Exhibit 1.1

                                     Form of

                                  NEPHROS, INC.
                             UNDERWRITING AGREEMENT

                        2,500,000 Shares of Common Stock
                           (Par Value $.001 Per Share)

                                                              New York, New York
                                                                          , 2004
                                                              --------- --

The Shemano Group, Inc.
5850 Canoga Avenue
Suite 315
Woodland Hills, CA 91367

Dear Sirs:

     Nephros, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to the Shemano Group, Inc. (the "Underwriter), pursuant to this
underwriting agreement (the "Agreement"), an aggregate of Two Million Five
Hundred Thousand (2,500,000) shares of common stock of the Company, par value
$.001 per share (the "Common Stock"), and to grant to the Underwriter, the
option referred to in Section 2(c) hereof to purchase an aggregate of not more
than an additional Three Hundred Seventy-Five Thousand (375,000) shares of
Common Stock, for the purpose of covering over-allotments, if requested by the
Underwriter in accordance with Section 2(c) hereof. It is understood that the
Underwriter proposes to offer the "Shares" (as hereinafter defined) to be
purchased hereunder to the public upon the terms and conditions set forth in the
"Registration Statement" (as hereinafter defined) after the "Effective Date" (as
hereinafter defined) of the Registration Statement. As used in this Agreement,
(a) the term "Firm Shares" shall mean the Two Million Five Hundred Thousand
(2,500,000) shares of Common Stock to be issued and sold to the Underwriter at
the "First Closing Date" (as defined in Section 2(b) below); (b) the term
"Option Shares" shall mean any of the additional up to Three Hundred
Seventy-Five Thousand (375,000) shares of Common Stock as are purchased pursuant
to the option referred to in Section 2(c) hereof; and (c) the term "Shares"
shall mean the Firm Shares and the Option Shares collectively. The Company also
proposes, pursuant to Section 2(h) hereof, to issue and sell to the Underwriter
for its own account and the accounts of its respective designees (limited to the
"Underwriter's Designees" (as hereinafter defined)) for an aggregate price of
One Hundred Dollars ($100.00), warrants (the "Underwriter's Warrants") to
purchase up to an aggregate of Two Hundred Fifty Thousand (250,000) shares of
Common Stock (the "Warrant Shares") at a per share exercise price of 120% of the
per share initial public offering price of the Shares set forth in the
Registration Statement and Prospectus (as hereinafter defined), which purchase
shall be consummated in accordance with the terms and conditions of the
underwriter's warrant agreement substantially in the form of Exhibit 4.2 to the
Registration Statement (the "Underwriter's Warrant Agreement").



     1. Representations and Warranties. The Company represents and warrants to,
and agrees with, the Underwriter that, as of the Effective Date, the First
Closing Date and each Option Closing Date (as defined below):

          (a) The conditions for use of a registration statement on Form S-1,
set forth in the General Instructions to Form S-1, have been satisfied with
respect to the Company, the transactions contemplated herein and in the
Registration Statement (as defined below). A Registration Statement on Form S-1
(File No. 333-116162) relating to the offering of the Shares, Underwriter's
Warrants, and Warrant Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act, and said
Registration Statement has been filed with the Commission under the Act. One or
more amendments to said Registration Statement has or have, as the case may be,
been similarly prepared and filed with the Commission covering the registration
of the Shares under the Act including the related preliminary prospectus or
preliminary prospectuses (each being hereinafter referred to as a "Preliminary
Prospectus" as further defined below), each of which has been furnished to the
Underwriter. Each Preliminary Prospectus was endorsed with the legend required
by Item 501(b) of Regulation S-K and, if applicable, Rule 430A of the Rules and
Regulations. The Company has prepared and proposes to file on or prior to the
Effective Date (as defined below) of the Registration Statement an additional
amendment thereto which will include the final "Prospectus" (as defined below).
As used in this Agreement and unless the context indicates otherwise, the term
"Registration Statement" refers to and means said Registration Statement,
including any documents incorporated by reference therein, all exhibits,
financial statements and schedules and the Prospectus included therein, as
finally amended and revised on or prior to the Effective Date (as defined below)
and, in the event of any post-effective amendment thereto or if any Rule 462(b)
Registration Statement becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration statement as so amended
or such Rule 462(b) Registration Statement, as the case may be. The term
"Registration Statement" shall also include any Rule 430A Information deemed to
be included therein at the Effective Date as provided by Rule 430A. The term
"Effective Date" shall mean each date and time that the Registration Statement,
any post-effective amendment or amendments thereto and any Rule 462(b)
Registration Statement became or becomes effective. The term "Preliminary
Prospectus" refers to and means a preliminary prospectus filed with the
Commission and included in said Registration Statement before the Effective Date
and any preliminary prospectus included in the Registration Statement at the
Effective Date that omits Rule 430A Information; the term "Rule 430A
Information" shall mean information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A; and, the term "Prospectus" refers to and means
the prospectus relating to Shares that is first filed pursuant to Rule 424(b)
or, if no filing pursuant to Rule 424(b) is required, shall mean the form of
final prospectus relating to the Shares included in the Registration Statement
at the Effective Date. If the Registration Statement is amended or such
Prospectus is supplemented after the Effective Date and prior to the Option
Closing Date, then the terms "Registration Statement" and "Prospectus" shall
include such documents as so amended or supplemented. The terms used herein
shall have the same meaning as in the Prospectus unless the context hereof
otherwise requires.

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          (b) Neither the Commission nor, to the Knowledge of the Company (as
hereinafter defined), any state regulatory authority has issued an order
preventing or suspending the use of any Preliminary Prospectus nor has the
Commission or any such authority instituted or, to the Knowledge of the Company,
threatened to institute any proceedings with respect to such an order. When
representations or warranties in this Agreement are qualified to the "Knowledge
of Company," they are given by the Company only to the extent of and qualified
in all respects by the facts known to any of the officers and directors of the
Company immediately prior to the First Closing Date, with an obligation of
reasonable inquiry on the part of such officers and directors, and the actual
knowledge (without any obligation of inquiry) of Gregory Collins, Ph.D., in any
case as a result of their participation in the Business prior to the date such
representations or warranties are made.

          (c) The Registration Statement, as of the Effective Date, the
Prospectus (and any amendments or supplements thereto) when it is filed with the
Commission, and both documents as of the First Closing Date and any Option
Closing Date referred to below, will contain all statements which are required
to be stated therein in accordance with the Act and the Rules and Regulations
and will conform in all material respects to the applicable requirements of the
Act and the Rules and Regulations, and at such times, neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
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 light of the circumstances in which they were made, not misleading, except
that the representations and warranties in this Section 1(c) do not apply to
statements or omissions in the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished herein or in writing
to the Company by or on behalf of an Underwriter for inclusion in the
Registration Statement or the Prospectus.

          (d) The Company has been duly incorporated and is now, and at the
Closing Dates (defined below) will be, validly existing and in good standing as
a corporation under the laws of the State of Delaware, and has full corporate
power and authority to (i) own or lease, as the case may be, its properties,
whether tangible or intangible, and conduct its business as presently conducted
and as described in the Registration Statement and Prospectus (the "Business")
and (ii) to execute, deliver and perform this Agreement and the Underwriter's
Warrant Agreement and consummate the transactions contemplated hereby and
thereby. The Company is duly qualified to do business and is in good standing as
a foreign corporation in all jurisdictions in which the nature of the business
transacted by it or the character or location of its properties, in each case
taken as a whole, makes such qualification necessary, except where the failure
to so qualify would not be reasonably expected to have a material adverse effect
upon the condition (financial or otherwise), results of operations, income,
shareholders' equity, net worth, business, assets or properties of the Company,
taken as a whole (a "Material Adverse Effect"). The Company holds, or will hold
by the First Closing Date, all licenses, certificates and permits from state,
federal or other regulatory authorities necessary for the conduct of its
Business and is in compliance with all laws and regulations and all orders and
decrees applicable to it or to such business, except where the failure to hold
such licenses, certificates or permits or comply with such laws, regulations,
orders or decrees would not be reasonably expected to have a Material Adverse
Effect, and there are no proceedings pending or, to the Knowledge of the
Company, threatened, seeking to cancel, terminate or limit such licenses,
approvals or permits.

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          (e) The financial statements of the Company, including the schedules
and related notes filed as part of the Registration Statement and included in
the Prospectus, are complete, correct and present fairly in all material
respects the financial position of the Company as of the respective dates
thereof and the results of operations and changes in financial position of the
Company for the respective periods indicated therein and comply as to form in
all material respects with the applicable accounting requirements included in
Regulations S-K and S-X, as well as any other applicable Rules and Regulations.
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as otherwise stated in the Registration Statement and the
Prospectus, and all adjustments necessary for a fair presentation of results for
such periods have been made. The selected financial data set forth in the
Registration Statement and the Prospectus present fairly the information shown
therein at the respective dates thereof and for the respective periods covered
thereby and have been presented on a basis consistent with that of the audited
and unaudited financial statements included in the Registration Statement and
the Prospectus.

          (f) The accounting firm of Grant Thornton LLP, which has audited
certain of the financial statements filed and to be filed with the Commission as
part of the Registration Statement and Prospectus, are independent public
accountants within the meaning of the Act and the Rules and Regulations.

          (g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
financial statements filed with the Commission as a part thereof, and except as
described in the Registration Statement and the Prospectus, (i) the Company has
not incurred any material liability or obligation, direct or contingent, or
entered into any material transactions whether or not incurred in the ordinary
course of business; (ii) the Company has not sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty (whether or not such loss is insured against), or from any labor
dispute or court or governmental action, order or decree; (iii) there have not
been, and through and including the First Closing Date, there will not be, any
changes in the capital stock or any material increases in the long-term debt or
other securities of the Company; (iv) the Company has not paid or declared any
dividend or other distribution on its Common Stock or its other securities or
redeemed or repurchased any of its Common Stock or other securities, and (v) no
adverse change in the condition (financial or otherwise), results of operations,
income, shareholders' equity, net worth, business, assets or properties of the
Company has occurred, which would be reasonably expected to result in a Material
Adverse Effect.

          (h) This Agreement and compliance by the Company with the terms
hereof, have been duly and validly authorized by the Company by all necessary
corporate action and upon execution and delivery hereof by the Company will be
duly executed and delivered by the Company and, when duly executed and delivered
by the Company and by the Underwriter, will constitute the valid and binding
obligations of the Company enforceable in accordance with its terms, except to
the extent enforceability may be limited by any bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting
creditors' rights generally and, to the extent that the remedy of specific
performance and injunction or other forms of equitable relief may be subject to
equitable defenses and the discretion of the court before which any proceeding
therefore may be brought. The Underwriter's Warrant Agreement

                                       4



and compliance by the Company with the terms thereof, have been duly and validly
authorized by the Company by all necessary corporate action and upon execution
and delivery thereof by the Company will be duly executed and delivered by the
Company and, when duly executed and delivered by the Company and by the
Underwriter will constitute the valid and binding obligations of the Company
enforceable in accordance with their respective terms, except to the extent
enforceability may be limited by any bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws affecting creditors' rights
generally and to the extent that the remedy of specific performance and
injunction or other forms of equitable relief may be subject to equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought. The Company is not presently in violation of or in default in
respect of any of the terms or provisions of this Agreement or the Underwriter's
Warrant Agreement and the execution, delivery and performance by the Company of
this Agreement and the Underwriter's Warrant Agreement and the consummation of
the transactions herein and therein contemplated, will not, with or without the
giving of notice or the lapse of time or both, (i) result in a breach of or
constitute default under any of the terms, conditions or provisions of the
Certificate of Incorporation or by-laws of the Company; (ii) result in a breach
of, conflict with or constitute a default in respect of any of the terms or
provisions of, or result in a modification or the termination of, or the
creation or imposition of any lien, security interest, charge or encumbrance
upon any property or asset of the Company, which is necessary for the conduct of
its Business, pursuant to any note, indenture, mortgage, deed of trust,
contract, commitment or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets, which are
necessary for the conduct of its Business, may be bound or affected; (iii)
violate any existing law, order, rule, regulation, writ, injunction or decree of
any government, governmental instrumentality, agency, body or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
businesses that are necessary for the conduct of its Business; or (iv) have any
effect on any permit, certification, registration, approval, consent, order,
license, franchise or other authorization (collectively, the "Permits")
necessary for the Company to own or lease and operate its properties and to
conduct its Business or the ability to make use thereof, which in any case
described in clause (i), (ii), (iii) or (iv) above, would be reasonably expected
to result in a Material Adverse Effect or would materially adversely affect the
ability of the Company to perform its obligations under this Agreement or the
Underwriter's Warrant Agreement.

