OPHTHALMIC IMAGING SYSTEMS
EX-10.1; INVESTMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>ex10_1-f8k122804.txt
<DESCRIPTION>EX-10.1; INVESTMENT AGREEMENT
<TEXT>
                                                                    EXHIBIT 10.1


                              INVESTMENT AGREEMENT

INVESTMENT  AGREEMENT (this  "AGREEMENT"),  dated as of December 28, 2004 by and
between Ophthalmic  Imaging Systems,  a California  corporation (the "Company"),
and Dutchess Private Equities Fund, II, LP, a Delaware limited  partnership (the
"Investor").

Whereas,  the parties desire that,  upon the terms and subject to the conditions
contained  herein,  the  Investor  shall  invest  up  to  Nine  Million  dollars
($9,000,000) to purchase the Company's Common Stock, no par value per share (the
"Common  Stock");  Whereas,  such  investments will be made in reliance upon the
provisions  of Section 4(2) under the  Securities  Act of 1933,  as amended (the
"1933 Act"), Rule 506 of Regulation D, and the rules and regulations promulgated
thereunder,  and/or upon such other exemption from the registration requirements
of  the  1933  Act  as  may  be  available  with  respect  to  any or all of the
investments in Common Stock to be made hereunder; and Whereas, contemporaneously
with the  execution  and  delivery of this  Agreement,  the  parties  hereto are
executing and delivering a Registration  Rights  Agreement  substantially in the
form attached  hereto (as amended from time to time,  the  "Registration  Rights
Agreement")  pursuant  to which  the  Company  has  agreed  to  provide  certain
registration   rights  under  the  1933  Act,  and  the  rules  and  regulations
promulgated thereunder, and applicable state securities laws. NOW, THEREFORE, in
consideration of the foregoing  recitals,  which shall be considered an integral
part of this Agreement,  the covenants and agreements set forth  hereafter,  and
other good and valuable  consideration,  the receipt and sufficiency of which is
hereby  acknowledged,  the Company  and the  Investor  hereby  agree as follows:
SECTION 1. DEFINITIONS.

         As used in this Agreement, the following terms shall have the following
meanings  specified  or  indicated  below,  and such  meanings  shall be equally
applicable to the singular and plural forms of such defined terms.

         "1933 Act" shall have the  meaning  set forth in the  preamble  of this
Agreement.

         "1934 Act" shall mean the Securities Exchange Act of 1934, as it may be
amended.

         "Affiliate" shall have the meaning specified in Section 5(h), below.

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         "Agreement" shall mean this Investment Agreement.

         "Best Bid" shall mean the highest posted bid price of the Common Stock.

         "Buy In" shall have the meaning specified in Section 6, below.

         "Buy In Adjustment  Amount" shall have the meaning specified in Section
6.

         "Closing" shall have the meaning specified in Section 2(h).

         "Closing  Date" shall mean no more than nine (9) Trading Days following
the Put Notice Date.

         "Common Stock" shall have the meaning set forth in the preamble of this
Agreement.

         "Control"  or  "Controls"  shall have the meaning  specified in Section
5(h).

         "Covering Shares" shall have the meaning specified in Section 6.

         "Effective  Date" shall mean the date the SEC declares  effective under
the 1933 Act the Registration Statement covering the Securities.

         "Environmental Laws" shall have the meaning specified in Section 4(m).

         "Execution  Date" shall mean the date indicated in the preamble to this
Agreement.

         "Indemnities" shall have the meaning specified in Section 11.

         "Indemnified  Liabilities"  shall have the meaning specified in Section
11.

         "Ineffective   Period"   shall   mean  any  period  of  time  that  the
Registration Statement or any Supplemental Registration Statement (as defined in
the Registration  Rights Agreement)  becomes  ineffective or unavailable for use
for  the  sale  or  resale,  as  applicable,  of any  or all of the  Registrable
Securities (as defined in the Registration  Rights Agreement) for any reason (or
in the event  the  prospectus  under  either  of the  above is not  current  and
deliverable)  during any time  period  required  under the  Registration  Rights
Agreement.

         "Investor"  shall have the meaning  indicated  in the  preamble of this
Agreement.

         "Material  Adverse Effect" shall have the meaning  specified in Section
4(a).

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         "Maximum  Common Stock  Issuance"  shall have the meaning  specified in
Section 2(I).

         "Minimum  Acceptable Price" shall mean the minimum per share price that
the Company  will accept for the  purchase of its Shares.  With respect to every
Put Notice,  the Company shall  indicate the Minimal  Acceptable  Price for that
Put. The Minimal Acceptable Price shall be as a dollar per share amount.

         "Open  Period"  shall mean the period  beginning on and  including  the
Trading Day  immediately  following the Effective Date and ending on the earlier
to occur of (i) the date which is thirty (30) months from the Effective Date; or
(ii)  termination  of the  Agreement in  accordance  with  Section 9 below.  The
Company shall have the right, but not the obligation,  to extend the Open Period
for an additional six months.

         "Pricing Period" shall mean the period beginning on the Put Notice Date
and ending on and  including  the date that is five (5) Trading  Days after such
Put Notice Date.

         "Principal  Market" shall mean the American Stock  Exchange,  Inc., the
National  Association  of Securities  Dealers,  Inc.  Over-the-Counter  Bulletin
Board,  the  NASDAQ  National  Market  System  or the  NASDAQ  SmallCap  Market,
whichever is the principal market on which the Common Stock is listed.

         "Prospectus"  shall mean the  prospectus,  preliminary  prospectus  and
supplemental prospectus used in connection with the Registration Statement.

         "Purchase  Amount"  shall  mean  the  total  amount  being  paid by the
Investor on a particular Closing Date to purchase the Securities.

         "Purchase Price" shall mean the greater of a) ninety-six  percent (96%)
of the  average of the two lowest  closing  Best Bid prices of the Common  Stock
during the Pricing Period or b) the Minimal Acceptable Price.

         "Put Amount" shall have the meaning set forth in Section 2(b) hereof.

         "Put  Notice"  shall mean a written  notice sent to the Investor by the
Company stating the Put Amount in U.S.  dollars,  the Company intends to sell to
the Investor pursuant to the terms of the Agreement,  stating the current number
of Shares  issued  and  outstanding  on such date,  and  including  the  Minimal
Acceptable Price.

         "Put Notice Date" shall mean the Trading Day immediately  following the
day on which the Investor  receives a Put Notice,  however a Put Notice shall be
deemed delivered on (a) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received  prior to 12:00 pm Eastern  Time,  or
(b) the  immediately  succeeding  Trading Day if it is received by  facsimile or
otherwise

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after  12:00 pm  Eastern  Time on a Trading  Day.  No Put  Notice  may be deemed
delivered on a day that is not a Trading Day.

         "Put  Restriction"  shall mean the days  between the  beginning  of the
Pricing  Period and Closing  Date.  During this time,  the Company  shall not be
entitled to deliver another Put Notice.

         "Registration Period" shall have the meaning specified in Section 5(c),
below.

         "Registration Rights Agreement" shall have the meaning set forth in the
recitals, above.

         "Registration  Statement"  means  the  registration  statement  of  the
Company filed under the 1933 Act covering the Common Stock issuable hereunder.

         "Related Party" shall have the meaning specified in Section 5(h).

         "Resolution" shall have the meaning specified in Section 8(e).

         "SEC" shall mean the U.S. Securities & Exchange Commission.
          ---

         "SEC Documents" shall have the meaning specified in Section 4(f).

         "Securities"  shall mean the shares of Common Stock issued  pursuant to
the terms of the Agreement.

         "Shares" shall mean the shares of the Company's Common Stock.

         "Sold Shares" shall have the meaning specified in Section 6.

         "Subsidiaries" shall have the meaning specified in Section 4(a).

         "Trading Day" shall mean any day on which the Principal  Market for the
Common Stock is open for trading,  specifically  from the hours of 9:30 am until
4:00 pm.

         "Transaction  Documents"  shall mean this Agreement,  the  Registration
Rights Agreement,  and each of the other agreements  entered into by the parties
hereto in connection with this Agreement. SECTION 2. PURCHASE AND SALE OF COMMON
STOCK.

(A) PURCHASE AND SALE OF COMMON STOCK.  Subject to the terms and  conditions set
forth herein, the Company shall issue and sell to the Investor, and

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the Investor shall purchase from the Company, up to that number of Shares having
an aggregate Purchase Price of Nine Million dollars ($9,000,000).

(B) DELIVERY OF PUT NOTICES.

(I) Subject to the terms and conditions of the Transaction  Documents,  and from
time to time during the Open Period,  the Company  may, in its sole  discretion,
deliver a Put Notice to the Investor which states the Put Amount  (designated in
U.S.  Dollars)  which the Company  intends to sell to the  Investor on a Closing
Date.  The Put  Notice  shall be in the form  attached  hereto as  Exhibit F and
incorporated herein by reference.  The amount that the Company shall be entitled
to Put to the Investor  (the "Put  Amount")  shall be equal to, at the Company's
election,  the greater of: (A) Two Hundred  percent  (200%) of the average daily
volume  (U.S.  market  only) of the Common  Stock for the ten (10)  Trading Days
prior to the applicable Put Notice Date,  multiplied by the average of the three
(3) daily  closing bid prices  immediately  preceding  the Put Date,  or (B) One
Hundred  Thousand  dollars  ($100,000);  provided  that in no event will the Put
Amount be more than One Million Dollars  ($1,000,000) with respect to any single
Put.  During the Open Period,  the Company shall not be entitled to submit a Put
Notice until after the previous Closing has been completed.

