EXHIBIT 10.64

DIGITAL VIDEO SYSTEMS, INC.

8% SERIES C CONVERTIBLE PREFERRED

STOCK PURCHASE AGREEMENT

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TABLE OF CONTENTS

 

Page

1.    AGREEMENT TO SELL AND PURCHASE    

1

       1.1    Authorization of Securities

1

       1.2    Sale and Purchase

1

       1.3    Use of Proceeds

2

       1.4    Reservation of Common Stock

2

2.    CLOSINGS, DELIVERY AND PAYMENT

3

       2.1    Initial Closing

3

       2.2    Delivery

3

       2.3    Subsequent Sales of Securities

3

       2.4    Right to Exercise the Green Shoe Warrant

4

3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY

5

       3.1    Organization, Good Standing and Qualification

5

       3.2    Subsidiaries

5

       3.3    Capitalization; Voting Rights

5

       3.4    Authorization; Binding Obligations

6

       3.5    Disclosure Documents

7

       3.6    Changes

7

       3.7    Offering Valid

8

       3.8    Disclosure

8

4.    REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

8

       4.1    Requisite Power and Authority

8

       4.2    Organization, Good Standing

9

       4.3    Investment Representations

9

       4.4    Transfer Restrictions

10

       4.5    Broker's Fees; Agent's Compensation

10

5.    CONDITIONS TO CLOSING

10

       5.1    Conditions to Purchasers' Obligations at the Closing

10

       5.2    Conditions to Additional Purchasers' Obligations at Subsequent
Closings

11

       5.3    Conditions to Purchasers' and Additional Purchasers' Obligations
at the Green Shoe Closing

13

       5.4    Conditions to Obligations of the Company

13

6.    MISCELLANEOUS

14

       6.1    Governing Law

14

       6.2    Survival

14

       6.3    Successors and Assigns

15

       6.4    Entire Agreement

15

       6.5    Severability

15

       6.6    Amendment and Waiver.

15

       6.7    Delays or Omissions

15

       6.8    Waiver of Conflicts

16

       6.9    Indemnification and Advancement for Third-Party Claims

16

       6.10    Notices

17

       6.11    Expenses

18

       6.12    Attorneys' Fees

18

       6.13    Titles

18

       6.14    Counterparts

18

       6.15    Exculpation Among Purchasers

18

       6.16    Pronouns

18

       6.17    California Corporate Securities Law

18

       6.18    Reliance

19

       6.19    Publicity

19

       6.20    Like Treatment of Holders

19

       6.21    Delivery by Facsimile

19

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LIST OF EXHIBITS

Schedule of Purchasers

Exhibit A

Amended and Restated Certificate of Incorporation of Corporation

Exhibit B

Form of Certificate of Designation of Rights, Preferences, Privileges and
Restrictions of Series C Preferred Stock

Exhibit C

Form of Class A Warrant

Exhibit D

Form of Class B Warrant

Exhibit E

Form of "Green Shoe" Warrant

Exhibit F

Schedule of Exceptions

Exhibit G

Form of Registration Rights Agreement

Exhibit H

Form of Joinder Agreement

Exhibit I

Accredited Investor Definition

Exhibit J

Rule 144

Exhibit K

Wire Instructions for Purchasers to Wire Purchase Price

Exhibit L

Disclosure Documents

:

A. Annual Report on Form 10-K for the Year Ended December 31, 2003, as amended

B. Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2004

DIGITAL VIDEO SYSTEMS, INC.

8% SERIES C CONVERTIBLE

PREFERRED STOCK PURCHASE AGREEMENT

THIS 8% SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is entered into as of September 20, 2004, by and among DIGITAL
VIDEO SYSTEMS, INC., a Delaware corporation (the "Company") and each of those
persons and entities whose names are set forth on the Schedule of Purchasers
attached hereto as Exhibit A, as the same may be amended by the Company from
time to pursuant to the terms hereof (which persons and entities are hereinafter
sometimes collectively referred to as "Purchasers" and each individually
sometimes as a "Purchaser").