          (i) To the Knowledge of the Company, no permits of any government or
governmental instrumentality, agency, body or court, except as may be required
under the Act, the "blue sky" or securities laws of any state or the rules of
the National Association of Securities Dealers, Inc. ("NASD") (including
approval of underwriting compensation and listing of the Common Stock on The
American Stock Exchange, Inc. ("AMEX"), or as have been obtained and which are
in full force and effect in connection with the offer, purchase and distribution
by the Underwriter of the Shares, are required (i) for the valid authorization,
issuance, sale and delivery of the Firm Shares and the Option Shares to the
Underwriter pursuant to this Agreement, and (ii) the consummation by the Company
of the transactions contemplated by this Agreement and the Underwriter's Warrant
Agreement.

          (j) Except as disclosed in the Registration Statement and Prospectus,
there is neither pending nor, to the Knowledge of the Company, threatened,
against the Company any claim, action, suit, or proceeding at law or in equity,
arbitration (or circumstances that may give

                                       5



rise to the same), investigation or inquiry to which the Company is a party or
involving the Company's properties or businesses, which properties or businesses
are necessary for the conduct of its Business, before or by any court,
arbitration tribunal or governmental instrumentality, agency, or body, which, if
determined adversely to the Company, would individually or in the aggregate
result in a Material Adverse Effect or which question the validity of the
capital stock of the Company or seek to prevent consummation of the transactions
contemplated hereby; nor are there any such actions, suits or proceedings
pending or, to the Knowledge of the Company, threatened, against the Company
related to consumer protection, distribution, rental and sales, or environmental
matters or matters related to discrimination on the basis of age, sex, religion
or race; and no labor disturbance by the employees of the Company exists or to
the Knowledge of the Company, is threatened, which might be reasonably expected
to result in a Material Adverse Effect.

          (k) There is no contract or other document which is required by the
Act or by the Rules and Regulations to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement which has not been so described or filed as required and each contract
or document which has been described in the Registration Statement and
Prospectus has been described accurately and presents fairly the information
required to be described and each such contract or document which is filed as an
exhibit to the Registration Statement is and shall be in full force and effect
at the Closing Date or shall have been terminated in accordance with its terms
or as set forth in the Registration Statement and Prospectus, and no party to
any such contract has given notice to the Company of the cancellation of or, to
the Knowledge of the Company, shall have threatened to cancel, any such
contract, and except as described in the Registration Statement and Prospectus,
the Company is not in default thereunder.

          (l) The Company does not own any real property. The Company has good
title to all of its personal property (tangible and intangible) and assets that
are necessary for the conduct of its Business, including any licenses,
trademarks and copyrights, described in the Registration Statement and
Prospectus as owned by it, free and clear of all security interests, liens,
charges, mortgages, encumbrances and restrictions other than (i) such security
interests, liens, charges, mortgages, encumbrances and restrictions as are not
materially significant in relation to the Business or (ii) as described in the
Registration Statement and Prospectus. The leases, subleases and licenses under
which the Company is entitled to lease, hold or use any real or personal
property, are valid and enforceable, except (x) where the invalidity or
unenforceability of any of such leases, subleases or license would not have a
Material Adverse Effect or (y) as described in the Registration Statement and
Prospectus; and, except as described in the Registration Statement and
Prospectus, all rentals, royalties or other payments accruing thereunder which
became due prior to the date of this Agreement have been duly paid and neither
the Company nor, to the Knowledge of the Company, any other party, is in default
in respect of any of the terms or provisions of any such leases, subleases and
licenses where such default would be reasonably expected to result in a Material
Adverse Effect, and no claim of any sort has been asserted by anyone against the
Company under any such leases, subleases or licenses affecting or questioning
the rights of the Company to the continued use or enjoyment of the rights and
property covered thereby, where such claim would be reasonably expected to
result in a Material Adverse Effect. Except as set forth in the Registration
Statement and Prospectus, the Company has not received notice of any violation
of any applicable law,

                                       6



ordinance, regulation, order or requirement relating to its owned or leased
properties. The Company owns or leases all such properties as are necessary to
its operations as now conducted and as proposed to be conducted as set forth in
the Registration Statement and Prospectus.

          (m) The Company has filed with the appropriate federal, state and
local governmental agencies, and all appropriate foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns, which
are required to be filed by it or has duly obtained extensions of time for the
filing thereof and has paid all taxes required to be paid by it as shown on such
returns and all other assessments against it, to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
financial statements filed with or as part of the Registration Statement and
Prospectus are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
consolidated financial statements. The Company has not executed or filed with
any taxing authority, foreign or domestic, any agreement extending the period
for assessment or collection of any income taxes and, to the Knowledge of the
Company, is not a party to any pending action or proceeding by any foreign or
domestic governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted in writing
against the Company.

          (n) The Company maintains insurance, which is in full force and effect
as of the Effective Date, of the types set forth on Schedule 1(n) annexed
hereto. The Company maintains such insurance in amounts as are usually
maintained by companies engaged in the same or a similar business located in the
same geographic area as those of the Company. The Company is not aware of any
facts or circumstances which would require it to notify its insurers of any
claim of which notice has not been made or will not be made in a timely manner.
To the Knowledge of the Company, there are no facts or circumstances under any
of its existing insurance policies which would relieve any insurer of its
obligation to satisfy in full any existing valid claim of the Company under any
such policies.

          (o) The Company owns or otherwise possesses adequate, enforceable and
unrestricted rights to intellectual property that is used or proposed to be used
in the conduct of its Business, as described under the caption "Business --
Intellectual Property" in the Registration Statement and Prospectus, including
all patents, patent rights, inventions, trademarks, service marks, trade names
and copyrights, trade secrets, confidential information, processes and
formulations (including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, designs, works of
authorship, computer programs and technical data, proprietary information and
the like (collectively, the "Intangibles"). Except as otherwise described in the
Registration Statement and Prospectus under the caption "Business --
Intellectual Property," (i) the Company is the beneficial and record owner of
all right, title and interest in, to and under the Intangibles, free and clear
of all liens, security interests, charges, encumbrances or other adverse claims
and has the right to use the Intangibles without payment to a third party; (ii)
to the Knowledge of the Company, the Company has not infringed nor is it
infringing upon the intellectual property rights of others, (iii) the Company
has not received any notice that it has or may have infringed or is infringing
upon the intellectual property rights of others; (iv) there is no pending or, to
the Knowledge of the Company, threatened action, suit, proceeding or claim by
others challenging the Company's rights in or to, or the validity or scope of,
any such Intangibles, and the Company is unaware of

                                       7



any facts which would form a reasonable basis for any such claim; (v) there is
no pending or, to the Knowledge of the Company, threatened action, suit,
proceeding or claim by others alleging that the Company infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others, and the Company is unaware of any other fact which would form
a reasonable basis for any such claim except where the Company has requested and
obtained a non-infringement or right-to-use opinion from its intellectual
property counsel; (vi) to the Knowledge of the Company, no others have infringed
upon the Intangibles of the Company and there is no U.S. patent or published
U.S. patent application which contains claims that dominate any Intangibles
described in the Prospectus as being owned by or licensed to the Company, that
interferes with the issued or pending claims of any such Intangibles, or
prevents the Company from conducting its Business; and (vii) except in
connection with the Company's license agreement with the Trustees of Columbia
University in the City of New York (the "Columbia License Agreement"), the
Company is not obligated or under any liability whatsoever to make any payment
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, intellectual property rights not owned or controlled by the Company
or in connection with the conduct of its Business. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all its Intangibles in all material respects.

          (p) Except as described in the Registration Statement and Prospectus,
neither the Company nor any officer, director or any other affiliate of the
Company (as such term is defined in Rule 405 promulgated under the Rules and
Regulations) has incurred any liability for a finder's fee or similar fee in
connection with the transactions contemplated by this Agreement other than the
discount and other compensation contemplated by this Agreement.

          (q) No officer or director of the Company, or any affiliate (as such
term is defined in Rule 405 promulgated under the Rules and Regulations) of any
such officer or director, has taken, and each officer or director has agreed
that he will not take, directly or indirectly, any action designed to constitute
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any security of the
Company or other violation under Regulation M promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act") or otherwise, to facilitate
the sale or resale of the Shares.

          (r) Except as disclosed in the Registration Statement and Prospectus
under the caption "Certain Transactions", no person related to the Company as
described in Item 404(a) of Regulation S-K promulgated under the Act has or has
had during the past two (2) years, either directly or indirectly, (i) a material
interest in any person or entity which (A) furnishes or sells products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. There are no existing
agreements, arrangements, or transactions, between or among the Company and any
officer, director of the Company, or any partner, affiliate or associate of any
of the foregoing persons or entities which are required to be described in the
Registration Statement and Prospectus under the caption "Certain Transactions"
and which are not so described.

                                       8



          (s) The minute books of the Company have been made available to the
Underwriter through Underwriter's Counsel and contain accurate summaries of all
meetings and actions of the directors and stockholders of the Company since the
time of its incorporation, and reflect all transactions referred to in such
minutes accurately in all material respects.

          (t) The Company is not involved in any labor disputes with any of the
Company's employees and, to the Knowledge of the Company, none of its employees
have threatened the commencement of any labor disputes with the Company, nor has
the Company received any notice of any bankruptcy, labor disturbance or other
event affecting any of its principal suppliers or customers, which would be
reasonably expected to result in a Material Adverse Effect.

          (u) The Company had at the date or dates indicated in the Registration
Statement and Prospectus a duly authorized and outstanding capitalization as set
forth in the Registration Statement and the Prospectus. Based on the assumptions
stated in the Registration Statement and the Prospectus, the Company will have
on the Closing Date the adjusted stock capitalization set forth therein. Except
as set forth in the Registration Statement or the Prospectus, on the Effective
Date and on the Closing Date, there will be no options to purchase, warrants or
other rights to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell shares of the Company's
capital stock or any such warrants, convertible securities or obligations.
Except as set forth in the Registration Statement or the Prospectus, no holder
of any of the Company's securities has any rights, "demand," "piggyback" or
otherwise, to have such securities registered under the Act.