(II) If any closing bid price during the applicable  Pricing Period with respect
to that Put Notice is less than Minimum Acceptable Price, the Company may elect,
by sending  written notice to the Investor to cancel the Put Notice.  Any Shares
due to the Investor shall be paid immediately upon cancellation of a Put.

(C)  RESERVED

(D)  INVESTOR'S  OBLIGATION TO PURCHASE  SHARES.  Subject to the conditions set
forth in this Agreement, following the Investor's receipt of a validly delivered
Put Notice,  the Investor  shall be required to purchase from the Company during
the related  Pricing  Period that number of Shares having an aggregate  Purchase
Price equal to the lesser of (i) the Put Amount set forth in the Put Notice,  or
(ii) if the Common Stock is trading above the Minimal  Acceptable Price,  twenty
percent  (20%) of the  aggregate  trading  volume of the Common Stock during the
applicable  Pricing  Period  multiplied  by either a) the average of the two (2)
lowest  closing bid prices of the  Company's  Common Stock during the  specified
Pricing Period or b) the Minimal  Acceptable Price, but only if said Shares bear
no restrictive legend, are not subject to stop transfer  instructions,  pursuant
to Section 2(h), prior to the applicable Closing Date.

(E) Reserved

(F)  CONDITIONS TO INVESTOR'S  OBLIGATION  TO PURCHASE  SHARES.  Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled to
deliver a Put Notice and the Investor shall not be obligated to

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<PAGE>

purchase any Shares at a Closing (as defined in Section 2(h)) unless each of the
following conditions are satisfied:

(I) a Registration Statement shall have been declared effective and shall remain
effective  and available for the resale of all the  Registrable  Securities  (as
defined in the  Registration  Rights  Agreement)  at all times until the Closing
with  respect to the  subject Put  Notice;

(II) at all times during the period beginning on the related Put Notice Date and
ending on and  including the related  Closing Date,  the Common Stock shall have
been  listed on the  Principal  Market  and shall not have been  suspended  from
trading  thereon for a period of five (5)  consecutive  Trading  Days during the
Open  Period and the  Company  shall not have been  notified  of any  pending or
threatened  proceeding  or other  action to  suspend  the  trading of the Common
Stock;

(III) the Company has complied  with its  obligations  and is  otherwise  not in
breach of a material provision of, or in material default under, this Agreement,
the Registration  Rights Agreement or any other agreement executed in connection
herewith  which has not been cured or  corrected  prior to  delivery  of the Put
Notice Date;

(IV) no  injunction  shall  have been  issued  and  remain  in force,  or action
commenced by a  governmental  authority  which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and

(V) the issuance of the  Securities  will not violate any  shareholder  approval
requirements of the Principal Market.

If any of the events  described in clauses (i) through (v) above occurs during a
Pricing  Period,  then the Investor shall have no obligation to purchase the Put
Amount of Common Stock set forth in the applicable Put Notice.

(G) RESERVED

(H) MECHANICS OF PURCHASE OF SHARES BY INVESTOR.  Subject to the satisfaction of
the  conditions set forth in Sections 2(f), 7 and 8, the closing of the purchase
by the  Investor  of Shares (a  "Closing")  shall  occur on the date which is no
later than seven (7) Trading Days following the applicable Put Notice Date (each
a "Closing Date").  Prior to each Closing Date, (I) the Company shall deliver to
the Investor pursuant to this Agreement, certificates representing the Shares to
be  issued  to the  Investor  on such  date  and  registered  in the name of the
Investor;  and (II) the Investor shall deliver to the Company the Purchase Price
to be paid for such Shares,  determined  as set forth in Sections 2(b) and 2(d).
In lieu of delivering  physical  certificates  representing  the  Securities and
provided  that  the  Company's  transfer  agent  then  is  participating  in The
Depository  Trust Company ("DTC") Fast Automated  Securities  Transfer  ("FAST")
program,  upon

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<PAGE>

request of the  Investor,  the  Company  shall use its  commercially  reasonable
efforts to cause its transfer agent to electronically transmit the Securities by
crediting the account of the  Investor's  prime broker (which shall be specified
by the Investor a reasonably  sufficient  time in advance)  with DTC through its
Deposit  Withdrawal  Agent  Commission  ("DWAC") system provided that the shares
have been sold and the Investor has complied with all applicable securities laws
in connection  with such sale,  including,  without  limitation,  the prospectus
delivery requirements. The Company shall file a 424 (b) (3) that shall cover the
resale of the Securities.

The Company  understands  that a delay in the issuance of Securities  beyond the
Closing Date could result in economic loss to the Investor.  After the Effective
Date, as  compensation  to the Investor for such loss, the Company agrees to pay
late  payments to the  Investor  for late  issuance of  Securities  (delivery of
Securities  after the applicable  Closing Date) in accordance with the following
schedule  (where  "No.  of Days Late" is  defined as the number of trading  days
beyond the Closing Date. The Amounts are cumulative.):

  LATE  PAYMENT  FOR  EACH
    NO.  OF  DAYS  LATE                  $10,000  OF  COMMON  STOCK

          2                                    $200
          3                                    $300
          4                                    $400
          5                                    $500
          6                                    $600
          7                                    $700
          8                                    $800
          9                                    $900
          10                                   $1,000
          Over  10                             $1,000  +  $200  for  each
                                               Business Day late beyond 10 days

The Company shall pay any payments  incurred  under this Section in  immediately
available funds upon written demand by the Investor.  Nothing herein shall limit
the Investor's right to pursue actual damages for the Company's failure to issue
and deliver the Securities to the Investor,  except to the extent that such late
payments shall constitute payment for and offset any such actual damages alleged
by the Investor, and any Buy In Adjustment Amount. Notwithstanding the foregoing
to the contrary,  the Company  shall not be liable for any late  payments  under
this  Section  2(H) if such  failure  is due to  causes  reasonably  beyond  the
Company's  control,  including  fire,  flood,  strikes,  labor troubles or other
industrial  disturbances,  riots and  insurrections,  war and acts of terrorism.
Upon the  occurrence of such a force majeure  event,  the Company shall promptly
notify the Investor  with as much detail as possible and shall  promptly  inform
the  Investor  of any  further  developments.  Immediately  after  the  cause is
removed, the Company shall perform its obligations with all due speed.

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<PAGE>

(I) OVERALL LIMIT ON COMMON STOCK ISSUABLE.  Notwithstanding  anything contained
herein to the contrary,  if during the Open Period the Company becomes listed on
an exchange  that limits the number of shares of Common Stock that may be issued
without shareholder approval,  then the number of Shares issuable by the Company
and  purchasable by the Investor,  including the shares of Common Stock issuable
to the  Investors,  shall not exceed that  number of the shares of Common  Stock
that may be  issuable  without  shareholder  approval,  subject  to  appropriate
adjustment  for stock splits,  stock  dividends,  combinations  or other similar
recapitalization   affecting  the  Common  Stock  (the  "Maximum   Common  Stock
Issuance"),  unless the  issuance of Shares,  including  any Common  Stock to be
issued to the  Investor  pursuant  to Section  11(b),  in excess of the  Maximum
Common Stock Issuance shall first be approved by the Company's  shareholders  in
accordance with applicable law and the By-laws and Articles of  Incorporation of
the Company,  if such issuance of shares of Common Stock could cause a delisting
on the Principal  Market.  The parties  understand  and agree that the Company's
failure to seek or obtain such  shareholder  approval  shall in no way adversely
affect the validity and due authorization of the issuance and sale of Securities
or the Investor's  obligation in accordance with the terms and conditions hereof
to purchase a number of Shares in the  aggregate up to the Maximum  Common Stock
Issuance  limitation,  and that such approval pertains only to the applicability
of the Maximum Common Stock Issuance limitation provided in this Section 2(i).

SECTION 3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.

The Investor represents and warrants to the Company, and covenants, that:

(A)  SOPHISTICATED  INVESTOR.  The  Investor  has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment  decisions of this type that it is
capable  of  (I)  evaluating  the  merits  and  risks  of an  investment  in the
Securities and making an informed investment  decision;  (II) protecting its own
interest;  and  (III)  bearing  the  economic  risk  of such  investment  for an
indefinite period of time.

(B)  AUTHORIZATION;  ENFORCEMENT.  This  Agreement  has been  duly  and  validly
authorized,  executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy,  insolvency,  reorganization,  moratorium, liquidation
and other similar laws relating to, or affecting  generally,  the enforcement of
applicable creditors' rights and remedies.

(C) SECTION 9 OF THE 1934 ACT. During the term of this  Agreement,  the Investor
will  comply  with the  provisions  of Section 9 of the 1934 Act,  and the

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rules promulgated thereunder,  with respect to transactions involving the Common
Stock.