RECITALS

WHEREAS, the Company has authorized, or shall have authorized prior to the
Initial Closing (as defined in Section 2.1 below), the sale and issuance of up
to that number of shares of its 8% Series C Convertible Preferred Stock (the
"Shares") calculated by dividing one million five hundred thousand dollars
($1,500,000) by the Purchase Price (as defined in Section 1.2 below), plus fifty
percent (50%) Class A warrant coverage (the "Class A Warrants") and,
potentially, fifty percent (50%) Class B warrant coverage (the "Class B
Warrants"); the Class A Warrants and Class B Warrants are sometimes referred to
collectively as the "Warrants;" the Shares and Warrants are sometimes
collectively referred to as the "Securities;" the Company shall also have
included in such authorization fifty percent (50%) more of the Securities to
cover the possible exercise of the Green Shoe Warrant (as defined in Section 2.4
below);

WHEREAS, the Company desires to issue and sell to the Purchasers, and the
Purchasers jointly and severally desire to purchase and acquire, on the terms
and subject to the conditions set forth in this Agreement, their respective
portions of the Securities;

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by each of the
parties, the parties hereto agree as follows:

 1. AGREEMENT TO SELL AND PURCHASE

    1.1    Authorization of Securities .
    
    The Company has, or prior to the Closing shall have, duly authorized (i) the
    sale and issuance to the Purchasers of the Shares, the Warrants and the
    Green Shoe Warrants; (ii) the issuance of such shares of the Company's
    common stock, $0.0001 par value ("Common Stock") to be issued upon
    conversion of the Shares (the "Conversion Shares"), and (iii) the issuance
    of such shares of Common Stock to be issued upon exercise of the Class A
    Warrants and Class B Warrants (the "Warrant Shares"). The Shares and the
    Conversion Shares shall, as of the Closing and each Subsequent Closing (as
    defined in Section 2.3 below), have the respective rights, preferences,
    privileges and restrictions set forth in the Certificate of Incorporation,
    as amended, of the Company, attached hereto as Exhibit B, the Certificate of
    Designations of Preferences of 8% Series C Convertible Preferred Stock of
    the Company, in the form attached hereto as Exhibit C (the "Certificate of
    Designations"). The Class A Warrants, the Class B Warrants and the Warrant
    Shares shall have the respective rights, preferences, privileges and
    restrictions set forth in the forms of Class A Warrant and Class B Warrant
    attached hereto as Exhibit D and Exhibit E, respectively.
    
    1.2    Sale and Purchase.
    
    Subject to the terms and conditions hereof, at the Closing the Company will
    issue and sell to each Purchaser jointly and severally, and, in express
    reliance upon the representations and warranties hereof, and each Purchaser,
    jointly and severally, agrees to purchase from the Company, the dollar
    amount of Shares set forth opposite such Purchaser's name in the column
    entitled "Closing" on the Schedule of Purchasers on Exhibit A, at a purchase
    price equal to the average of the closing prices of the Company's Common
    Stock for each of the five (5) trading days immediately preceding the
    Closing of this offering (the "Purchase Price"). The Company will also issue
    to each Purchaser, for no additional consideration, that number of Class A
    Warrants set forth opposite such Purchaser's name on the Schedule of
    Purchasers and a separate warrant entitling the Purchaser to purchase up to
    fifty percent (50%) of the number of Securities purchased in the Closing, on
    the same terms as the Closing, which warrants will be exercisable for the
    ten (10)-day period immediately following the effective date of the
    registration statement covering the resale of the Conversion Shares and
    Warrant Shares (the "Green Shoe Warrants").
    
    Class B Warrants will be issued if, on the third (3rd) anniversary of the
    Initial Closing, a Purchaser, or its permitted transferee, still owns any
    shares of Series C Preferred Stock. In such event, the Company will issue to
    each such Purchaser, or its permitted transferee, that number of Class B
    Warrants that will entitle the Purchaser, or its permitted transferee, to
    purchase up to fifty percent (50%) of the number of Series C Preferred
    shares held on such date.
    
    1.3    Use of Proceeds .
    
    The Company agrees to use the proceeds received by it from the sale of the
    Shares for working capital and general corporate purposes, up to one million
    dollars ($1,000,000). The net proceeds in excess of one million dollars
    ($1,000,000), if any, up to two hundred fifty thousand dollars ($250,000)
    shall be allocated for additional investment by the Company in DVS
    Electronics Private Limited, the Company's Indian subsidiary ("DVS India")
    to be used to enhance brand recognition.
    
    1.4    Reservation of Common Stock .
    
    The Company has authorized and reserved, and will continue to reserve, free
    of preemptive and other preferential rights, a sufficient number of its
    authorized but unissued shares of Common Stock to satisfy the rights of
    conversion of any holders of Shares and the exercise rights of the holders
    of the Class A, Class B Warrants and the Green Shoe Warrants.