          (v) The Shares and the other securities of the Company conform to all
statements in relation thereto in the Registration Statement and Prospectus; the
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and non-assessable; the outstanding options and warrants to
purchase Common Stock have been duly authorized and validly issued and
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms, except to the extent enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally and to the
extent that the remedy of specific performance and injunction or other forms of
equitable relief may be subject to equitable defenses and the discretion of the
court before which any proceeding therefor may be brought; and none of such
outstanding shares of Common Stock or outstanding warrants or options to
purchase Common Stock were issued in violation of the pre-emptive rights of any
stockholder of the Company. The offers and sales of the outstanding Common Stock
and outstanding options and warrants to purchase Common Stock were at all
relevant times either registered under the Act and the applicable state
securities or "blue sky" laws or exempt from such registration requirements. The
holders of the outstanding Common Stock are not subject to personal liability
for obligations of the Company solely by reason of being stockholders. Except as
set forth in the Registration Statement and Prospectus, on the Effective Date
and on the Closing Date(s) there will be no outstanding options or warrants for
the purchase of, or other outstanding rights to purchase or acquire, Common
Stock or securities convertible or exchangeable into Common Stock.

                                       9



          (w) The issuance and sale of the Shares have been duly authorized and,
upon delivery against payment therefor as contemplated by this Agreement, the
Shares will be validly issued, fully paid and non-assessable, and the holders
thereof will not be subject to personal liability solely by reason of being such
holders. The Shares will not be subject to pre-emptive rights of any stockholder
of the Company.

          (x) The issuance and sale of the Underwriter's Warrants has been duly
authorized and when issued and delivered in accordance with the terms hereof and
the Underwriter's Warrant Agreement, including, without limitation, delivery
against payment therefor, shall constitute the valid and binding obligations of
the Company enforceable in accordance with their terms. The issuance and sale of
the Warrant Shares has been duly authorized, and, when duly delivered against
payment therefor as contemplated by the Underwriter's Warrant Agreement, such
Warrant Shares will be validly issued, fully paid and non-assessable, and will
conform to the description thereof contained in the Registration Statement and
Prospectus. Holders of Warrant Shares issuable upon the exercise of the
Underwriter's Warrants will not be subject to personal liability solely by
reason of being such holders. Neither the Underwriter's Warrants nor the Warrant
Shares issuable upon exercise thereof will be subject to pre-emptive rights of
any stockholder of the Company. The Company has reserved a sufficient number of
shares of Common Stock from its authorized but unissued Common Stock for
issuance upon exercise of the Underwriter's Warrants in accordance with the
provisions of the Underwriter's Warrant Agreement.

          (y) During the period of nine months from the Effective Date hereof
(the "Initial Lock-Up Period"), the Company shall not offer for sale or sell any
securities of the Company without the prior written consent of the Underwriter;
provided, however, that the foregoing restriction shall not apply to the
Company's issuance of awards under the Company's 2004 Stock Incentive Plan. The
Company will deliver to the Underwriter undertakings as of the date hereof of
its officers, directors, stockholders and optionholders in a lock-up letter
agreement substantially in the form and substance of Exhibit A annexed hereto
(each, a "Lock-Up Letter Agreement" and collectively, the "Lock-Up Letter
Agreements").

          (z) Neither the Company nor any officer or director or, to the
Knowledge of the Company, any other agent of the Company, acting on behalf of
the Company, has at any time (i) made any contributions to any candidate for
political office in violation of law, or failed to disclose fully any such
contributions in violation of law, (ii) made any payment to any state, Federal
or foreign governmental officer or official, or any other person charged with
similar public or quasi-public duties, other than payments required or allowed
by applicable law or (iii) made any payment of funds of the Company or received
or retained any funds in violation of any law, rule or regulation and under
circumstances requiring the disclosure of such payment, receipt or retention of
funds in the Registration Statement and Prospectus. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.

          (aa) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended. After giving effect to the offering and sale of
the Shares and the application of the proceeds thereof as described in the
Registration Statement and Prospectus, the Company will

                                       10



not be an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.

          (bb) No securities of the Company have been sold by the Company or by
or on behalf of, or for the benefit of any person or persons controlling,
controlled by or under common control with the Company within the three (3)
years prior to the date hereof, except as disclosed in Part II of the
Registration Statement.

          (cc) The employment, consulting, confidentiality and non-competition
agreements between the Company and its officers, employees and consultants,
described in the Registration Statement and Prospectus are binding and
enforceable obligations upon the respective parties thereto in accordance with
their terms, except to the extent enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally and to the
extent that the remedy of specific performance and injunction or other forms of
equitable relief may be subject to equitable defenses and the discretion of the
court before which any proceeding therefor may be brought.

          (dd) Except as set forth in the Registration Statement and Prospectus
or on Schedule 1(dd) annexed hereto, the Company has no employee benefit plans
(including, without limitation, profit sharing and welfare benefit plans) or
deferred compensation arrangements that are subject to the provisions of the
Employee Retirement Income Security Act of 1974. The Company has fulfilled its
obligations, if any, under the minimum funding standards of Section 302 of the
United States Employee Retirement Income Security Act of 1974 ("ERISA") and the
regulations and published interpretations thereunder with respect to each "plan"
(as defined in Section 3(3) of ERISA and such regulations and published
interpretations) in which employees of the Company are eligible to participate
and each such plan is in compliance in all material respects with the presently
applicable provisions of ERISA and such regulations and published
interpretations. The Company has not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of premiums in
the ordinary course) or to any such plan under Title IV of ERISA.

          (ee) There are no voting or other stockholder agreements between the
Company and any stockholders of the Company or between or by and among any
stockholders of the Company except for the agreements set forth on Schedule
1(ee) annexed hereto.

          (ff) The Company has filed a registration statement on Form 8-A with
respect to its Common Stock under Section 12(b) of the 1934 Act and such
registration statement has been declared effective by the Commission. The
Company has filed a listing application with respect to its Common Stock with
the AMEX, such listing application has been accepted by, and the Shares have
been approved for listing on, the AMEX, subject to official notice of issuance.

          (gg) The Company is in compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. The Company has not received notice of any pending investigations
involving the Company, by the U.S. Department of Labor or any other governmental
agency responsible for the enforcement of such federal, state, local, or

                                       11



foreign laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor Relations Board
or, to the Knowledge of the Company, any strike, picketing, boycott, dispute,
slowdown or stoppage pending or threatened against or involving the Company and
none has ever occurred. No collective bargaining representation question exists
respecting the employees of the Company, and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. The
Company has not received notice that any grievance or arbitration proceeding is
pending under any expired or existing collective bargaining agreements of the
Company. No labor dispute with the employees of the Company exists or to, the
Knowledge of the Company, is imminent.

          (hh) The Company has provided to Blank Rome LLP, counsel to the
Underwriter ("Underwriter's Counsel"), all agreements, certificates,
correspondence and other items, documents and information requested by such
counsel, including in such counsel's Due Diligence Memorandum dated
              and all supplements thereto.
-------------

          (ii) Any certificate signed by an officer of the Company in his
capacity as such and delivered to the Underwriter or Underwriter's Counsel
pursuant to this Agreement shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters set forth in such certificate.

          (jj) The Company is and has been doing business in compliance with all
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, and local laws, rules and regulations, except
where failure to be in such compliance would not be reasonably expected to
result in a Material Adverse Effect; and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would be reasonably expected to result in a Material Adverse
Effect.

          (kk) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

          (ll) Except as set forth in the Registration Statement and Prospectus
(exclusive of any supplement thereto), the Company is (A) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants applicable
to its Business ("Environmental Laws"), (B) has received and is in compliance
with all permits, licenses or other approvals required under applicable
Environmental Laws to conduct its Business and (C) has not received notice of
any actual or potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes, pollutants or
contaminants, except where such non-compliance with Environmental

                                       12



Laws, failure to receive required permits, licenses or other approvals, or
liability would not, individually or in the aggregate, have a Material Adverse
Effect. The Company has not received notice and otherwise has no Knowledge that
it has been named as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended.

     2. Purchase, Delivery and Sale of the Shares and the Underwriter's
Warrants.

          (a) Subject to the terms and conditions of this Agreement, and on the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to sell to the Underwriter, and the Underwriter agrees to
purchase from the Company, the Firm Shares at a purchase price of $    per share
                                                                   ---
(net of discounts and commissions). On the "First Closing Date" (defined below
in Section 2(b)), definitive certificates in negotiable form for the Firm Shares
will be delivered by the Company to the Underwriter or, if proper arrangements
have been made, an electronic "fast" transfer of the Firm Shares from the
Company's Transfer Agent (as defined herein) to Depository Trust Company ("DTC")
will be made, against payment of the purchase price by the Underwriter, at the
Underwriter's option, by wire transfer or certified or official bank check or
checks in New York Clearing House funds, payable to the order of the Company.

          (b) Delivery of the Firm Shares (either by regular way or by a "fast"
transfer) against payment therefor shall take place at the offices of
            , at           , local New York Time, on the third business day
------------     ----------
following the Effective Date (the fourth business day following the Effective
Date in the event that trading of the Firm Shares commences on the day following
the Effective Date) or at such other location as the Underwriter and the Company
may agree, with such time and date of payment and delivery for the Firm Shares
being herein called the "First Closing Date."

          (c) Subject to the terms and conditions of this Agreement, and on the
basis of the representations, warranties and agreements contained herein, for
the purposes of covering any over-allotments in connection with the distribution
and sale of the Firm Shares as described in the Registration Statement and
Prospectus, the Underwriter is hereby granted an option to purchase all or any
part of the Option Shares from the Company. The purchase price to be paid per
share for the Option Shares will be the same price as the price per Firm Share
set forth in Section 2(a) hereof. The option granted hereby may be exercised by
notice from the Underwriter to the Company in accordance with Section 2(d)
hereof solely by the Underwriter as to all or any part of the Option Shares at
any time within thirty (30) days after the Effective Date. The Underwriter will
not be under any obligation to purchase any Option Shares prior to the exercise
by the Underwriter of such option in accordance with Section 2(d) hereof.

          (d) The option granted pursuant to Section 2(c) may be exercised by
the Underwriter giving oral notice to the Company, which must be confirmed by a
letter or facsimile setting forth the number of Option Shares to be purchased by
the Underwriter, the date and time for delivery of and payment for the Option
Shares to be purchased and stating that the Option Shares referred to therein
are to be used for the sole purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares by the Underwriter. If such
notice is given prior to the First Closing Date, the date set forth therein for
such delivery and payment will

                                       13



not be earlier than either two (2) full business days thereafter or the First
Closing Date, whichever occurs later. If such notice is given on or after the
First Closing Date, the date set forth therein for such delivery and payment
will not be earlier than two (2) full business days thereafter. In either event,
the date so set forth will not be more than fifteen (15) full business days
after the date of such notice. The date and time set forth in such notice is
herein called the "Option Closing Date." Upon exercise of such option, through
the Underwriter's delivery of the aforementioned notice, the Company will become
obligated to convey to the Underwriter, and, subject to the terms and conditions
set forth in this Section 2(c) hereof, the Underwriter will become obligated to
purchase, the number of Option Shares specified in such notice.

          (e) Payment for any Option Shares purchased will be made to the
Company, at the Underwriter's option, by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds,
against delivery of the Option Shares purchased to the Underwriter at the
offices of                 (or at such other location as the Underwriter and the
           ---------------
Company may agree).

          (f) The obligation of the Underwriter to purchase and pay for any of
the Option Shares is subject to the accuracy and completeness (as of the date
hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, set forth in this
Section 2, and to the delivery to the Underwriter of opinions, certificates and
letters dated the Option Closing Date substantially similar in scope to those
specified in Sections 8(d), (e), (f) and (g) hereof, but with each reference to
"Firm Shares" and "First Closing Date" to be changed, respectively, to the
"Option Shares" and the "Option Closing Date."