(D) ACCREDITED  INVESTOR.  Investor is an "Accredited  Investor" as that term is
defined in Rule 501(a)(3) of Regulation D of the 1933 Act. (E) NO CONFLICTS. The
execution, delivery and performance of the Transaction Documents by the Investor
and the consummation by the Investor of the transactions contemplated hereby and
thereby  will not  result  in a  violation  of  Partnership  Agreement  or other
organizational documents of the Investor.

(F) OPPORTUNITY TO DISCUSS.  The Investor has received all materials relating to
the Company's  business,  finance and  operations  which it has  requested.  The
Investor  has  had an  opportunity  to  discuss  the  business,  management  and
financial affairs of the Company with the Company's management.

(G) INVESTMENT  PURPOSES.  The Investor is purchasing the Securities for its own
account for  investment  purposes and not with a view towards  distribution  and
agrees to resell or otherwise  dispose of the  Securities  solely in  accordance
with the  registration  provisions  of the 1933 Act (or pursuant to an exemption
from such registration provisions).

(H) NO REGISTRATION AS A DEALER. The Investor is not and will not be required to
be  registered  as a  "dealer"  under  the 1934  Act,  either as a result of its
execution and performance of its obligations under this Agreement or otherwise.

(I) GOOD STANDING The Investor is a Limited Partnership, duly organized, validly
existing and in good standing in the State of Delaware.

(J) TAX LIABILITIES.  The Investor understands that it is liable for its own tax
liabilities.

(K) REGULATION M. The Investor will comply with Regulation M under the 1934 Act,
if applicable.

(L)  SHORTING.  The  Investor  or any of it's  subsidiaries  and/or  affiliates,
principals,  advisors and partners  will not short the  Company's  Common Stock,
either directly or indirectly, during the Open Period.


SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

Except as set forth in the  Schedules  attached  hereto,  or as disclosed on the
Company's SEC  Documents,  the Company  represents  and warrants to the Investor
that:

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<PAGE>

(A)  ORGANIZATION  AND  QUALIFICATION.  The Company is a corporation  duly
organized and validly  existing in good standing  under the laws of the State of
California,  and has the requisite  corporate power and authorization to own its
properties and to carry on its business as now being conducted. Both the Company
and the companies it owns or controls, its "Subsidiaries," are duly qualified to
do  business  and are in good  standing  in  every  jurisdiction  in  which  its
ownership of property or the nature of the  business  conducted by it makes such
qualification  necessary,  except  to  the  extent  that  the  failure  to be so
qualified or be in good standing would not have a Material  Adverse  Effect.  As
used in this Agreement,  "Material  Adverse  Effect" means any material  adverse
effect on the business, properties, assets, operations, results of operations or
financial  condition  of the Company and its  Subsidiaries,  if any,  taken as a
whole,  or on the  transactions  contemplated  hereby or by the  agreements  and
instruments  to be entered into in connection  herewith,  or on the authority or
ability  of the  Company  to  perform  its  obligations  under  the  Transaction
Documents  (as  defined  in  Section  1 and  4(b),  below).

(B) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.

(I) The Company has the  requisite  corporate  power and authority to enter into
and perform this Agreement,  the Registration Rights Agreement,  and each of the
other  agreements  entered  into by the parties  hereto in  connection  with the
transactions  contemplated  by this Agreement  (collectively,  the  "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof.

(II) The execution and delivery of the Transaction  Documents by the Company and
the  consummation by it, of the  transactions  contemplated  hereby and thereby,
including  without  limitation the  reservation for issuance and the issuance of
the Securities pursuant to this Agreement, have been duly and validly authorized
by the Company's Board of Directors and no further consent or  authorization  is
required by the Company, its Board of Directors, or its shareholders.

(III)  The  Transaction  Documents  have  been  duly and  validly  executed  and
delivered by the Company.  (IV) The Transaction  Documents  constitute the valid
and  binding  obligations  of the  Company  enforceable  against  the Company in
accordance  with their terms,  except as such  enforceability  may be limited by
general   principles   of   equity   or   applicable   bankruptcy,   insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting generally, the enforcement of creditors' rights and remedies.

(C)  CAPITALIZATION.  As of the date September 30, 2004, the authorized  capital
stock of the Company  consists of (i) 35,000,000  shares of Common

                                       10
<PAGE>

Stock, no par value per share, of which as of the date hereof, 15,033,585 shares
are issued and  outstanding;  shares reserved for issuance  pursuant to options,
warrants and other convertible  securities.  All of such outstanding shares have
been,  or upon  issuance  will  be,  validly  issued  and  are  fully  paid  and
nonassessable.  Except as disclosed in the Company's  publicly available filings
or SEC Documents,

(I) no shares of the Company's capital stock are subject to preemptive rights or
any other similar rights or any liens or  encumbrances  suffered or permitted by
the Company;  (II) there are no outstanding debt securities;  (III) there are no
outstanding  shares  of  capital  stock,  options,  warrants,  scrip,  rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements  by which the Company or any of its  Subsidiaries  is or may become
bound to issue  additional  shares of capital stock of the Company or any of its
Subsidiaries  or options,  warrants,  scrip,  rights to  subscribe  to, calls or
commitments  of any  character  whatsoever  relating to, or securities or rights
convertible  into,  any  shares of  capital  stock of the  Company or any of its
Subsidiaries;  (IV) there are no  agreements  or  arrangements  under  which the
Company or any of its  Subsidiaries  is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration  Rights Agreement),
(V)  there  are  no  outstanding  securities  of  the  Company  or  any  of  its
Subsidiaries which contain any redemption or similar  provisions,  and there are
no contracts,  commitments,  understandings or arrangements by which the Company
or any of its  Subsidiaries  is or may become  bound to redeem a security of the
Company or any of its Subsidiaries;  (VI) there are no securities or instruments
containing  anti-dilution  or similar  provisions  that will be triggered by the
issuance of the  Securities  as described in this  Agreement;  (VII) the Company
does not  have  any  stock  appreciation  rights  or  "phantom  stock"  plans or
agreements or any similar plan or  agreement;  and (VIII) there is no dispute as
to the  classification of any shares of the Company's capital stock. The Company
has furnished to the Investor,  or the Investor has had access through EDGAR to,
true and correct  copies of the Articles of  Incorporation,  as in effect on the
date hereof (the "Articles of Incorporation"),  and the Company's By-laws, as in
effect on the date  hereof  (the  "By-laws"),  and the  terms of all  securities
convertible  into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.

(D) ISSUANCE OF SHARES.  The Company has reserved  6,000,000 Shares for issuance
pursuant to this  Agreement has been duly  authorized  and reserved for issuance
(subject to adjustment  pursuant to the Company's  covenant set forth in Section
5(f) below)  pursuant to this  Agreement.  Upon issuance in accordance with this
Agreement,  the Securities will be validly issued, fully paid and non-assessable
and free from all taxes, liens and charges with respect to the issue thereof. In
the event the Company cannot register a sufficient number of Shares for issuance
pursuant to this  Agreement,  the Company will use its best efforts to

                                       11
<PAGE>

authorize and reserve for issuance the number of Shares required for the Company
to perform its obligations hereunder as soon as reasonably practicable.

(E) NO CONFLICTS.  The execution,  delivery and  performance of the  Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated  hereby  and  thereby  will not (I)  result in a  violation  of the
Articles of  Incorporation,  any  Certificate of  Designations,  Preferences and
Rights  of any  outstanding  series of  preferred  stock of the  Company  or the
By-laws;  or (II) to the  Company's  knowledge,  conflict  with, or constitute a
material  default  (or an event which with notice or lapse of time or both would
become a material  default)  under, or give to others any rights of termination,
amendment,  acceleration or cancellation of, any material  agreement,  contract,
indenture  mortgage,  indebtedness  or instrument to which the Company or any of
its Subsidiaries is a party, or to the Company's knowledge result in a violation
of any law, rule, regulation, order, judgment or decree (including United States
federal and state  securities laws and regulations and the rules and regulations
of the Principal  Market or principal  securities  exchange or trading market on
which the Common Stock is traded or listed)  applicable to the Company or any of
its  Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither
the Company nor its  Subsidiaries  is in violation of any term of, or in default
under,  the  Articles  of   Incorporation,   any  Certificate  of  Designations,
Preferences  and  Rights of any  outstanding  series of  preferred  stock of the
Company or the By-laws or their organizational charter or by-laws, respectively,
or any  contract,  agreement,  mortgage,  indebtedness,  indenture,  instrument,
judgment,  decree or order or any statute,  rule or regulation applicable to the
Company  or  its  Subsidiaries,   except  for  possible   conflicts,   defaults,
terminations, amendments, accelerations, cancellations and violations that would
not  individually  or in the aggregate have a Material  Adverse  Effect.  To the
knowledge of the Company,  the business of the Company and its  Subsidiaries  is
not being  conducted,  and  shall not be  conducted,  in  violation  of any law,
statute,  ordinance,  rule, order or regulation of any governmental authority or
agency,  regulatory or  self-regulatory  agency,  or court,  except for possible
violations the sanctions for which either individually or in the aggregate would
not have a Material Adverse Effect. Except as specifically  contemplated by this
Agreement  and as required  under the 1933 Act to the Company's  knowledge,  the
Company is not  required to obtain any consent,  authorization,  permit or order
of, or make any filing or  registration  (except  the  filing of a  registration
statement)  with,  any court,  governmental  authority or agency,  regulatory or
self-regulatory agency or other third party in order for it to execute,  deliver
or perform any of its obligations  under,  or  contemplated  by, the Transaction
Documents  in  accordance  with the  terms  hereof  or  thereof.  All  consents,
authorizations,  permits, orders, filings and registrations which the Company is
required to obtain  pursuant to the  preceding  sentence  have been  obtained or
effected  on or prior to the date  hereof and are in full force and effect as of
the date  hereof.  Except as  disclosed  in Schedule  4(e),  the Company and its
Subsidiaries are unaware of any facts or circumstances  which might give rise to
any of the  foregoing.  The Company is not, and will not

                                       12
<PAGE>

be, in  violation  of the listing  requirements  of the  Principal  Market as in
effect on the date hereof and on each of the  Closing  Dates and is not aware of
any facts which would  reasonably  lead to  delisting of the Common Stock by the
Principal Market in the foreseeable future.

