  acts as
agent  for the  purchaser  of  shares,  from the  purchaser)  in  amounts  to be
negotiated.  The  selling  stockholders  do not  expect  these  commissions  and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the  resale of shares of common  stock by a  broker-dealer  acting as
principal might be deemed to be underwriting  discounts or commissions under the
Securities  Act.  Discounts,   concessions,   commissions  and  similar  selling
expenses,  if any, attributable to the sale of shares will be borne by a selling
stockholder.  The selling  stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.





      The selling  stockholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties  may offer and sell the  shares of common  stock from time to time under
this prospectus  after we have filed an amendment to this prospectus  under Rule
424(b)(3) or other  applicable  provision of the Securities Act of 1933 amending
the list of selling  stockholders  to include the pledgee,  transferee  or other
successors in interest as selling stockholders under this prospectus.

      The selling  stockholders  also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in  interest  will  be the  selling  beneficial  owners  for  purposes  of  this
prospectus  and may sell the shares of common stock from time to time under this
prospectus  after we have  filed an  amendment  to this  prospectus  under  Rule
424(b)(3) or other  applicable  provision of the Securities Act of 1933 amending
the list of selling  stockholders  to include the pledgee,  transferee  or other
successors in interest as selling stockholders under this prospectus.

      The  selling  stockholders  and any  broker-dealers  or  agents  that  are
involved  in  selling   the  shares  of  common   stock  may  be  deemed  to  be
"underwriters"  within the meaning of the Securities Act in connection with such
sales. In such event, any commissions  received by such broker-dealers or agents
and any profit on the resale of the shares of common stock purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.

      We are required to pay all fees and expenses  incident to the registration
of the  shares  of  common  stock.  We have  agreed  to  indemnify  the  selling
stockholders against certain losses, claims, damages and liabilities,  including
liabilities under the Securities Act.

      The selling  stockholders  have advised us that they have not entered into
any  agreements,   understandings  or  arrangements  with  any  underwriters  or
broker-dealers  regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating  broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder.  If we are notified by any
selling  stockholder that any material  arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required,  we will file
a supplement to this prospectus. If the selling stockholders use this prospectus
for any  sale of the  shares  of  common  stock,  they  will be  subject  to the
prospectus delivery requirements of the Securities Act.

      The anti-manipulation  rules of Regulation M under the Securities Exchange
Act of 1934 may apply to sales of our common stock and activities of the selling
stockholders.