          (g) The Company will make the certificates for the Shares to be
purchased by the Underwriter hereunder available to the Underwriter for
inspection, checking and packaging at the office of the Company's transfer agent
or correspondent in New York City, Continental Stock Transfer & Trust Company,
17 Battery Place, New York, New York, 10004, not less than one (1) full business
day prior to the First Closing Date and the Option Closing Date, as the case may
be (both of which are collectively referred to herein as the "Closing Dates").
The certificates representing the shares shall be in such names and
denominations as the Underwriter may request at least two (2) full business days
prior to the respective Closing Dates. In the event that the Underwriter
determines to utilize DTC, the parties will use their best efforts to make the
offering of the Shares "DTC eligible" and to comply with the procedures thereof.

          (h) On the First Closing Date, the Company will issue and sell the
Underwriter's Warrants (in the form of, and in accordance with, the provisions
of the form of Underwriter's Warrant substantially in the form filed as Exhibit
4.2 to the Registration Statement) to the Underwriter or to its designees
(limited to officers and partners of the Underwriter, members of the selling
group and/or their officers or partners, collectively, "Underwriter's
Designees") pursuant to the Underwriter's Warrant Agreement that shall be
executed and delivered by the Company and the Underwriter on the First Closing
Date. The

                                       14



aggregate purchase price for the Underwriter's Warrants is One Hundred Dollars
($100.00). The Underwriter's Warrants and the Warrant Shares issuable upon
exercise thereof will be restricted from sale, transfer, assignment or
hypothecation pursuant to Corporate Financing Rule 2710 (currently a period of
180 days from the Effective Date), except to the Underwriter's Designees who
agree in writing not to further transfer any Underwriter's Warrants or Warrant
Shares during such period. Payment for the Underwriter's Warrants will be made
to the Company by check or checks payable to its order on the First Closing Date
against delivery of the certificates representing the Underwriter's Warrants in
accordance with the terms and conditions of the Underwriter's Warrant Agreement.
The certificates representing the Underwriter's Warrants will be in such
denominations and such names as the Underwriter may request prior to the First
Closing Date.

          (i) The information set forth (i) on the cover page of any Preliminary
Prospectus or the Prospectus concerning the Underwriter, including the delivery
of the Shares, (ii) under the captions "Management," "Certain Transactions,"
"Principal Stockholders" or otherwise, specifically relating to Howard Davis,
and (iii) under the caption "Underwriting" or otherwise, relating to the
Underwriter, in any Preliminary Prospectus or the Prospectus relating to the
Shares proposed to be filed by the Company (insofar as such information relates
to any of the Underwriter) as heretofore filed and as presently proposed to be
amended, constitute the only information furnished by or on behalf of the
Underwriter to the Company for inclusion therein, and the Underwriter represents
and warrants to the Company that the statements made therein are correct and do
not include any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

     3. Public Offering by the Underwriter. The Underwriter agrees to cause the
Shares to be offered to the public initially at the price and under the terms
set forth in the Registration Statement and Prospectus as soon, on or after the
effective date of this Agreement, as the Underwriter deems advisable, but no
more than five (5) full business days after such effective date. The Underwriter
may allow such concessions and discounts upon sales to other dealers as set
forth in the Registration Statement and Prospectus. The Underwriter agrees to
notify the Company in writing when the offering is first made and when it is
completed. After the completion of the initial public offering, the public
offering price, the concessions and the reallowance may be changed by the
Underwriter.

     4. Agreements of the Company. The Company covenants and agrees with the
Underwriter that:

          (a) If the Registration Statement has not been declared effective
prior to the time of execution of this Agreement, the Company will use its best
efforts to cause the Registration Statement to become effective as promptly as
possible, and will not at any time, whether before or after the Effective Date,
file any amendment or supplement to the Registration Statement, (i) which shall
not have been previously submitted to, and approved by, the Underwriter or
counsel for the Underwriter within a reasonable time prior to the filing
thereof, (ii) to which the Underwriter or counsel for the Underwriter shall have
reasonably objected in writing as not being in compliance with the Act or the
Rules and Regulations or (iii) which is not in compliance with the Act or the
Rules and Regulations.

                                       15



          (b) The Company will notify the Underwriter, promptly after it shall
have received notice of the effectiveness of the Registration Statement or any
amendment or supplement thereto, of the receipt of any comments of the
Commission with respect thereto, and of the time when the Registration Statement
or any post-effective amendment thereto has become effective or any supplement
to the Prospectus has been filed.

          (c) The Company will advise the Underwriter promptly of any request of
the Commission for an amendment or supplement to the Registration Statement or
the Prospectus, or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or of any judgment, order, injunction or decree preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or of the
institution of any proceedings for any of such purposes, of which it has
knowledge, and will use its best efforts to prevent the issuance of any stop
order, and, if issued, to obtain as promptly as possible the lifting thereof.

          (d) If at any time when a Prospectus relating to the Shares is
required to be delivered under the Act by the Underwriter or dealer, any event
shall have occurred as a result of which, in the reasonable opinion of counsel
for the Company or counsel for the Underwriter, the Prospectus, as then amended
or supplemented, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriter promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to counsel for the Underwriter, and the Company will
furnish to the Underwriter copies of such amendment or supplement as soon as
available and in such quantities as the Underwriter may reasonably request.

          (e) Within the time during which the Prospectus is required to be
delivered under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company, at its own expense, will comply in all
material respects with all requirements imposed upon it by the Act, the Rules
and Regulations, the 1934 Act or the rules and regulations of the Commission
promulgated under the 1934 Act, each as now or hereafter amended or
supplemented, and by any order of the Commission so far as necessary to permit
the continuance of sales of, or dealings in, the Shares.

          (f) The Company will furnish to the Underwriter, without charge, a
signed copy of the Registration Statement and of any amendment or supplement
thereto which has been filed prior to the date of this Agreement, together with
two (2) copies of each exhibit filed therewith, and three (3) conformed copies
of such Registration Statement and as many amendments thereto (unsigned and
exclusive of exhibits) as the Underwriter may reasonably request. The signed
copies of the Registration Statement so furnished to the Underwriter will
include signed copies of any and all consents and reports of the independent
public auditors as to the financial statements included in the Registration
Statement and Prospectus, and signed copies of any and all consents and
certificates of any other person whose profession gives authority to statements
made by them and who are named in the Registration Statement or Prospectus as
having prepared, certified or reviewed any parts thereof.

                                       16



          (g) The Company will deliver to the Underwriter, without charge, (i)
prior to the Effective Date, copies of each Preliminary Prospectus filed with
the Commission bearing in red ink the statement required by Item 501 of
Regulation S-K of the Rules and Regulations; (ii) on and from time to time after
the Effective Date, copies of the Prospectus; and (iii) as soon as they are
available, and from time to time thereafter, copies of each amended or
supplemented Prospectus, and the number of copies to be delivered in each such
case will be such as the Underwriter may reasonably request. The Company has
consented and hereby consents to the use of each Preliminary Prospectus for the
purposes permitted by the Act and the Rules and Regulations. The Company
authorizes the Underwriter and dealer to use the Prospectus in connection with
the sale of the Shares, for such period as, in the opinion of counsel for the
Underwriter, delivery of the Prospectus is required to comply with the
applicable provisions of the Act and the Rules and Regulations.

          (h) The Company will take such action as may be necessary to qualify
the Shares for offer and sale under the "blue sky" or securities laws of such
states or other jurisdictions as is required and as the Underwriter or counsel
for the Underwriter may designate (provided that such states or jurisdictions do
not require the Company to qualify as a foreign corporation or to file a general
consent to service of process) and to continue such qualifications in effect so
long as the Underwriter may request for the purposes of the distribution of the
Shares. In each state or jurisdiction where the Company shall qualify the Shares
as above provided, the Company will prepare and file such statements or reports
as may be required by the laws of such state or jurisdiction, and the
Underwriter shall, upon the written request of the Company, supply the Company
with all information known to the Underwriter and required to be included in
such statements or reports.

          (i) During the period of two (2) years from the Effective Date, the
Company, at its expense, shall furnish the Underwriter with (i) copies of each
annual report of the Company; (ii) as soon as practicable and in any event not
later than ninety (90) days after the end of the Company's fiscal year, a
financial report of the Company, which will include a balance sheet as of the
end of such fiscal year, a statement of operations, a statement of stockholders'
equity (deficit) and a statement of cash flows covering such fiscal year, such
report being in reasonable detail and audited by independent public auditors;
(iii) for each fiscal quarter of the Company other than the last fiscal quarter
in any fiscal year, as soon as practicable and in any event not later than
forty-five (45) days after the end of each fiscal quarter, a financial report of
the Company, which will include a balance sheet as of the end of such fiscal
quarter, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal quarter, together
with notes thereto, for such fiscal quarter and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for the
preceding year, such report being in reasonable detail and to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except for
normal year end adjustments; (iv) a copy of any Schedule 13D, 13G, 14D-1, 13E-3
or 13E-4 received or filed by the Company from time to time; (v) a copy of each
report or document, including, without limitation, reports on Form 8-K, 10-K (or
10-KSB), 10-Q (or 10-QSB) and exhibits thereto, filed or furnished by the
Company, pursuant to the 1934 Act, to the Commission, any Securities Exchange or
the NASD on the date each such report or document is so filed or furnished; (v)
quarterly shareholder lists prepared by the Company's transfer agent;

                                       17



(vi) weekly reports prepared by DTC; and (vii) such additional information
concerning the business and financial condition of the Company as the
Underwriter may from time to time reasonably request.

          (j) For a period of three (3) years from the First Closing Date, the
Company shall continue to retain Grant Thornton LLP (or such other nationally
recognized accounting firm acceptable to the Underwriter) as the Company's
independent certified public accountants, and shall not change such accountants
without the Underwriter's prior written consent. For a period of five (5) years
from the First Closing Date, the Company shall promptly submit to the
Underwriter copies of all accountants' management reports and similar
correspondence between the Company and its independent public accountants.

          (k) For a period of five (5) years from the First Closing Date, or
such shorter period as may be consented to by the Underwriter in writing, the
Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 4(j) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to stockholders.

          (l) As soon as practicable, but in any event not later than forty five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company will make
generally available to its security holders (within the meaning of Section 11
(a) of the Act) an earnings statement of the Company meeting the requirements of
Rule 158(a) under the Act covering a period of at least twelve (12) months
beginning after the Effective Date, and advise the Underwriter that such
statement has been so made available.

          (m) The Company will apply the net proceeds ("Proceeds") it realizes
from the sale of the Shares substantially in the manner set forth under the
caption "Use of Proceeds" in the Prospectus. The Company will provide on a
quarterly basis a report from its Chief Financial Officer (or other individual
functioning in that capacity) which report shall indicate the use of the
proceeds for such quarterly period and the Company's expenses and revenues.

          (n) The Company, on the First Closing Date, will sell to the
Underwriter the Underwriter's Warrants according to the terms specified in
Section 2(h) hereof. The Company has reserved and shall continue to reserve a
sufficient number of shares of Common Stock for issuance upon exercise of the
Underwriter's Warrants; and (ii) the Underwriter shall be entitled to one demand
and customary "piggy-back" registration rights to register the Common Stock
underlying the Underwriter's Warrants. Such demand and "piggy-back" registration
rights shall continue for a period of five years from the Effective Date. Within
10 days after the demand registration right is exercised, the Company shall have
the right to redeem the Underwriter's Warrants for which registration was so
demanded, at the difference between the exercise price of the Underwriter's
Warrants and the average bid price of the Shares over the 10 business days
immediately preceding the date of such exercise.