(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of December 3, 2004, the Company has
filed all reports,  schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting  requirements  of the 1934
Act  (all of the  foregoing  filed  prior to the date  hereof  and all  exhibits
included  therein and financial  statements and schedules  thereto and documents
incorporated  by reference  therein  being  hereinafter  referred to as the "SEC
Documents").  The Company has delivered to the Investor or its  representatives,
or they have had access  through  EDGAR to, true and complete  copies of the SEC
Documents.  As of their  respective  dates,  the SEC  Documents  complied in all
material  respects  with the  requirements  of the 1934  Act and the  rules  and
regulations of the SEC promulgated  thereunder  applicable to the SEC Documents.
As of their respective  dates, the financial  statements of the Company included
in the  SEC  Documents  complied  as to  form  in  all  material  respects  with
applicable  accounting  requirements  and the published rules and regulations of
the SEC with respect  thereto.  Such financial  statements have been prepared in
accordance with generally accepted  accounting  principles,  by a firm that is a
member of the Public Companies Accounting Oversight Board ("PCAOB") consistently
applied,  during the periods involved (except (I) as may be otherwise  indicated
in such  financial  statements  or the  notes  thereto,  or (II) in the  case of
unaudited interim statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor any of its  Subsidiaries or any of their officers,  directors,  employees or
agents have provided the Investor with any material, nonpublic information which
was not publicly disclosed prior to the date hereof and any material,  nonpublic
information  provided to the Investor by the Company or its  Subsidiaries or any
of their  officers,  directors,  employees  or agents  prior to any Closing Date
shall be publicly disclosed by the Company prior to such Closing Date.

(G) ABSENCE OF CERTAIN  CHANGES.  Except as set forth in the SEC Documents,  the
Company does not intend to change the business  operations of the Company in any
material way. The Company has not taken any steps, and does not currently expect
to take any steps,  to seek  protection  pursuant to any bankruptcy law nor does
the Company or its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.

(H) ABSENCE OF LITIGATION. Except as set forth in the SEC Documents, there is no
action, suit, proceeding, inquiry or investigation before or by any

                                       13
<PAGE>

court,  public board,  government agency,  self-regulatory  organization or body
pending or, to the knowledge of the executive  officers of Company or any of its
Subsidiaries,  threatened against or affecting the Company,  the Common Stock or
any of the  Company's  Subsidiaries  or any of the  Company's  or the  Company's
Subsidiaries'  officers or directors in their  capacities  as such,  in which an
adverse decision could have a Material Adverse Effect.

(I)  ACKNOWLEDGMENT   REGARDING  INVESTOR'S  PURCHASE  OF  SHARES.  The  Company
acknowledges  and agrees that the  Investor is acting  solely in the capacity of
arm's  length  purchaser  with  respect  to the  Transaction  Documents  and the
transactions  contemplated hereby and thereby.  The Company further acknowledges
that the  Investor  is not acting as a  financial  advisor or  fiduciary  of the
Company (or in any similar  capacity) with respect to the Transaction  Documents
and the transactions contemplated hereby and thereby and any advice given by the
Investor or any of its respective  representatives  or agents in connection with
the Transaction  Documents and the transactions  contemplated hereby and thereby
is merely incidental to the Investor's  purchase of the Securities.  The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company  and  its  representatives.

(J) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as
set forth in the SEC  Documents,  since  December 3, 2004, no event,  liability,
development  or  circumstance  has  occurred  or  exists,  or to  the  Company's
knowledge  is  contemplated  to  occur,  with  respect  to  the  Company  or its
Subsidiaries  or  their  respective  business,  properties,  assets,  prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration  statement filed with
the SEC  relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.

(K)  EMPLOYEE  RELATIONS.  Neither the Company  nor any of its  Subsidiaries  is
involved in any union labor  dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its  Subsidiaries is a party to a collective  bargaining  agreement,  and the
Company and its  Subsidiaries  believe that relations  with their  employees are
good.  No  executive  officer  (as  defined in Rule  501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company's  employ or
otherwise terminate such officer's employment with the Company.

(L)  INTELLECTUAL  PROPERTY  RIGHTS.  The  Company and its  Subsidiaries  own or
possess adequate rights or licenses to use all trademarks,  trade names, service
marks,  service mark  registrations,  service  names,  patents,  patent  rights,
copyrights, inventions, licenses, approvals, governmental authorizations,  trade
secrets and rights  necessary  to conduct  their  respective  businesses  as now
conducted.  Except  as set  forth in the SEC  Documents,  none of the  Company's

                                       14
<PAGE>

trademarks,  trade names,  service marks,  service mark  registrations,  service
names, patents,  patent rights,  copyrights,  inventions,  licenses,  approvals,
government  authorizations,  trade secrets or other intellectual property rights
necessary  to conduct its  business as now or as proposed to be  conducted  have
expired or  terminated,  or are expected to expire or  terminate  within two (2)
years from the date of this Agreement.  The Company and its  Subsidiaries do not
have any knowledge of any  infringement  by the Company or its  Subsidiaries  of
trademark,  trade name rights, patents, patent rights,  copyrights,  inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other  similar  rights of others,  or of any such  development  of similar or
identical  trade secrets or technical  information by others and,  except as set
forth in the SEC Documents,  there is no claim,  action or proceeding being made
or brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries  regarding  trademark,  trade name, patents,  patent
rights,  invention,  copyright,  license,  service names, service marks, service
mark registrations,  trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances  which might give rise to
any of the foregoing.  The Company and its Subsidiaries have taken  commercially
reasonable  security measures to protect the secrecy,  confidentiality and value
of all of their intellectual properties.

(M)  ENVIRONMENTAL  LAWS.  The  Company  and its  Subsidiaries  (I) are,  to the
knowledge  of  management  of the  Company,  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  ("Environmental  Laws"); (II)
have,  to the  knowledge of  management  of the  Company,  received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their  respective  businesses;  and (III) are in  compliance,  to the
knowledge  of the  Company,  with all terms and  conditions  of any such permit,
license or approval where, in each of the three (3) foregoing cases, the failure
to so comply would have,  individually or in the aggregate,  a Material  Adverse
Effect.

(N) TITLE.  The Company and its  Subsidiaries  have good and marketable title to
all  personal  property  owned by them which is material to the  business of the
Company  and its  Subsidiaries,  in each  case  free  and  clear  of all  liens,
encumbrances  and defects  except such as are  described in the SEC Documents or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its  Subsidiaries.  Any real property and facilities  held under lease by the
Company or any of its Subsidiaries are held by them under valid,  subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such  property and buildings by the
Company and its Subsidiaries.

(O)  INSURANCE.  Each of the Company's  Subsidiaries  are insured by insurers of
recognized  financial  responsibility  against such losses and risks and in such

                                       15
<PAGE>

amounts as  management  of the  Company  reasonably  believes  to be prudent and
customary  in the  businesses  in which the  Company  and its  Subsidiaries  are
engaged.  Neither  the  Company  nor any such  Subsidiary  has been  refused any
insurance  coverage  sought or applied  for and neither the Company nor any such
Subsidiary  has any  reason  to  believe  that it will not be able to renew  its
existing  insurance  coverage  as and when such  coverage  expires  or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not have a Material Adverse Effect.

(P) REGULATORY PERMITS.  The Company and its Subsidiaries have in full force and
effect  all  certificates,   approvals,  authorizations  and  permits  from  the
appropriate  federal,   state,  local  or  foreign  regulatory  authorities  and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective  properties and assets and conduct their respective  businesses,  and
neither  the  Company  nor any  such  Subsidiary  has  received  any  notice  of
proceedings  relating to the revocation or modification of any such certificate,
approval,  authorization  or permit,  except for such  certificates,  approvals,
authorizations  or  permits  which  if not  obtained,  or  such  revocations  or
modifications  which,  would not have a Material  Adverse  Effect.  (Q) INTERNAL
ACCOUNTING CONTROLS.  The Company and each of its Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable  assurance that
(I)  transactions  are  executed  in  accordance  with  management's  general or
specific  authorizations;  (II) transactions are recorded as necessary to permit
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting  principles  by a firm with  membership  to the PCAOB 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.