 2. CLOSINGS, DELIVERY AND PAYMENT

    2.1    Initial Closing .
    
    The initial Closing under this Agreement shall take place at 5:00 p.m.
    (Pacific Daylight Time) on September 1, 2004 (the "Initial Closing"), at the
    offices of Wickersham & Murphy, P.C., 430 Cambridge Avenue, Suite 100, Palo
    Alto, California 94306, or at such other time or place as the Company and
    the Purchasers participating in the Initial Closing may agree. There is no
    minimum dollar amount that must be subscribed for in order to conduct the
    Initial Closing.
    
    2.2    Delivery .
    
    At the Initial Closing, subject to the terms and conditions hereof, the
    Company shall deliver to each Purchaser participating in the Initial Closing
    one or more certificates representing in the aggregate the Shares being
    purchased and acquired at the Closing by such Purchaser, as set forth
    opposite such Purchaser's name in the column entitled "Closing" on the
    Schedule of Purchasers on Exhibit A attached hereto, calculated in
    accordance with the terms of Section 1.2, plus that number of Class A
    Warrants equal to fifty percent (50%) of the number of shares of Common
    Stock into which the Shares purchased by such Purchaser is convertible and
    the Green Shoe Warrants to which such Purchaser is entitled pursuant to
    Section 2.4 hereof. Such Share certificates, Class A Warrants and Green Shoe
    Warrants shall be registered in such Purchaser's (or its nominee's) name,
    against delivery by such Purchaser of payment of the purchase price
    therefor, in its, his or her discretion, by check or wire transfer made
    payable to the order of the Company.
    
    2.3    Subsequent Sales of Securities .
    
    The Company may sell the Shares and Warrants in multiple closings, in its
    discretion. Any closing after the Initial Closing, shall be referred to as a
    "Subsequent Closing." All such sales at each such Subsequent Closing shall
    be made on the terms and conditions set forth in this Agreement. Each
    Subsequent Closing shall take place at the offices of Wickersham & Murphy,
    430 Cambridge Avenue, Suite 100, Palo Alto, California 94306, at such time
    and date as the Company and the additional Purchasers participating in such
    Subsequent Closing (each, an "Additional Purchaser" and collectively, the
    "Additional Purchasers") may agree (each such date, a "Subsequent Closing
    Date"). At each Subsequent Closing, each Additional Purchaser shall agree in
    writing to be a "Purchaser" for all purposes of this Agreement, by executing
    a Joinder Agreement in the form of Exhibit I attached hereto (a "Joinder
    Agreement"), and all appropriate information regarding the purchase and sale
    of Securities to such Additional Purchasers shall be added to Exhibit A by
    the Company.
    
    At each Subsequent Closing, subject to the terms and conditions hereof, the
    Company shall deliver to each Additional Purchaser participating in the
    Subsequent Closing, one or more certificates representing in the aggregate
    the Shares being purchased and acquired at the Subsequent Closing by such
    Additional Purchaser, as set forth opposite such Purchaser's name in the
    column entitled "Closing" on the Schedule of Purchasers on Exhibit A, as
    amended, calculated in accordance with the terms of Section 1.2, plus that
    number of Class A Warrants equal to fifty percent (50%) of the number of
    shares of Common Stock into which the Shares purchased by such Additional
    Purchaser is convertible and the Green Shoe Warrants to which such Purchaser
    is entitled pursuant to Section 2.4 hereof. Such Share certificates, Class A
    Warrants and Green Shoe Warrants shall be registered in such Additional
    Purchaser's (or its nominee's) name, against delivery by such Additional
    Purchaser of payment of the purchase price therefor, in its, his or her
    discretion, by check or wire transfer made payable to the order of the
    Company. Any Class A Warrants issued at a Subsequent Closing shall expire
    five (5) years from the Initial Closing Date.
    
    All Shares of 8% Series C Convertible Preferred Stock and Class A Warrants
    sold at each Subsequent Closing pursuant to this Section 2.3 shall be deemed
    to be "Shares" and "Class A Warrants" for all purposes under this Agreement,
    and all Additional Purchasers thereof, upon full execution of their
    respective Joinder Agreements, shall be deemed to be "Purchasers" for all
    purposes under this Agreement. The Registration Rights Agreement (as defined
    in Section 3.1 below) as of the time of the subsequent sale of Securities
    shall mean the Registration Rights Agreement, as amended to include the
    Additional Purchasers. The rights and obligations of each Additional
    Purchaser hereunder and under the Registration Rights Agreement, and the
    Company's rights and obligations hereunder and thereunder with respect to
    each such Additional Purchaser shall commence as of such Additional
    Purchaser's respective Subsequent Closing Date.
    