                                       18



          (o) For the period of three (3) years following the Effective Date,
the Underwriter and its successors will have the right to designate one
individual as a representative to attend each meeting of the Board of Directors
of the Company and each meeting of any committee thereof and to participate, as
a non-voting observer, in all discussions of each such meeting, to the extent
permitted by applicable law, rule, regulation or ordinance of any state, federal
or other regulatory authority, including without limitation, the AMEX or any
other stock exchange or market on which the Shares are listed; provided,
however, that such observer shall enter into a written confidentiality agreement
with the Company in form and substance reasonably satisfactory to the Company;
and provided, further, that so long as Howard Davis, or any other individual
designated by the Underwriter, serves as a member of the Company's Board of
Directors, the Company shall be deemed to have satisfied its obligation
hereunder to provide the Underwriter with the right to designate a non-voting
observer. Such observer shall be entitled to the same cash compensation and
reimbursement of expenses as the Company affords its directors who are not also
officers or employees of the Company and to receive all copies of all notices
and other documents distributed to the members of the Company's Board of
Directors (including, but not limited to, any unanimous consents prepared and
advance notices of all proposed Board actions or consents), as if such observer
were a member of the Company's Board of Directors. The Company agrees to
indemnify and hold such observer harmless against any and all claims, actions,
awards and judgments arising out of his service and in the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, to include such observer as an insured under such
policy. In the event the Company does not have a liability insurance policy in
effect on the Effective Date, the Company agrees to use its best efforts to
obtain, as promptly as practicable but in any event not later than thirty (30)
days following the Effective Date, such a policy in an amount not less than
twenty-five (25%) of the gross proceeds of this offering. The rights and
benefits of such indemnification and the benefits of such insurance shall, to
the extent possible, extend to the Underwriter in so far as it may be, or be
alleged to be, responsible for such observer. During such three (3) year period,
the Company will cause its Board of Directors to meet, either in person or
telephonically, at least four (4) times per year.

          (p) For a period of three (3) years from the Effective Date, the
Company agrees that it will maintain insurance in full force and effect of the
types and in the amounts which are customary for similarly situated companies,
including but not limited to, personal injury and product liability insurance
and insurance covering all personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against.

          (q) During the course of the distribution of the Shares, the Company
will not take, directly or indirectly, any action designed to or which might, in
the future, reasonably be expected to cause or result in stabilization or
manipulation of the price of the Shares. During the so-called "quiet period" in
which delivery of a Prospectus is required, if applicable, the Company will not
issue press releases or engage in any other publicity without the Underwriter's
prior written consent, which consent shall not be unreasonably withheld.

          (r) The Company will use its best efforts, at its cost and expense, to
take all necessary and appropriate action to list the Shares on the AMEX and
maintain such listing for as long as the Shares are so qualified.

                                       19



          (s) In the event that the Company shall receive notice that its
securities are no longer qualified for listing on the AMEX, the Company shall
prepare and file an application for listing in Standard & Poor's Corporation
Records Service (including annual report information) or Moody's Industrial
Manual and shall use its best efforts to have the Company listed in such manual
and shall maintain such listing for a period of five (5) years from the date on
which the Company's securities are delisted from the AMEX.

          (t) The Company has filed with the Commission a registration statement
on Form 8-A and will, concurrently with the Effective Date, register the class
of equity securities of which the Shares are a part under Section 12(b) or 12(g)
of the 1934 Act. The Company will use its best efforts to maintain its
registration under the 1934 Act in effect for a period of five (5) years from
the Effective Date.

          (u) The Company will at all times, from the First Closing Date until
at least three (3) years from such date, maintain in full force, or cause to be
maintained in full force, from an insurer rated "A" or better (General
Policyholders Rating) in the most recent edition of "Best Life Reports", term
life insurance in the amount of at least $1,000,000 on the life of Norman Barta.
Such policy shall be owned by the Company and all benefits thereunder shall be
payable to the Company.

          (v) On the Closing Dates, all transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Shares will have been fully paid by the Company and all laws
imposing such taxes will have been fully complied with.

          (w) For a period of three (3) years from the Effective Date, the
Company will provide to the Underwriter ten (10) days' written notice prior to
any issuance by the Company of any equity securities or securities exchangeable
for or convertible into equity securities of the Company, except for (i) the
Shares issuable pursuant to Section 2 of this Agreement, (ii) the Underwriter's
Warrants and Warrant Shares issuable upon exercise of the Underwriter's
Warrants, (iii) Common Stock issuable upon exercise of currently outstanding
options and warrants or conversion of currently outstanding convertible
securities and (iv) options available for future grant pursuant to any stock
option plan in effect on the Effective Date, limited solely to such number of
options as are available for grant on the Effective Date, and the issuance of
shares of Common Stock upon the exercise of such options.

          (x) The Company will not file any Registration Statement relating to
the offer or sale of any of the Company's securities, including any Registration
Statement on Form S-8 (except for a Form S-8 filed with respect to the Company's
Amended and Restated 2000 Equity Incentive Plan), during the twenty-four (24)
months following the Effective Date without the Underwriter's prior written
consent.

          (y) The Company shall retain a transfer agent for the Shares,
reasonably acceptable to the Underwriter, for a period of three (3) years from
the Effective Date, and will not, during such period change its transfer agent
for the Common Stock without the prior written consent of the Underwriter. In
addition, for a period of two (2) years from the Effective Date, the Company, at
its own expense, shall cause such transfer agent to provide to the Underwriter

                                       20



on a monthly basis copies of the Company's daily stock transfer sheets;
provided, however, that any confidential information relating thereto which is
hereafter provided to the Underwriter pursuant to the terms of this Agreement
shall be kept confidential by it. In addition, for a period of two (2) years
from the Effective Date, the Company, at its own expense, shall cause DTC to
provide to the Underwriter as frequently as may be required by them, copies of a
securities position listing with respect to the Common Stock.

          (z) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any adverse change in
the condition (financial or other), business, operations, prospects, income, net
worth or properties, including any loss or damage to the properties of the
Company (whether or not such loss is insured against), which could adversely
affect the condition (financial or other), business, operations, prospects,
income, net worth, assets or properties of the Company, taken as a whole; and
(iii) the Company shall not have paid or declared any dividend or other
distribution on its Common Stock or its other securities or redeemed or
repurchased any of its Common Stock or other securities.

          (aa) For the period of two (2) years following the Effective Date, the
Company shall not redeem any of its securities, and shall not pay any dividends
or make any other cash distribution in respect of its securities in excess of
the amount of the Company's current or retained earnings derived after the
Effective Date without obtaining the Underwriter's prior written consent. The
Underwriter shall either approve or disapprove such contemplated redemption of
securities or dividend payment or distribution within five (5) business days
from the date it receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the five (5) business
day period shall be deemed approval of the transaction.

          (bb) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

          (cc) For a period of five (5) years from the First Closing Date,
management of the Company shall provide the Board of Directors, on an annual
basis, with an internal budget for the next fiscal year, which budget must be
approved by the Board of Directors.

          (dd) Prior to the Effective Date and for a period of three (3) years
thereafter, the Company shall retain a financial public relations firm
reasonably acceptable to the

                                       21



Underwriter. The Company shall not publicly disparage the Underwriter or its
employees or make any negative statements concerning or related to the offering
of the Firm Shares or the Option Shares at any time; provided that this
limitation will not apply to any statements or information required to be
disclosed pursuant to any statutes, laws, regulations or orders of any
governmental body.

          (ee) Except as set forth under the caption "Use of Proceeds" in the
Prospectus or otherwise consented to in writing by the Underwriter, no proceeds
from the sale of the Shares will be used to pay outstanding loans from officers,
directors or shareholders or to pay any accrued salaries or accrued bonuses to
any current or former employees or consultants or any affiliates thereof or to
pay off any other outstanding debt other than as described in the Prospectus.

          (ff) The Company agrees that for so long as the Common Stock is
registered under the Securities Act of 1934, as amended, and the rules and
regulations of the Commission promulgated thereunder (the "1934 Act") the
Company will hold an annual meeting of stockholders for the election of
directors and will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by applicable rules
under the 1934 Act and shall be included in an annual report pursuant to the
requirements thereof.

          (gg) For a period of three (3) years from the Effective Date, the
Company shall not issue any shares of Preferred Stock without the prior written
approval of the Underwriter. From the second anniversary of the Effective Date
through the fifth anniversary of the Effective Date, the Company shall not issue
any shares of its Preferred Stock without the unanimous consent of its Board of
Directors.

          (hh) For a period of three (3) years from the Effective Date, the
Company will not offer or sell any of its securities (i) pursuant to Regulation
S, or similar regulation, promulgated under the Act or (ii) at a discount to
market or in a discounted transaction, without the prior written consent of the
Underwriter, other than the issuance of Common Stock upon exercise of options
and warrants outstanding on the First Closing Date and described in the
Prospectus.

          (ii) The Company will not, for a period of three (3) years from the
Effective Date of the Registration Statement, increase or authorize an increase
in the compensation of its three (3) most highly paid employees greater than
those increases provided for in their employment agreements with the Company in
effect as of the Effective Date and disclosed in the Registration Statement,
without the prior written consent of the Underwriter.

          (jj) With respect to any securities underlying any option issued by
the Company or to be issued by the Company pursuant to any equity incentive
plan, the Company agrees to require the holder of such option to comply with the
transfer restrictions with respect to any securities issued upon the exercise of
any such option in accordance with the terms of the Lock-Up Letter Agreement set
forth in Exhibit A attached hereto.

     5. Indemnity and Contribution by the Company and the Underwriter.

                                       22



          (a) The Company shall indemnify, defend and hold harmless the
Underwriter and any person who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the 1934 Act, from and against any loss,
expense, liability, damage or claim (including the reasonable cost of
investigation) which the Underwriter or any such controlling person may incur
under the Act, the 1934 Act or otherwise, insofar as such loss, expense,
liability, damage or claim arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact, in light of the
circumstances in which they were or are made, contained in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or the Prospectus (the term Prospectus for the
purpose of this Section 5 being deemed to include any Preliminary Prospectus,
the Prospectus and any Prospectus supplements, in each case as amended or
supplemented by the Company), (ii) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
(domestic or foreign) in order to qualify the Shares under the securities or
"blue sky" laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"), or (iii) any
omission or alleged omission to state a material fact required to be stated in
any such Registration Statement, Prospectus or Application or necessary to make
the statements made therein, in the light of the circumstances under which they
were or are made, not misleading; except to the extent that any such loss,
expense, liability, damage or claim arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission of
a material fact contained in and in conformity with information furnished in
writing by or on behalf of the Underwriter to the Company expressly for use in
such Registration Statement or such Prospectus as specified in the last sentence
Section 5(b) hereof; provided, however, that the indemnity agreement contained
in this subsection (a) with respect to the Preliminary Prospectus or Prospectus
shall not inure to the benefit of the Underwriter (or to the benefit of any
person controlling the Underwriter) with respect to any person asserting any
such loss, expense, liability, damage or claim which is the subject thereof if
copies of the Prospectus were timely delivered to the Underwriter and a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of the Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, expense, liability, damage or claim.