(R) NO MATERIALLY  ADVERSE  CONTRACTS,  ETC.  Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment,  decree,  order,  rule or regulation  which in the judgment of the
Company's  officers has or is expected in the future to have a Material  Adverse
Effect.  Neither  the  Company  nor any of its  Subsidiaries  is a party  to any
contract or agreement which in the judgment of the Company's  officers has or is
expected to have a Material Adverse Effect.

(S) TAX STATUS.  The Company and each of its  Subsidiaries has made or filed all
United  States  federal and state income and all other tax returns,  reports and
declarations  required by any  jurisdiction  to which it is subject  (unless and
only to the extent that the Company and each of its  Subsidiaries  has set aside
on its books  provisions  reasonably  adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental  assessments and
charges  that are  material  in amount,  shown or  determined  to be due on such

                                       16
<PAGE>

returns,  reports and  declarations,  except those being contested in good faith
and has set aside on its books provision  reasonably adequate for the payment of
all taxes for periods  subsequent to the periods to which such returns,  reports
or declarations  apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any  jurisdiction,  and the officers of the
Company know of no basis for any such claim.

(T)  CERTAIN  TRANSACTIONS.  Except as set forth in the SEC  Documents  filed at
least  ten (10) days  prior to the date  hereof  and  except  for  arm's  length
transactions pursuant to which the Company makes payments in the ordinary course
of business  upon terms no less  favorable  than the Company  could  obtain from
third  parties and other than the grant of stock  options  disclosed  in the SEC
Documents,  none of the  officers,  directors,  or  employees  of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees,  officers and  directors),  including any
contract,  agreement  or  other  arrangement  providing  for the  furnishing  of
services to or by, providing for rental of real or personal property to or from,
or  otherwise  requiring  payments  to or from  any  officer,  director  or such
employee  or, to the  knowledge of the Company,  any  corporation,  partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.

(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of
shares of Common Stock issuable upon  purchases  pursuant to this Agreement will
increase in certain circumstances including, but not necessarily limited to, the
circumstance  wherein the trading price of the Common Stock declines  during the
period between the Effective Date and the end of the Open Period.  The Company's
executive officers and directors have studied and fully understand the nature of
the  transactions  contemplated by this Agreement and recognize that they have a
potential  dilutive effect. The Board of Directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company.  The Company  specifically  acknowledges  that,  subject to such
limitations  as are  expressly  set  forth  in the  Transaction  Documents,  its
obligation  to issue  shares of Common  Stock upon  purchases  pursuant  to this
Agreement is absolute and  unconditional  regardless of the dilutive effect that
such issuance may have on the ownership  interests of other  shareholders of the
Company.

(V)  ADDITIONAL  FINANCING:  During the Open Period,  the Company shall have the
right to finance the Company with any third party,  provided  that the financing
is not an Equity Line or similar financing structure.

W) NO GENERAL SOLICITATION.  Neither the Company, nor any of its affiliates, nor
any person acting on its behalf, has engaged in any form of general solicitation
or general  advertising  (within the meaning of Regulation D) in connection with
the offer or sale of the Common Stock offered hereby.

                                       17
<PAGE>

(X) NO BROKERS,  FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS.  No brokers,
finders or financial advisory fees or commissions will be payable by the Company
with respect to the  transactions  contemplated  by this  Agreement,  other than
disclosed in this Agreement.

SECTION 5. COVENANTS OF THE COMPANY

(A) BEST EFFORTS.  The Company shall use commercially  reasonable efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Section 8
of this Agreement.

(B) BLUE SKY. The Company shall, at its sole cost and expense, on or before each
of the Closing Dates, take such action as the Company shall reasonably determine
is  necessary  to  qualify  the  Securities  for,  or obtain  exemption  for the
Securities  for,  sale to the Investor at each of the Closings  pursuant to this
Agreement under  applicable  securities or "Blue Sky" laws of such states of the
United States, as reasonably  specified by Investor,  and shall provide evidence
of any such action so taken to the Investor on or prior to the Closing Date.

(C) REPORTING STATUS.  Until the earlier to occur of (I) the first date which is
after the date this  Agreement is terminated  pursuant to Section 9 and on which
the Holders (as that term is defined in the Registration  Rights  Agreement) may
sell  all  of  the  Securities  without  restriction  pursuant  to  Rule  144(k)
promulgated  under  the 1933 Act (or  successor  thereto);  and (II) the date on
which (A) the Holders shall have sold all the Securities; and (B) this Agreement
has been  terminated  pursuant  to Section 9 (the  "Registration  Period"),  the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as a reporting  company
under the 1934 Act.

(D) USE OF  PROCEEDS.  The Company  will use the  proceeds  from the sale of the
Shares  (excluding  amounts  paid by the  Company  for fees as set  forth in the
Transaction  Documents) for general  corporate and working capital  purposes and
acquisitions or assets,  businesses or operations or for other purposes that the
Board of Directors deem to be in the best interest of the Company.

(E) FINANCIAL INFORMATION.  The Company agrees to make available to the Investor
via EDGAR or other  electronic  means the  following to the Investor  during the
Registration  Period:  (I) within five (5) Trading Days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly Reports
on Form 10-QSB, any Current Reports on Form 8-K and any Registration  Statements
or  amendments  filed  pursuant  to the  1933  Act;  (II) on the same day as the
release  thereof,  all  press  releases  issued  by  the  Company  or any of its
Subsidiaries;  (III) copies of any notices and other  information made available
or given to the shareholders of the Company  generally,  contemporaneously  with
the making available or giving thereof to the shareholders;  and (IV) within two
(2) calendar days of filing or delivery  thereof,

                                       18
<PAGE>

copies  of all  documents  filed  with,  and all  correspondence  sent  to,  the
Principal Market, any securities exchange or market, or the National Association
of Securities  Dealers,  Inc.,  unless such  information  is material  nonpublic
information.

(F) RESERVATION OF SHARES.  Subject to the following sentence, the Company shall
take all action necessary to at all times have authorized,  and reserved for the
purpose of issuance,  a  sufficient  number of shares of Common Stock to provide
for the  issuance  of the  Securities  hereunder.  In the event that the Company
determines  that it does not have a sufficient  number of  authorized  shares of
Common  Stock to reserve and keep  available  for  issuance as described in this
Section  5(f),  the Company shall use its best efforts to increase the number of
authorized  shares of  Common  Stock by  seeking  shareholder  approval  for the
authorization of such additional shares.

(G) LISTING.  The Company shall promptly  secure and maintain the listing of all
of the Registrable  Securities (as defined in the Registration Rights Agreement)
upon the  Principal  Market  and each other  national  securities  exchange  and
automated  quotation  system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, such listing
of all Registrable  Securities from time to time issuable under the terms of the
Transaction  Documents.  Neither the Company nor any of its  Subsidiaries  shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (excluding suspensions of
not more than one (1) trading day resulting from business  announcements  by the
Company).  The Company  shall  promptly  provide to the  Investor  copies of any
notices  it  receives  from  the  Principal   Market   regarding  the  continued
eligibility of the Common Stock for listing on such automated  quotation  system
or  securities  exchange.  The  Company  shall  pay all  fees  and  expenses  in
connection with satisfying its obligations under this Section 5(g).

(H) TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of
its Subsidiaries not to, enter into, amend, modify or supplement,  or permit any
Subsidiary  to  enter  into,  amend,   modify  or  supplement,   any  agreement,
transaction,  commitment  or  arrangement  with  any of its or any  Subsidiary's
officers,  directors,  persons who were officers or directors at any time during
the previous two (2) years,  shareholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such  individual  or with any entity in which any such entity or
individual  owns a 5% or more  beneficial  interest  (each a  "Related  Party"),
except  for (I)  customary  employment  arrangements  and  benefit  programs  on
reasonable terms, (II) any agreement, transaction,  commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable  from a person other than such Related Party, or (III) any agreement,
transaction,  commitment or  arrangement  which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any

                                       19
<PAGE>

Subsidiary of the Company shall not be a disinterested  director with respect to
any such  agreement,  transaction,  commitment or  arrangement.  "Affiliate" for
purposes hereof means,  with respect to any person or entity,  another person or
entity that,  directly or  indirectly,  (I) has a 5% or more equity  interest in
that person or entity,  (II) has 5% or more common ownership with that person or
entity,  (III)  controls that person or entity,  or (IV) is under common control
with that person or entity.  "Control" or "Controls"  for purposes  hereof means
that a person or entity has the power, direct or indirect,  to conduct or govern
the policies of another person or entity.

(I) FILING OF FORM 8-K.  On or before the date which is three (3)  Trading  Days
after the Execution  Date,  the Company shall file a Current  Report on Form 8-K
with  the SEC  describing  the  terms  of the  transaction  contemplated  by the
Transaction  Documents  in the form  required by the 1934 Act, if such filing is
required.

(J) CORPORATE EXISTENCE.  The Company shall use its best efforts to preserve and
continue the corporate existence of the Company.

(K) NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE
A PUT. The Company shall promptly  notify Investor upon the occurrence of any of
the  following  events  in  respect  of  a  Registration  Statement  or  related
prospectus  in respect of an  offering  of the  Securities:  (I)  receipt of any
request  for  additional  information  by the SEC or any other  federal or state
governmental  authority  during the period of  effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus;  (II)  the  issuance  by the  SEC  or any  other  federal  or  state
governmental  authority of any stop order  suspending the  effectiveness  of any
Registration  Statement or the initiation of any  proceedings  for that purpose;
(III)  receipt  of  any  notification  with  respect  to the  suspension  of the
qualification or exemption from  qualification of any of the Securities for sale
in any  jurisdiction  or the  initiation  or notice of any  proceeding  for such
purpose;  (IV) the happening of any event that makes any statement  made in such
Registration  Statement or related  prospectus or any document  incorporated  or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration  Statement,  related
prospectus or documents so that,  in the case of a  Registration  Statement,  it
will not contain any untrue  statement  of a material  fact or omit to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading,  and that in the case of the related prospectus, it will
not  contain  any  untrue  statement  of a  material  fact or omit to state  any
material fact required to be stated  therein or necessary to make the statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading; and (V) the Company's reasonable determination that a post-effective
amendment to the  Registration  Statement would be appropriate,  and the Company
shall  promptly make  available to Investor any such  supplement or amendment to
the related

                                       20
<PAGE>

prospectus.  The Company shall not deliver to Investor any Put Notice during the
continuation of any of the foregoing events.

(L)  REIMBURSEMENT.  If (I)  Investor  becomes  involved in any  capacity in any
action,  proceeding or investigation  brought by any shareholder of the Company,
in  connection  with or as a  result  of the  consummation  of the  transactions
contemplated  by the Transaction  Documents,  or if Investor is impleaded in any
such action,  proceeding or  investigation by any person (other than as a result
of a breach of the Investor's  representations  and warranties set forth in this
Agreement);  or (II)  Investor  becomes  involved in any capacity in any action,
proceeding or investigation  brought by the SEC against or involving the Company
or in connection  with or as a result of the  consummation  of the  transactions
contemplated by the Transaction Documents (other than as a result of a breach of
the Investor's  representations and warranties set forth in this Agreement),  or
if Investor is impleaded in any such action,  proceeding or investigation by any
person,  then in any such case,  the Company  will  reimburse  Investor  for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition,  other than with  respect to any matter in which  Investor  is a named
party, the Company will pay to Investor the charges, as reasonably determined by
Investor,  for the time of any  officers or  employees  of  Investor  devoted to
appearing  and preparing to appear as witnesses,  assisting in  preparation  for
hearings,  trials or pretrial  matters,  or otherwise with respect to inquiries,
hearing,  trials,  and other proceedings  relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this section shall
be in addition to any  liability  which the Company may  otherwise  have,  shall
extend upon the same terms and conditions to any affiliates of Investor that are
actually  named in such  action,  proceeding  or  investigation,  and  partners,
directors, agents, employees, attorneys,  accountants,  auditors and controlling
persons (if any),  as the case may be, of Investor and any such  affiliate,  and
shall be binding upon and inure to the benefit of any successors of the Company,
Investor and any such affiliate and any such person.

SECTION 6. COVER.

If the number of Shares  represented by any Put Notice (s) become  restricted or
are no longer freely trading for any reason (other than as a result of an action
of the Investor), and after the applicable Closing Date, the Investor purchases,
in an open market  transaction  or otherwise,  the  Company's  Common Stock (the
"Covering Shares") in order to make delivery in satisfaction of a sale of Common
Stock  by the  Investor  (the  "Sold  Shares"),  which  delivery  such  Investor
anticipated to make using the Shares represented by the Put Notice (a "Buy-In"),
the Company shall pay to the Investor the Buy-In  Adjustment  Amount (as defined
below).  The "Buy-In  Adjustment  Amount" is the amount equal to the excess,  if
any,  of  (A)  the  Investor's   total  purchase  price   (including   brokerage
commissions,  if any) for the Covering  Shares over (B) the net proceeds  (after
brokerage  commissions,  if any)  received by the Investor  from the sale of the
Sold Shares.

                                       21
<PAGE>

The  Company  shall  pay  the  Buy-In  Adjustment  Amount  to  the  Investor  in
immediately  available funds immediately upon demand by the Investor.  By way of
illustration and not in limitation of the foregoing,  if the Investor  purchases
Common Stock having a total purchase price (including brokerage  commissions) of
$11,000  to cover a Buy-In  with  respect  to the  Common  Stock it sold for net
proceeds of $10,000,  the Buy-In  Adjustment  Amount  which the Company  will be
required to pay to the Investor will be $1,000.

SECTION 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.

The obligation  hereunder of the Company to issue and sell the Securities to the
Investor is further subject to the satisfaction, at or before each Closing Date,
of each of the following  conditions set forth below.  These  conditions are for
the  Company's  sole benefit and may be waived by the Company at any time in its
sole discretion.

(A) The Investor shall have executed each of this Agreement and the Registration
Rights  Agreement and delivered the same to the Company.

(B) The Investor  shall have delivered to the Company the Purchase Price for the
Securities being purchased by the Investor between the end of the Pricing Period
and the Closing Date via a Put Settlement  Sheet (hereto  attached as Exhibit G)
After receipt of  confirmation  of delivery of such  Securities to the Investor,
the Investor,  by wire transfer of immediately  available  funds pursuant to the
wire instructions  provided by the Company will disburse the funds  constituting
the Purchase Amount.

(C) No statute, rule, regulation,  executive order, decree, ruling or injunction
shall  have been  enacted,  entered,  promulgated  or  endorsed  by any court or
governmental   authority  of  competent   jurisdiction   which   prohibits   the
consummation of any of the transactions contemplated by this Agreement.

SECTION 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.

The  obligation of the Investor  hereunder to purchase  Shares is subject to the
satisfaction,  on or  before  each  Closing  Date,  of  each  of  the  following
conditions  set forth below.

(A) The  Company  shall have  executed  each of the  Transaction  Documents  and
delivered the same to the Investor.

(B) The Common Stock shall be authorized  for quotation on the Principal  Market
and trading in the Common Stock shall not have been  suspended by the  Principal
Market or the SEC,  at any time  beginning  on the date  hereof and  through and
including the respective  Closing Date  (excluding  suspensions of not more than
one (1) Trading Day resulting from business announcements by the

                                       22
<PAGE>

Company, provided that such suspensions occur prior to the Company's delivery of
the Put Notice related to such Closing).

(C) The  representations and warranties of the Company shall be true and correct
as of the date when made and as of the applicable Closing Date as though made at
that time  (except for (I)  representations  and  warranties  that speak as of a
specific  date and (II) with  respect to the  representations  made in  Sections
4(g),  (h) and (j) and the third  sentence of Section 4(k) hereof,  events which
occur on or after the date of this  Agreement  and are  disclosed in SEC filings
made by the Company at least ten (10) Trading Days prior to the  applicable  Put
Notice Date) and the Company shall have  performed,  satisfied and complied with
the covenants,  agreements and conditions required by the Transaction  Documents
to be  performed,  satisfied  or complied  with by the Company on or before such
Closing  Date.  The  Investor  may  request  an update as of such  Closing  Date
regarding the representation contained in Section 4(c) above.

(D)  The  Company  shall  have  executed  and  delivered  to  the  Investor  the
certificates  representing,  or have executed electronic book-entry transfer of,
the  Securities  (in such  denominations  as such Investor  shall request) being
purchased by the Investor at such Closing.

(E) The  Board of  Directors  of the  Company  shall  have  adopted  resolutions
consistent with Section 4(b)(ii) above (the  "Resolutions") and such Resolutions
shall not have  been  amended  or  rescinded  prior to such  Closing  Date.  (F)
reserved (G) No statute,  rule,  regulation,  executive order, decree, ruling or
injunction  shall have been  enacted,  entered,  promulgated  or endorsed by any
court or governmental  authority of competent  jurisdiction  which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(H) The  Registration  Statement  shall be effective on each Closing Date and no
stop order suspending the  effectiveness of the Registration  statement shall be
in  effect  or to the  Company's  knowledge  shall  be  pending  or  threatened.
Furthermore,  on each Closing  Date (I) neither the Company nor  Investor  shall
have  received  notice  that the SEC has issued or intends to issue a stop order
with  respect  to such  Registration  Statement  or that the SEC  otherwise  has
suspended or withdrawn the effectiveness of such Registration Statement,  either
temporarily  or  permanently,  or intends or has threatened to do so (unless the
SEC's concerns have been addressed and Investor is reasonably satisfied that the
SEC no longer is considering or intends to take such action),  and (II) no other
suspension of the use or withdrawal of the  effectiveness  of such  Registration
Statement or related prospectus shall exist.