          (b) The Underwriter shall indemnify, defend and hold harmless the
Company and the Company's directors, officers, employees and agents and each
person who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act from and against any loss, expense, liability, damage
or claim (including the reasonable cost of investigation) which, jointly or
severally, the Company or any such person may incur under the Act, the 1934 Act
or otherwise, but only insofar as such loss, expense, liability, damage or claim
arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or in the
Registration Statement as amended by any post-effective amendment thereof by the
Company) or the Prospectus in reliance upon and in conformity with information
furnished in writing by the Underwriter to the Company expressly for use in the
Registration Statement (or in the Registration Statement as amended by any
post-effective amendment thereof by the Company) or the Prospectus, as specified
in the last sentence of this Section 5(b), or (ii) any failure on the part of
the Underwriter to comply with any

                                       23



applicable law, rule or regulation or (iii) any omission or alleged omission to
state a material fact required to be stated in such Registration Statement or
the Prospectus or necessary to make such statement, in light of the
circumstances under which it was made, not misleading. The Company and the
Underwriter acknowledge that the information set forth (x) on the cover page of
the Prospectus concerning the Underwriter, including the delivery of the Shares,
(y) under the captions "Management," "Certain Transactions" or "Principal
Stockholders" or otherwise, specifically relating to Howard Davis, and (z) under
the caption "Underwriting" or otherwise, specifically relating to the
Underwriter, in the Prospectus (insofar as such information relates to the
Underwriter) constitute the only information furnished by or on behalf of the
Underwriter to the Company for purposes of this Section 5.

          (c) Promptly after receipt by an indemnified party under subsection,
(a) or (b) above of notice of any claims or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify in writing each party against
whom indemnification is to be sought of the claim or the commencement thereof
(but the failure so to notify an indemnifying party shall not relieve the
indemnifying party from any liability which it may have under this Section 5 to
the extent that it is not materially prejudiced as a result thereof and in any
event shall not relieve it from any liability that such indemnifying party may
have otherwise than on account of the indemnity agreement hereunder). In case
any such claim or action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, an indemnifying
party may participate in the defense of such action at its own expense, and to
the extent it may elect, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, the
indemnifying party may assume the defense thereof with counsel satisfactory to
such indemnified party; provided, however, that counsel to the indemnifying
party shall not (except with the written consent of the indemnified party) also
be counsel to the indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action,
(iii) the indemnifying party does not diligently defend the action after
assumption of the defense, or (iv) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of one counsel selected
by all of the indemnified parties to represent them all (in addition to one
local counsel selected by all of the indemnified parties to represent them all
in each applicable jurisdiction) shall be borne by the indemnifying parties. No
indemnifying party shall, without the prior written consent of the indemnified
parties, which consent shall not be unreasonably withheld, effect any settlement
or compromise of, or consent to the entry of judgment with respect to, any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could have been sought under this Section 5
(whether or not the indemnified parties are actual or potential parties
thereto), unless (x) such settlement, compromise or consent (I) includes an

                                       24



unconditional release of the indemnified party from all liability arising out of
such litigation, investigation, proceeding or claim and (II) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of the indemnified party and (y) the indemnifying party reaffirms
its indemnification obligations pursuant to this Agreement. For purposes of this
Section 5(c), it shall be deemed unreasonable for an indemnified party to
withhold consent to settlement if the conditions in subsections 5(c)(x) and
(5)(c)(y) are satisfied.

          (d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 5 in respect of any losses, expenses, liabilities, damages or claims
referred to therein, then each applicable 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, expenses,
liabilities, damages or claims (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriter on the other hand from the offering of the Shares or (ii) if (but
only if) the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriter on the other with respect to the
statements or omissions which resulted in such losses, expenses, liabilities,
damages or claims, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter on
the other with respect to such offering shall be deemed to be in the same
proportion as the total proceeds (net of underwriting discounts and commissions
but before deducting expenses) received by the Company from the Shares sold
under this Agreement, on the one hand, and the total underwriting discounts and
commissions received by the Underwriter with respect to the Shares purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the Shares under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault of the Company
on the one hand and the Underwriter on the other shall be determined by
reference to, among other things, whether the untrue statement or alleged untrue
statement of a material fact or omission or alleged omission relates to
information supplied by the Company or by the Underwriter, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any claim
or action.

          (e) The Company and the Underwriter agree that it would not be just
and equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in Section 5(d)(i) and, if
applicable Section 5(d)(ii), above. Notwithstanding the provisions of this
Section 5, (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.

     6. [Intentionally Omitted.]

                                       25



     7. Survival of Agreements etc. All statements contained in any schedule,
exhibit or other instrument delivered by or on behalf of the parties hereto, or
in connection with the transactions contemplated by this Agreement, shall be
deemed to be representations and warranties hereunder. Notwithstanding any
investigations made by or on behalf of the parties to this Agreement, all
representations, warranties, indemnities and agreements made by the parties to
this Agreement or pursuant hereto shall remain in full force and effect and will
survive delivery of and the payment for the Shares. The provisions of Sections
5, 10, 11 and 15 shall survive the termination or cancellation of this
Agreement.

     8. Conditions of Underwriter's Obligations. The several obligations of the
Underwriter to purchase and pay for the Firm Shares and the Option Shares, as
provided herein, will be subject to the following conditions:

          (a) (i) The Registration Statement shall have become effective not
later than 10:00 a.m., New York City time, on the day following execution of
this Agreement, or at such later time or on such later date as shall be
consented to in writing by the Underwriter; provided, if the Company shall have
elected to rely upon Rule 430A of the Rules and Regulations, (A) the
Registration Statement shall have been filed with the Commission in a timely
fashion in accordance with Section 4(a) hereof; (B) a form of the Prospectus
containing information relating to the price of the Shares and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period; and
(C) prior to the First Closing Date, the Company shall have provided evidence
satisfactory to the Underwriter of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules and
Regulations; and (ii) prior to the First Closing Date or any Option Closing
Date, no stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereof shall have been issued and no proceeding
for that purpose shall have been initiated or be pending or, to the Knowledge of
the Company or the Underwriter, threatened by the Commission or under the
securities laws of any state.

          (b) No amendment to the Registration Statement, any Preliminary
Prospectus or the Prospectus to which the Underwriter or counsel for the
Underwriter shall have reasonably objected, after having received reasonable
notice of a proposal to file the same, shall have been filed.

          (c) The Underwriter shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the reasonable opinion of counsel for the
Underwriter, is material, or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein not misleading.

          (d) The Underwriter shall have received from Grant Thornton LLP, two
signed certificates or letters, one dated and delivered on the Effective Date
and one dated and delivered on the First Closing Date, in form and substance
satisfactory to the Underwriter, stating that:

                                       26



               (i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations;

               (ii) the financial statements included in the Registration
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
Registration Statements on Form S-1 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements and supporting
schedules included in the Registration Statement;

               (iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted auditing
standards), including a reading of the latest available unaudited interim
financial statements or other financial information of the Company (with an
indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
shareholders, the Board of Directors and any committees of the Board of
Directors of the Company, as set forth in the minute books of the Company, and
other specified inquiries and procedures, nothing has come to their attention as
a result of the foregoing inquiries and procedures that causes them to believe
that:

                    (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three (3) business days prior to the date of
such letter, there has been any decreases in net current assets or net assets,
change in the Common Stock or other securities of the Company (except as
specifically disclosed in such certificates or letters), any decreases in
shareholders equity or working capital or any increases in net current
liabilities, net liabilities or long-term debt, in each case as compared with
amounts shown in such financial statements; and any decrease in revenues or in
the total or per share amounts of income before extraordinary items or net
income or loss, or any other material change in each case as compared with the
corresponding period in the preceding year or any change in the capitalization
or long term debt of the Company, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will or may occur; and

                    (B) the unaudited interim financial statements of the
Company, if any, appearing in the Registration Statement and the Prospectus, do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles and practices on a
basis substantially consistent with the audited financial statements included in
the Registration Statement or the Prospectus.

               (iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.

                                       27



          (e) At the First Closing Date, the Underwriter shall have received
from Kramer, Levin, Naftalis and Frankel LLP counsel for the Company ("Company
Counsel"), a signed opinion dated as the First Closing Date, reasonably
satisfactory to the Underwriter's Counsel, in the form and substance of Exhibit
B annexed hereto.

          (f) At the First Closing Date, the Underwriter shall have received
from Darby & Darby P.C., patent and trademark counsel for the Company ("IP
Company Counsel"), a signed opinion dated as the First Closing Date, reasonably
satisfactory to the Underwriter's Counsel, in the form and substance of Exhibit
C annexed hereto.

          (g) The Underwriter shall have received a certificate, dated and
delivered as of the First Closing Date, of the Chief Executive Officer and
President of the Company stating that:

               (i) The Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied hereunder
at or prior to such date, including but not limited to the agreements and
covenants of the Company set forth in Section 4 hereof.

               (ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or threatened under the Act.

               (iii) Such officer has carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each of
which contains all statements required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, and does not contain any untrue statement of a material fact,
and since the Effective Date there has occurred no event required to be set
forth in the amended or supplemented Prospectus which has not been set forth.

               (iv) As of the date of such certificate, the representations and
warranties contained in Section 1 hereof are true, complete and correct as if
such representations and warranties were made in their entirety on the date of
such certificate, and the Company has complied with all its agreements herein
contained as of the date hereof and certifying as to the matters referred to in
Sections 8(h) and 8(i).

               (v) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
financial statements filed with the Commission as a part thereof, and except as
described in the Registration Statement and the Prospectus, (i) the Company has
not incurred any material liability or obligation, direct or contingent, or
entered into any material transactions whether or not incurred in the ordinary
course of business; (ii) the Company has not sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty (whether or not such loss is insured against), or from any labor
dispute or court or governmental action, order or decree; (iii) there have not
been any changes in the capital stock or any material increases in the long-term
debt or other securities of the Company; (iv) the Company has not paid or
declared any dividend or other distribution on its Common Stock or its other
securities or redeemed or

                                       28



repurchased any of its Common Stock or other securities, and (v) no adverse
change in the condition (financial or otherwise), results of operations, income,
shareholders' equity, net worth, business, assets or properties of the Company
has occurred, which would be reasonably expected to result in a Material Adverse
Effect as defined in Section 1(d) of the Underwriting Agreement.

               (vi) No officer or director of the Company, or any affiliate (as
such term is defined in Rule 405 promulgated under the Rules and Regulations) of
any such officer or director, has taken, and each officer or director has agreed
that he will not take, directly or indirectly, any action designed to constitute
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any security of the
Company or other violation of Regulation M promulgated under the 1934 Act or
otherwise to facilitate the sale or resale of the Shares.

               (vii) Except as described in the Registration Statement and the
Prospectus, no action, suit or proceeding, at law or in equity shall be pending
or, to the knowledge of such officers, threatened in writing against the Company
before or by any commission, board or other administrative agency, which may (A)
result in the imposition of damages or penalties against, or payments by, the
Company in excess of $25,000 or (B) would be reasonably expected to result in a
Material Adverse Effect.

          (h) To the knowledge of the officers, subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, the Company has not been advised by any regulatory authority that
its products may not be used for the purposes described in the Registration
Statement and Prospectus nor has the Company been advised by any potentially
significant customer that it will not utilize the Company's products as
described in the Registration Statement and Prospectus.

          (i) On the First Closing Date, the Company shall not be a party to, or
be involved in, any arbitration, litigation (except as set forth in the
Registration Statement) or governmental proceeding, which is then pending, or,
to the Knowledge of the Company, threatened of a character which would be
reasonably expected to result in a Material Adverse Effect or which is required
to be disclosed in the Registration Statement and Prospectus and is not so
disclosed.

          (j) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company shall not
have sustained any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, which, in the reasonable judgment of the
Underwriter materially adversely affects the Business.

          (k) All of the certificates representing the Shares shall have been
tendered for delivery in accordance with the terms and provisions of this
Agreement.

          (l) The Underwriter shall have received the Lock-Up Letter Agreements
referred to in paragraph (y) of Section 1 hereof.