(I)  At  the  time  of  each  Closing,  the  Registration  Statement  (including
information or documents  incorporated by reference  therein) and any amendments
or

                                       23
<PAGE>

supplements thereto shall not contain any untrue statement of a material fact or
omit to state any material  fact  required to be stated  therein or necessary to
make the  statements  therein  not  misleading  or which  would  require  public
disclosure or an update supplement to the prospectus.

(J) If  applicable,  the  shareholders  of the Company  shall have  approved the
issuance  of any  Shares in excess  of the  Maximum  Common  Stock  Issuance  in
accordance  with Section  2(i) or the Company  shall have  obtained  appropriate
approval  pursuant  to the  requirements  of  Calfiornia  law and the  Company's
Articles of Incorporation and By-laws.

(K) The  conditions  to such  Closing set forth in Section  2(f) shall have been
satisfied on or before such Closing Date.

(L) The Company  shall have  certified  to the  Investor the number of Shares of
Common Stock outstanding when a Put Notice is given to the Investor.

SECTION 9. TERMINATION. This Agreement shall terminate upon any of the following
events:

(I) when the  Investor  has  purchased  an  aggregate  of Nine  Million  dollars
($9,000,000) in the Common Stock of the Company pursuant to this Agreement;

(II) on the date which is thirty (30) months after the  Effective  Date,  unless
the Company  exercises its option to extend this Agreement for an additional six
(6) months;

(III) upon written  notice from the Company,  stating its  intentions  to cancel
this Agreement.  The Company shall not terminate this Agreement during a Pricing
Period.  Any  remuneration  of  Shares  due  to the  Investor  at  the  time  of
Termination,  shall be  immediately  issued and delivered  within one (1) day of
Termination.  Any delay in such  issuances  will  carry  penalties  outlined  in
Section 2 (H).

SECTION 10.  SUSPENSION

This Agreement  shall be suspended upon any of the following  events,  and shall
remain suspended until such event is rectified:

         (I) the  trading  of the  Common  Stock is  suspended  by the SEC,  the
Principal  Market or the NASD for a period of two (2)  consecutive  Trading Days
during the Open Period;

         (II) The Common  Stock  ceases to be  registered  under the 1934 Act or
listed or traded on the Principal Market.  Upon the occurrence of one (1) of the
above-described  events,  the Company shall send written notice of such event to
the Investor.

                                       24
<PAGE>

SECTION 11. INDEMNIFICATION.

In consideration of the parties mutual  obligations set forth In the Transaction
Documents, each of the parties (in such capacity, an "Indemnitor") shall defend,
protect,  indemnify  and hold  harmless  the other and all of the other  party's
shareholders,  officers,  directors,  employees, counsel, and direct or indirect
investors  and any of the  foregoing  person's  agents or other  representatives
(including,   without   limitation,   those  retained  in  connection  with  the
transactions contemplated by this Agreement)  (collectively,  the "Indemnitees")
from and against any and all actions,  causes of action, suits, claims,  losses,
costs,  penalties,  fees,  liabilities and damages,  and reasonable  expenses in
connection therewith  (irrespective of whether any such Indemnitee is a party to
the  action  for which  indemnification  hereunder  is  sought),  and  including
reasonable  attorneys' fees and disbursements  (the "Indemnified  Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (I)
any  misrepresentation  or breach of any  representation or warranty made by the
Indemnitor or any other certificate,  instrument or document contemplated hereby
or thereby;  (II) any breach of any  covenant,  agreement or  obligation  of the
Indemnitor  contained in the  Transaction  Documents  or any other  certificate,
instrument  or document  contemplated  hereby or thereby;  or (III) any cause of
action,  suit or claim brought or made against such  Indemnitee by a third party
and arising out of or resulting  from the  execution,  delivery,  performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document   contemplated   hereby  or  thereby,   except   insofar  as  any  such
misrepresentation,  breach or any untrue  statement,  alleged untrue  statement,
omission or alleged  omission is made in reliance  upon and in  conformity  with
information  furnished to Indemnitor  which is specifically  intended for use in
the  preparation of any such  Registration  Statement,  preliminary  prospectus,
prospectus  or amendments  to the  prospectus.  To the extent that the foregoing
undertaking  by  the  Indemnitor  may  be  unenforceable  for  any  reason,  the
Indemnitor  shall make the maximum  contribution to the payment and satisfaction
of each of the Indemnified  Liabilities  which is permissible  under  applicable
law. The indemnity provisions contained herein shall be in addition to any cause
of  action or  similar  rights  Indemnitor  may have,  and any  liabilities  the
Indemnitor or the  Indemnitees  may be subject to.

SECTION 12. GOVERNING LAW; MISCELLANEOUS.

(A)  GOVERNING  LAW.  This  Agreement  shall be governed by and  interpreted  in
accordance with the laws of the Commonwealth of Massachusetts  without regard to
the principles of conflict of laws. Each party hereby irrevocably submits to the
exclusive  jurisdiction  of the state and federal  courts sitting in the City of
Boston,  County of Suffolk,  for the adjudication of any dispute hereunder or in
connection  herewith or with any  transaction  contemplated  hereby or discussed
herein,  and hereby  irrevocably  waives,  and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court,  that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party

                                       25
<PAGE>

hereby  irrevocably  waives personal  service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall  constitute  good and sufficient  service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner  permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or  unenforceability  shall not affect the  validity  or  enforceability  of the
remainder  of  this   Agreement  in  that   jurisdiction   or  the  validity  or
enforceability of any provision of this Agreement in any other jurisdiction.

(B) LEGAL FEES;  AND  MISCELLANEOUS  FEES.  Except as otherwise set forth in the
Transaction  Documents,  each  party  shall  pay the  fees and  expenses  of its
advisers,  counsel,  the  accountants  and other experts,  if any, and all other
expenses  incurred  by such  party  incident  to the  negotiation,  preparation,
execution,  delivery and performance of this Agreement.  Any attorneys' fees and
expenses  incurred by either the Company or by the Investor in  connection  with
the preparation,  negotiation,  execution and delivery of any amendments to this
Agreement or relating to the  enforcement of the rights of any party,  after the
occurrence of any breach of the terms of this  Agreement by another party or any
default by another party in respect of the transactions  contemplated hereunder,
shall be paid on  demand  by the  party  which  breached  the  Agreement  and/or
defaulted,  as the case may be. The Company  shall pay all stamp and other taxes
and  duties  levied in  connection  with the  issuance  of any  Securities.

(C)  COUNTERPARTS.  This  Agreement  may be  executed  in two or more  identical
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
delivered  to the other  party;  provided  that a facsimile  signature  shall be
considered  due execution  and shall be binding upon the signatory  thereto with
the same force and effect as if the signature were an original,  not a facsimile
signature.

(D)  HEADINGS;   SINGULAR/PLURAL.   The  headings  of  this  Agreement  are  for
convenience   of   reference   and  shall  not  form  part  of,  or  affect  the
interpretation  of,  this  Agreement.  Whenever  required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.

(E)  SEVERABILITY.  If any  provision  of this  Agreement  shall be  invalid  or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction  or the  validity  or  enforceability  of  any  provision  of  this
Agreement in any other jurisdiction.

(F) ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral
or written  agreements between the Investor,  the Company,  their affiliates and
persons acting on their behalf with respect to the matters discussed

                                       26
<PAGE>

herein, and this Agreement and the instruments  referenced herein (including the
other  Transaction  Documents)  contain the entire  understanding of the parties
with  respect  to  the  matters  covered  herein  and  therein  and,  except  as
specifically  set forth herein or therein,  neither the Company nor the Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters.  No  provision  of  this  Agreement  may be  amended  other  than by an
instrument in writing  signed by the Company and the Investor,  and no provision
hereof may be waived other than by an instrument in writing  signed by the party
against whom enforcement is sought.

(G)  NOTICES.  Any notices or other  communications  required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been  delivered  (I) upon receipt,  when  delivered  personally;  (II) upon
receipt,  when sent by  facsimile  (provided  confirmation  of  transmission  is
mechanically or electronically generated and kept on file by the sending party);
or (III)  one (1) day  after  deposit  with a  nationally  recognized  overnight
delivery  service,  in each case properly  addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:

If to the Company:

Ophthalmic Imaging Systems
221 Lathrop Way, Suite I
Sacramento, California  95815
Telephone:  916-646-2020
Facsimile:  916-646-0207

If to the Investor:

Dutchess Private Equities fund, LP, II
312 Stuart Street
Boston, MA 02116
Telephone: 617-960-3582
Facsimile: 617-249-0947

Each party shall provide five (5) days' prior written  notice to the other party
of any change in address or facsimile number.

(H) NO ASSIGNMENT. This Agreement may not be assigned.

(I) NO THIRD PARTY BENEFICIARIES.  This Agreement is intended for the benefit of
the parties  hereto and is not for the benefit of, nor may any provision  hereof
be enforced by, any other person.

(J) SURVIVAL. The representations and warranties of the Company and the Investor
contained in Sections 2 and 3, the agreements and covenants set forth

                                       27
<PAGE>

in Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings and the termination of this Agreement.

 (K)  PUBLICITY.  The  Company and  Investor  shall  consult  with each other in
issuing any press releases or otherwise making public statements with respect to
the  transactions  contemplated  hereby and no party  shall issue any such press
release or otherwise make any such public statement without the prior consent of
the other parties,  which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by
law, in which such case the  disclosing  party shall  provide the other  parties
with prior notice of such public statement.  Notwithstanding the foregoing,  the
Company  shall not  publicly  disclose  the name of  Investor  without the prior
consent  of such  Investor,  except  to the  extent  required  by law.  Investor
acknowledges  that this Agreement and all or part of the  Transaction  Documents
may be  deemed  to be  "material  contracts"  as that  term is  defined  by Item
601(b)(10) of Regulation  S-B, and that the Company may therefore be required to
file such  documents  as exhibits to reports or  registration  statements  filed
under the 1933 Act or the 1934 Act.  Investor  further agrees that the status of
such documents and materials as material contracts shall be determined solely by
the Company, in consultation with its counsel.

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

(M) PLACEMENT AGENT. The Company agrees to pay Dragonfly Capital  Partners,  LLC
("Dragonfly"),  a registered  broker  dealer a cash fee equal to a percentage of
the  total  gross  proceeds  raised  from each Put  based on the  following  fee
schedule:

Gross proceeds  raised up to $1 million                       2% (two percent)
Gross proceeds  raised over $1 million up to $2 million       1% (one percent)
Gross proceeds  raised over $2 million                        1/2% (one half of
                                                                    one percent)

The fee shall be paid  directly  from the Company.  The  Investor  shall have no
obligation  with respect to any fees or with respect to any claims made by or on
behalf of other  persons or  entities  for fees of a type  contemplated  in this
Section that may be due in connection with the transactions  contemplated by the
Transaction  Documents.  The  Company  shall  indemnify  and hold  harmless  the
Investor, their employees,  officers, directors, agents, and partners, and their
respective  affiliates,  from and  against all claims,  losses,  damages,  costs
(including the costs of preparation and attorney's  fees) and expenses  incurred
in respect of any such claimed or existing  fees,  as such fees and expenses are
incurred.

                                       28
<PAGE>

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

(O)  REMEDIES.  The Investor and each holder of the Shares shall have all rights
and remedies set forth in this Agreement and the  Registration  Rights Agreement
and all rights and  remedies  which such  holders  have been granted at any time
under any other  agreement  or contract and all of the rights which such holders
have under any law.  Any person  having any rights  under any  provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any default or breach
of any  provision  of this  Agreement,  including  the  recovery  of  reasonable
attorneys fees and costs, and to exercise all other rights granted by law.

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

(Q) PRICING OF COMMON STOCK.  For purposes of this  Agreement,  the bid price of
the Common Stock in this Agreement shall be as reported on Bloomberg.

                   [balance of page left intentionally blank]



                                       29
<PAGE>

SIGNATURE PAGE OF INVESTMENT AGREEMENT

Your  signature on this  Signature  Page evidences your agreement to be bound by
the  terms and  conditions  of the  Investment  Agreement  as of the date  first
written above.  The undersigned  signatory hereby certifies that he has read and
understands  the  Investment  Agreement,  and  the  representations  made by the
undersigned in this Investment Agreement are true and accurate, and agrees to be
bound by its terms.

DUTCHESS PRIVATE EQUITIES FUND, II, L.P.

BY ITS GENERAL PARTNER,

DUTCHESS CAPITAL MANAGEMENT, LLC

By: /s/ Douglas H. Leighton
    ------------------------------------
Douglas H. Leighton, Managing Member

OPHTHALMIC IMAGING SYSTEMS

By  /s/ Ariel Shenhar
    ------------------------------------
Ariel Shenhar, Chief Financial Officer


                                       30
<PAGE>

LIST OF EXHIBITS

EXHIBIT  A               Registration  Rights  Agreement
EXHIBIT  B               Opinion  of  Company's  Counsel

EXHIBIT  C               [reserved]
EXHIBIT  D               Broker  Representation  Letter
EXHIBIT  E               Board  Resolution
EXHIBIT  F               Put  Notice
EXHIBIT  G               Put  Settlement  Sheet


                                       31
<PAGE>

LIST OF SCHEDULES

Schedule 4(a) Subsidiaries




                                       32
<PAGE>


--------------------------------------------------------------------------------
EXHIBIT A


                                       33
<PAGE>


--------------------------------------------------------------------------------
EXHIBIT B




                                       34
<PAGE>


--------------------------------------------------------------------------------
EXHIBIT C


                                       35
<PAGE>


--------------------------------------------------------------------------------
EXHIBIT D

[BROKER'S LETTERHEAD]

Date

Via Facsimile

Attention:

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

Re: OPHTHALMIC IMAGING SYSTEMS

Dear __________________:

It is our understanding that the Form______  Registration  Statement bearing SEC
File Number ( ___-______) filed by Ophthalmic Imaging Systems,  on Form _____ on
__________,  200X was declared  effective on _________,  200X. This letter shall
confirm that  ______________  shares of the common stock of  Ophthalmic  Imaging
Systems, are being sold on behalf of __________________ and that we shall comply
with  the  prospectus  delivery  requirements  set  forth  in that  Registration
Statement by filing the same with the purchaser.

If you have any questions please do not hesitate to call.

Sincerely,

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


cc: .


                                       36
<PAGE>


--------------------------------------------------------------------------------
EXHIBIT E


                                       37
<PAGE>


--------------------------------------------------------------------------------
EXHIBIT F

Date:

RE: Put Notice Number __

Dear Mr. Leighton,

This is to inform you that as of today, Ophthalmic Imaging Systems, a California
corporation (the "Company"), hereby elects to exercise its right pursuant to the
Investment  Agreement to require  Dutchess  Private  Equities  Fund,  II, LP. to
purchase shares of its common stock. The Company hereby certifies that:

The amount of this put is $__________.

The Pricing Period runs from ________ until _______.

The Minimal Acceptable Price for this Put shall be: _________

The current number of shares issued and outstanding as of the Company are:

------------------
Regards,

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

Ariel Shenhar
Chief Financial Officer
Ophthalmic Imaging Systems



                                       38
<PAGE>


--------------------------------------------------------------------------------
EXHIBIT G

PUT SETTLEMENT SHEET

Date:
Douglas,

Pursuant to the Put given by  Ophthalmic  Imaging  Systems to  Dutchess  Private
Equities  Fund,  II, L.P. on  _________________  200x, we are now submitting the
amount of common shares for you to issue to Dutchess.

This letter shall confirm that ________  shares of  Ophthalmic  Imaging  Systems
have been sold by  Dutchess  Private  Equities  Fund,  II, LP and that  Dutchess
Private  Equities  Fund,  II,  LP has  complied  with  the  prospectus  delivery
requirements  set  forth  in  the  Registration  Statement  by  delivering  such
prospectus  to  the  purchaser(s)  of the  shares.  Accordingly,  please  have a
certificate  bearing no restrictive legend totaling  __________ shares issued to
Dutchess  Private  Equities Fund,  II, LP  immediately  and send via DWAC to the
following account:

XXXXXX

If not DWAC eligible, please send FedEx Priority Overnight to:

XXXXXX

Once  these  shares  are  received  by us, we will  have the funds  wired to the
Company.

Regards,
Douglas H. Leighton


                                       39
<PAGE>

DATE. . . . . . . . . . . . . . . . . . . . . PRICE

Date  of  Day 1 . . . . . . . . . . . . . . . .  Closing  Bid of Day 1
Date  of  Day 2 . . . . . . . . . . . . . . . .  Closing  Bid of Day 2
Date  of  Day 3 . . . . . . . . . . . . . . . .  Closing  Bid of Day 3
Date  of  Day 4 . . . . . . . . . . . . . . . .  Closing  Bid of Day 4
Date  of  Day 5 . . . . . . . . . . . . . . . .  Closing  Bid of Day 5






LOWEST 2 (TWO) CLOSING BIDS IN PRICING PERIOD

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

PUT AMOUNT

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

AMOUNT WIRED TO COMPANY

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

PURCHASE PRICE (96% (NINETY-SIX PERCENT))

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

AMOUNT OF SHARES DUE

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

The undersigned has completed this Put as of this ___th day of _________, 20xx.
Ophthalmic Imaging Systems


-----------------------
Ariel Shenhar, CFO


                                       40
<PAGE>


--------------------------------------------------------------------------------
SCHEDULE 4(c) CAPITALIZATION






                                       41
<PAGE>


--------------------------------------------------------------------------------
SCHEDULE 4(e) CONFLICTS


                                       42
<PAGE>


--------------------------------------------------------------------------------
SCHEDULE 4(g) MATERIAL CHANGES


                                       43
<PAGE>


--------------------------------------------------------------------------------
SCHEDULE 4(h) LITIGATION



                                       44
<PAGE>


--------------------------------------------------------------------------------
SCHEDULE 4(l) INTELLECTUAL PROPERTY



                                       45
<PAGE>


--------------------------------------------------------------------------------
SCHEDULE 4(n) LIENS



                                       46
<PAGE>


--------------------------------------------------------------------------------
SCHEDULE 4(t) CERTAIN TRANSACTIONS



                                       47

</TEXT>
</DOCUMENT>