          (m) On the Effective Date, the First Closing Date and the Option
Closing Date, if any, (i) the representations and warranties of the Company
contained in this Agreement shall be (A) true, complete and correct, without
regard to materiality to the extent that said

                                       29



representations and warranties of the Company herein are qualified by a Material
Adverse Effect requirement or otherwise subject to a 'materiality' qualifier
("Materiality Qualifier"), and (B) true, complete and correct, in all material
respects, to the extent that said representations and warranties of the Company
herein are not qualified by a Material Adverse Effect requirement or otherwise
subject to a Materiality Qualifier, with the same effect as if made on and as of
each of the Effective Date, the First Closing Date and the Option Closing Date,
if any; (ii) the Company shall have complied in all material respects with all
agreements of the Company herein, provided, however, that notwithstanding the
foregoing Materiality Qualifier, such compliance shall be unqualified to the
extent that any said agreement is already subject to a Materiality Qualifier in
accordance with its terms; (iii) the Company shall have performed in all
material respects all of its obligations due to be performed prior thereto,
provided, however, that notwithstanding the foregoing Materiality Qualifier,
such performance shall be unqualified to the extent that any said obligation is
already subject to a Materiality Qualifier in accordance with its terms; (iv)
the Registration Statement, the final Prospectus when it is filed with the
Commission, and both documents as of the First Closing Date and any Option
Closing Date referred to below, will contain all statements which are required
to be stated therein in accordance with the Act and the Rules and Regulations
and will conform in all material respects to the applicable requirements of the
Act and the Rules and Regulations, and at such times, neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
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 light of the circumstances in which they were made, not misleading, except
that this condition shall not apply to statements or omissions in the
Registration Statement or Prospectus made in reliance upon and in conformity
with information described in Section 2(i) above and furnished herein or in
writing to the Company by or on behalf of the Underwriter for inclusion in the
Registration Statement or the Prospectus; (v) there shall have been, since the
date as of which information is given, no material adverse change in the
condition, business, operations, properties, business prospects, securities,
long-term or short-term debt or general affairs of the Company which would be
reasonably expected to result in a Material Adverse Effect, except as described
in the Registration Statement and the Prospectus, and the Company shall not have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
the Prospectus which would be reasonably expected to result in a Material
Adverse Effect; and (vi) except as set forth in the Registration Statement and
Prospectus, no action, suit or proceeding, at law or in equity, shall be pending
or, to the Knowledge of the Company, threatened against the Company which is
required to be set forth in the Registration Statement, and no proceedings shall
be pending or, to the Knowledge of the Company, threatened against the Company
before or by any commission, board or administrative agency in the United States
or elsewhere, wherein an unfavorable decision, ruling or finding would be
reasonably expected to result in a Material Adverse Effect.

          (n) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.

          (o) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date or
the Option Closing Date, as the case may be, for any member firm of the NASD to
execute transactions (as

                                       30



principal or as agent) in the Shares, and no proceedings for the purpose of
taking such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Knowledge of the Company, shall be
contemplated by the Commission or the NASD.

          (p) The Company shall meet the criteria for inclusion for listing of
the Shares on the AMEX.

          (q) All proceedings taken at or prior to the First Closing Date or the
Option Closing Date, as the case may be, in connection with the authorization,
issuance and sale of the Shares shall be reasonably satisfactory in form and
substance to the Underwriter and to Underwriter's Counsel, and such counsel
shall have been furnished with all such documents, certificates and opinions as
they may reasonably request for the purpose of enabling them to pass upon the
matters referred to in this Section 8 hereof and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any covenants of the Company, or
the compliance by the Company with any of the conditions herein contained.

               (viii) Upon exercise of the option provided for in Section 2(c)
hereof, the obligations of the Underwriter to purchase and pay for the Option
Shares will be subject to the following additional conditions:

               (ix) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel for the Underwriter.

               (x) At the Option Closing Date there shall have been delivered to
the Underwriter the signed opinions of Company Counsel and IP Company Counsel,
respectively, in form and substance reasonably satisfactory to counsel for the
Underwriter, which opinions shall be substantially the same in scope and
substance as the opinions furnished to the Underwriter by Company Counsel and IP
Company Counsel at the First Closing Date pursuant to Sections 8(e) and 8(f),
respectively.

               (xi) At the Option Closing Date, there shall have been delivered
to the Underwriter a certificate of the Chief Executive Officer and the
Secretary of the Company dated the Option Closing Date, in form and substance
satisfactory to counsel for the Underwriter, substantially the same in scope and
substance as the certificates furnished to the Underwriter at the First Closing
Date pursuant to Section 8(g).

               (xii) At the Option Closing Date there shall have been delivered
to the Underwriter a certificate or letter in form and substance reasonably
satisfactory to the Underwriter from Grant Thornton LLP dated the Option Closing
Date and addressed to the Underwriter, confirming the information in its
certificate or letter referred to in Section 8(d) hereof and stating that
nothing has come to their attention during the period from the ending date of
their review referred to in said certificate or letter to a date not more than
three (3) business

                                       31



days prior to the Option Closing Date which would require any change in said
certificate or letter if it were required to be dated the Option Closing Date.

               (xiii) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and transfer of the Option Shares shall be
reasonably satisfactory in form and substance to the Underwriter, and the
Underwriter and counsel for the Underwriter shall have been furnished with all
such documents, certificates, affidavits and opinions as the Underwriter and
counsel for the Underwriter may reasonably request in connection with this
transaction in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its compliance with
any of the covenants or conditions contained herein.

               (xiv) The Company shall have issued the Underwriter's Warrants in
accordance with Section 2(h) hereof.

     The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably satisfactory to the Underwriter and to counsel for the
Underwriter.

     Any certificate signed by an officer of the Company delivered to the
Underwriter or to counsel for the Underwriter, will be deemed a representation
and warranty by the Company to the Underwriter as to the statements made
therein.

     9. Effective Date. This Agreement will become effective upon the later of
when (i) the Underwriter and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement.

     10. Termination. The Underwriter shall have the right by written notice to
the Company (which may be delivered electronically through email or facsimile)
to terminate this Agreement at any time prior to the First Closing Date or the
obligations of the Underwriter to purchase the Option Shares at any time prior
to the Option Closing Date, as the case may be, if (i) the Company shall have
failed or refused to fully perform or comply with any of the provisions of this
Agreement on its part to be performed and complied with by it prior thereto,
(ii) any of the conditions of Underwriter's obligations as set forth in Section
8 herein shall not have been satisfied; (iii) trading in securities generally on
the New York Stock Exchange or the AMEX will have been suspended; (iv) limited
or minimum prices will have been established on either such exchange or maximum
ranges for prices for securities shall have been required on the
over-the-counter market by the NASD; (v) a banking moratorium will have been
declared either by federal or New York State authorities; (vi) any other
restrictions on transactions in securities materially affecting the free market
for securities or the payment for such securities or adversely affecting the
distribution of the Firm Shares or the Option Shares, as the case may be, will
be established by either of such exchanges, by the Commission, by any other
federal or state agency, by action of the Congress or by Executive Order; (vii)
the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity of such character as in the
reasonable judgment of the Underwriter may interfere materially with the conduct
of the Business and operations of the Company or make it impracticable to
proceed with the offering, sale and delivery of the Firm Shares or the Option
Shares, as the case may be, on

                                       32



the terms contemplated by the Prospectus; (viii) any action has been taken by
the Government of the United States or any department or agency thereof which,
in the sole judgment of the Underwriter, has had a material adverse effect upon
the general market for securities and has made it impracticable to proceed with
the offering, sale and delivery of the Firm Shares or the Option Shares, as the
case may be, on the terms set forth in the Prospectus; (ix) there shall have
occurred the outbreak of any war or any other event or calamity which, in the
sole judgment of the Underwriter, materially disrupts the financial markets of
the United States and makes it impracticable to proceed with the offering, sale
and delivery of the Firm Shares or the Option Shares, as the case may be, on the
terms set forth in the Prospectus; (x) the general market for securities or
political, legal or financial conditions should deteriorate so materially from
that in effect on the date of this Agreement that, in the sole judgment of the
Underwriter, it becomes impracticable for the Underwriter to commence or proceed
with the public offering of the Shares and with the payment for or acceptance
thereof; (xi) if trading of any securities of the Company shall have been
suspended, halted or delisted on any exchange or in any over-the- counter market
or by the Commission; or (xii) any change that would result in a Material
Adverse Effect shall have occurred in the sole judgment of the Underwriter,
since the date as of which information is given in the Registration Statement
and the Prospectus. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Sections 5, 7, 10, 11 and 15 shall not be in any way affected by such election
or termination or failure to carry out the terms of this Agreement or any part
hereof.

     11. Expenses.

          (a) Whether or not the offering of the Shares is consummated, the
Company will pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including without limiting the generality
of the foregoing, (i) the preparation, printing, filing with the Commission, and
copying of the Registration Statement, each Preliminary Prospectus, Prospectus,
this Agreement and other underwriting documents, if any, and any drafts,
amendments or supplements thereto, including the cost of all copies thereof
supplied to the Underwriter in such quantities as reasonably requested by the
Underwriter and the costs of mailing Prospectuses to offerees and purchasers of
the Shares; (ii) the printing, engraving, issuance and delivery of certificates
representing the Shares and Underwriter's Warrants, including any transfer or
other taxes payable thereon; (iii) the reasonable fees, expenses and other costs
related to the registration or qualification of the Shares under state
securities or "blue sky" laws, in accordance with the provisions of Section
11(c) below; (iv) the reasonable fees, costs and disbursements of Underwriter's
Counsel in connection with the review and analysis of certain "blue sky" matters
related to the offering (not to exceed $7,500); (v) all reasonable fees and
expenses of the Company's counsel and accountants; (vi) all NASD or AMEX filing
fees, costs and expenses in connection with the offering and all reasonable
expenses of Underwriter's Counsel in connection with such NASD or AMEX filing
(not to exceed $7,500); (vii) all costs and expenses of any listing of the
Shares on the AMEX, any other stock exchange or over-the-counter market, or in
Standard and Poor's Corporation Reports or any other securities manuals; (viii)
all costs and expenses of one (1) bound volume provided to the Underwriter and
Underwriter's Counsel of all documents, paper exhibits, correspondence and
records forming the materials included in the offering; (ix) the cost of
"tombstone" advertisements to be placed in one or more daily or weekly
periodicals as the Underwriter may

                                       33



request (up to a maximum of $15,000); and (x) travel expenses of the Company in
connection with the "road show" presentations; and (xi) all other costs and
expenses incident to the performance of the Company's obligations hereunder
which are not otherwise specifically provided for in this Section 11(a). The
obligations of the Company under this subsection (a) shall survive any
termination or cancellation of this Agreement.

          (b) In addition to the Company's responsibility for payment of the
foregoing expenses, the Company shall pay to the Underwriter a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds of the
offering of the Shares, including in such amount the proceeds from any exercise
of the Underwriter's over-allotment option. The non-accountable expense
allowance due shall be paid at the First Closing Date and any Option Closing
Date, as applicable. The Underwriter hereby acknowledges prior receipt from the
Company of Fifty Thousand Dollars ($50,000), which amount shall be applied to
the non-accountable expense allowance due when, and if, such offering is closed.
If the sale of the Shares provided for herein is not consummated because the
Underwriter elects to terminate this Agreement in accordance with Section 10
hereof, then the Company shall reimburse the Underwriter in full for its actual
out-of-pocket expenses incurred in connection with the proposed purchase and
sale of the Shares (including, without limitation, the fees and disbursements of
its counsel) inclusive of the Fifty Thousand Dollars ($50,000) previously paid
on account. Notwithstanding the foregoing, in the event the offering is
terminated, the Underwriter will not be entitled to retain or receive more than
an amount equal to its actual accountable out-of-pocket expenses and shall
reimburse the Company for the remainder, if any. The Underwriter hereby
acknowledges and agrees that its expenses in connection with the "road show"
presentations shall be paid from the non-accountable expense allowance.

          (c) The Underwriter shall determine in which states or jurisdictions
the Shares shall be registered or qualified for sale.

     12. Notices. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed by certified mail, return receipt requested, postage
prepaid, hand delivered, or delivered by facsimile or telecopier, addressed as
respectively indicated or to such other address as will be indicated by a
written notice similarly given, to the following persons:

          (a) If to the Underwriter - addressed to The Shemano Group; 5850
Canoga Avenue, Suite 315, Woodland Hills, CA 91367, Attn: Howard Davis, with a
copy to Blank Rome LLP, The Chrysler Building, 405 Lexington Avenue, New York,
NY 10174, Attention: James Martin Kaplan, Esq. and Richard DiStefano, Esq.;
provided, however, that such copy to Blank Rome LLP shall not constitute notice
delivered to the Underwriter.

          (b) If to the Company - addressed to Nephros, Inc., 3960 Broadway, New
York, New York 10032, Attention: Norman Barta, President, with a copy to Kramer,
Levin, Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022,
Attention: Thomas D. Balliett, Esq. and J. Michael Mayerfeld, Esq; provided,
however, that such copy to Kramer Levin, Naftalis & Frankel LLP shall not
constitute notice delivered to the Company.

     Notice shall be deemed delivered upon receipt.

                                       34



     13. Successors. This Agreement will inure to the benefit of and be binding
upon the Underwriter and the Company and the controlling persons, directors,
officers, employees and agents referred to in Section 5 hereof (to the extent
provided for in Section 5), and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended, or will be construed, to
give any person, corporation or other entity other than the persons,
corporations and other entities mentioned in the preceding sentence, any legal
or equitable right, remedy, or claim under or in respect to this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; Notwithstanding
anything contained herein to the contrary, no purchaser of any of the Shares
from the Underwriter will be deemed a successor or assign solely because of such
purchase.

     14. Finders and Holders of First Refusal Rights.

          (a) The Company hereby represents and warrants to the Underwriter that
it has not paid any compensation for services as a finder in connection with any
prior financing of the Company during the twelve-month period immediately
preceding the date hereof and that no person is entitled, directly or
indirectly, to compensation for services as a finder in connection with the
proposed transactions. The Company further represents and warrants that other
than as set forth below in subsection (b), no person holds a right of first
refusal or similar right in connection with the proposed offering which has not
been waived, and the Company hereby agrees to indemnify and hold harmless the
Underwriter, its officers, directors, agents and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act, from and
against any loss, liability, claim, damage or expense whatsoever arising out of
a claim by an alleged finder or alleged holder of a right of first refusal or
similar right in connection with the proposed offering, insofar as such loss,
liability, claim, damage or expense arises out of any action or alleged action
of the Company.

          (b) The Underwriter hereby represents and warrants to the Company that
no person is entitled, directly or indirectly, to compensation for services as a
finder in connection with the proposed transactions contemplated by this
Agreement; and the Underwriter hereby agrees to indemnify and hold harmless,
severally and not jointly, the Company, its officers, directors and agents, from
and against any loss, liability, claim, damage or expense whatsoever arising out
of a claim by an alleged finder in connection with the proposed offering,
insofar as such loss, liability, claim, damage or expense arises out of any
action or alleged action of the Underwriter.

     15. Applicable Law. This Agreement shall be a deemed to be a contract made
under the laws of the State of New York and for all purposes shall be governed
by and construed in accordance with the laws of said State applicable to
contracts made and to be performed entirely within such State. Each of the
Company and the Underwriter (i) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (ii) waives any objection
which the Company or the Underwriter, as the case may be, may have now or
hereafter to the venue of any such suit, action or proceeding, and (iii)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of

                                       35



New York in any such suit, action or procedure. Each of the Company and the
Underwriter further agrees to accept and acknowledge service of any and all
process which may be served in any suit, action or proceeding in the New York
State Supreme Court, County of New York and the United States District Court for
the Southern District of New York, and agrees that service of process upon the
Company or the Underwriter, as the case may be, mailed by certified mail to such
party's address as set forth in Section 12 hereof shall be deemed in every
respect effective service of process upon such party in any such suit, action or
proceeding. In the event of litigation between the parties arising hereunder,
the prevailing party shall be entitled to costs and reasonable attorney's fees.

     16. Headings. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect any of the terms or provisions
hereof.

     17. Counterparts. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.

     18. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the Underwriter and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.

     19. Terminology. All personal pronouns used in this Agreement, whether used
in the masculine, feminine or neuter gender, shall include all other genders and
the singular shall include the plural, and vice versa.

     If the foregoing correctly sets forth our understanding, please indicate
the Underwriter's acceptance thereof, as of the day and year first above
written, in the spaces provided below for that purpose, whereupon this letter
with the Underwriter's acceptance shall constitute a binding agreement among us.

                                        Very truly yours,
                                        NEPHROS, INC.


                                        By:
                                            ------------------------------------
                                            Name: Norman Barta
                                            Title: President and Chief Executive
                                            Officer

Confirmed and accepted on the
day and year first above written.

                                        THE SHEMANO GROUP, INC.


                                        By:
                                            ------------------------------------
                                            Name: Howard A. Davis
                                            Title: Senior Vice President

                                       36



                                    EXHIBIT A
                                (Lock-Up Letter)

                                 LOCK-UP LETTER
                                FOR NEPHROS, INC.
                      DIRECTORS, OFFICERS AND STOCKHOLDERS

The Shemano Group, Inc.
601 California Street, Suite 1150
San Francisco, CA 94108

Gentlemen:

     The undersigned understands that The Shemano Group, Inc. (the
"Underwriter") proposes to enter into an Underwriting Agreement with Nephros,
Inc., a Delaware corporation (the "Company"), providing for the public offering
(the "Public Offering") of common stock, par value $0.01 per share (the "Common
Stock") of the Company.

     To induce the Underwriter and any others underwriters that may participate
in the Public Offering to continue their efforts in connection with the Public
Offering, the undersigned, during the period commencing from the effective date
of the registration statement (the "Effective Date") relating to the Public
Offering and ending 270 days thereafter (the "Initial Restricted Period") and
subsequent thereto during the Extended Restricted Periods (as defined below):

     (i)agrees not to (x) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning
of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or other capital stock of the
Company or any securities convertible into or exercisable or exchangeable for
any shares of Common Stock or other capital stock of the Company (collectively,
the "Securities") or (y) enter into any swap or other arrangement that transfers
all or a portion of the economic consequences associated with the ownership of
any Securities of the Company, or publicly announce an intention to effect any
such transaction (regardless of whether any of the transactions described in
clause (x) or (y) is to be settled by the delivery of Common Stock, or such
other Securities, in cash or otherwise), without the prior written consent of
the Underwriter;

     (ii) agrees not to make any demand for, exercise any right, or file (or
participate in the filing of) a registration statement with respect to the
registration of any Securities without the prior written consent of the
Underwriter; and

     (iii) authorizes the Company to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on the transfer books and
records of the Company with respect to any Securities for which the undersigned
is the record holder and, in the case of any such Securities for which the
undersigned is the beneficial but not the record holder, agrees to cause the
record



holder to authorize the Company to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on such books and records
with respect to such Securities.

     In addition, the undersigned agrees that the foregoing restrictions shall
apply, on a cumulative basis for the undersigned, (A) for a period of 90 days
following the termination of the Initial Restricted Period with respect to any
Securities in excess of one-third (1/3) of the Securities held by the
undersigned on the Effective Date, and (B) for a period of 180 days following
the termination of the Initial Restricted Period with respect to any Securities
in excess of two-thirds (2/3) of the Securities held by the undersigned on the
Effective Date (the periods referred to in clauses (A) and (B) above being
collectively referred to as the "Extended Restricted Periods").

     Notwithstanding anything to the contrary herein, the foregoing restrictions
shall not apply to (i) any gift of Securities by the undersigned to a donee,
(ii) any transfer of Securities by the undersigned to a partner, member or
stockholder of the undersigned, if the undersigned is a partnership, limited
liability company or corporation respectively or (iii) any transfer of
Securities by the undersigned to an entity controlled by the undersigned, a
family member of the undersigned, or a trust for the benefit of the undersigned
or any of the undersigned's family members (any of (i), (ii) or (iii), an
"Exempt Transfer"); provided that the transferee agrees in writing for the
benefit of the Underwriter to be bound by the same restrictions with respect to
such Securities as the undersigned is bound hereunder. The undersigned and any
transferee in an Exempt Transfer shall be treated as one person for purposes of
determining the number of Securities transferrable during the Extended
Restricted Period (the "Transferrable Shares") in accordance with the
immediately preceding paragraph, and, unless otherwise agreed to in writing by
the undersigned and the transferee, upon any Exempt Transfer such transferee
shall be allocated a portion of the Transferrable Shares not theretofor
transferred by the undersigned equal to the quotient of (x) the number of
Securities transferred by the undersigned in such Exempt Transfer divided by (y)
the number of Securities held by the undersigned immediately prior to such
Exempt Transfer.

     To the extent that the undersigned has any rights with respect to the
registration of any Securities pursuant to any agreement with the Company, and
to the extent that such agreement and the rights conferred thereunder may be
inconsistent with the terms of this letter agreement, the undersigned agrees
that the terms herein shall govern.

     The undersigned hereby represents and warrants that all of the shares of
Common Stock or any other Securities of the Company held by such person are
listed on the attached Annex 1 and that the undersigned has full power and
authority to enter into the agreements set forth herein, and that, upon request,
the undersigned will execute any additional documents necessary or desirable in
connection with the enforcement hereof. All authority herein conferred or agreed
to be conferred shall survive the death or incapacity of the undersigned and any
obligations of the undersigned shall be binding upon the heirs, personal
representatives, successors, and assigns of the undersigned.

                      [SIGNATURE PAGE IMMEDIATELY FOLLOWS]



                                            Very truly yours,


                                            ------------------------------------
Dated:                                      Stockholder
       ---------------

(Name - Please Print):

Address:

Social Security or Taxpayer Identification No.:

[SIGNATURE PAGE TO LOCK-UP LETTER]



                                     Annex 1

                              Name of Stockholder:

--------------------------------------------------------------------------------
Class of securities owned:             Number of shares of securities owned (or
                                       purchasable upon exercise):
--------------------------------------------------------------------------------
Common Stock

--------------------------------------------------------------------------------
Series A Convertible Preferred Stock

--------------------------------------------------------------------------------
Series B Convertible Preferred Stock

--------------------------------------------------------------------------------
Series C Convertible Preferred Stock

--------------------------------------------------------------------------------
Series D Convertible Preferred Stock

--------------------------------------------------------------------------------
Options to purchase common stock

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



                                    EXHIBIT B
            (Form of Opinion of Kramer Levin Naftalis & Frankel LLP)

[to come]



                                    EXHIBIT C
                       (Form of Opinion of Darby & Darby)

[to come]



                                  SCHEDULE 1(n)
                                   (Insurance)

[to come]



                                 SCHEDULE 1(dd)
                            (Employee Benefit Plans)

[to come]



                                 SCHEDULE 1(ee)
                            (Stockholder Agreements)