    2.4    Right to Exercise the Green Shoe Warrant .
    
    For ten (10) days following the effective date of the registration statement
    referred to in Section 3.1 below (the "Effective Date"), the Purchasers and
    Additional Purchasers shall have the right to purchase, on the same terms as
    the original purchases, additional Shares (together with the fifty percent
    (50%) Class A Warrant coverage) up to that number of Shares equal to fifty
    percent (50%) of the number of Shares previously purchased pursuant to
    Section 2.1 or 2.3 hereof (the "Green Shoe Closing"). All such sales at such
    Green Shoe Closing shall be made on the terms and conditions set forth in
    this Agreement. The Green Shoe Closing shall take place at the offices of
    Wickersham & Murphy, 430 Cambridge Avenue, Suite 100, Palo Alto, California
    94306, at such time and date as the Company and the Purchasers or Additional
    Purchasers participating in such Green Shoe Closing may agree.
    
    At the Green Shoe Closing, subject to the terms and conditions hereof, the
    Company shall deliver to each Purchaser or Additional Purchaser
    participating in the Green Shoe Closing, one or more certificates
    representing in the aggregate the Shares being purchased and acquired at the
    Green Shoe Closing by such Purchaser or Additional Purchaser, as set forth
    opposite such Purchaser's or Additional Purchaser's name in the column
    entitled "Green Shoe Closing" on the Schedule of Purchasers on Exhibit A, as
    amended, calculated in accordance with the terms of Section 1.2, plus that
    number of Class A Warrants equal to fifty percent (50%) of the number of
    shares of Common Stock into which the Shares purchased by such Purchaser or
    Additional Purchaser is convertible. Such Share certificates and Class A
    Warrants shall be registered in such Purchaser's or Additional Purchaser's
    (or its nominee's) name, against delivery by such Purchaser or Additional
    Purchaser of payment of the purchase price therefor, in its, his or her
    discretion, by check or wire transfer made payable to the order of the
    Company. Any Class A Warrants issued at a Green Shoe Closing shall expire
    five (5) years from the Initial Closing Date.
    
    All Shares of 8% Series C Convertible Preferred Stock sold at the Green
    Closing pursuant to this Section 2.4 shall be deemed to be "Shares" for all
    purposes under this Agreement, all Class A Warrants issued at the Green Shoe
    Closing shall be deemed to be "Class A Warrants" for all purposes under this
    Agreement, and all Conversion Shares or Warrant Shares issuable as a result
    of the conversion or exercise of Shares or Class A Warrants issued in the
    Green Shoe Closing shall be "Conversion Shares" or "Warrant Shares," as the
    case may be, for all purposes under this Agreement.

 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

    Except as set forth on the Schedule of Exceptions attached hereto as
    Exhibit G (the "Schedule of Exceptions"), which exceptions shall be deemed
    to qualify the representations and warranties made hereunder, the Company,
    in order to induce the Purchasers to enter into and to consummate the
    transactions contemplated hereby, jointly and severally represent and
    warrant to each Purchaser as follows:

    3.1    Organization, Good Standing and Qualification .
    
    The Company is a corporation duly organized, validly existing and in good
    standing under the laws of the State of Delaware. The Company has all
    requisite corporate power and authority to own and operate its properties
    and assets, and full power, authority and legal right to execute and deliver
    this Agreement and the Registration Rights Agreement in the form attached
    hereto as Exhibit H (the "Registration Rights Agreement"), to execute and
    deliver each Joinder Agreement in the form attached as Exhibit I, to issue,
    sell and deliver the Shares, the Class A Warrants, the Class B Warrants (if
    applicable), the Green Shoe Warrant, the Conversion Shares and the Warrant
    Shares and to perform their obligations under this Agreement, the
    Registration Rights Agreement, the Certificate of Designations, the Class A
    Warrants, the Class B Warrants and the Green Shoe Warrants, to engage in the
    transactions contemplated hereby and thereby and to carry on its business as
    presently conducted and as now proposed to be conducted. The Company is duly
    qualified to transact business as a foreign corporation and is in good
    standing, respectively, in all relevant jurisdictions in which the failure
    to so qualify would reasonably be expected to result in a material and
    adverse effect on the Company's properties, business, condition, financial
    or otherwise, or results of operations (a "Material Adverse Effect").
    
    3.2    Subsidiaries .
    
    The Company does not own, of record or beneficially, directly or indirectly,
    (i) any equity securities of any other corporation, limited partnership or
    similar entity or (ii) any participating interest in any partnership, joint
    venture or similar arrangement and does not control, directly or indirectly,
    any other entity, except for those indicated under the Schedule of
    Exceptions.
    
    3.3    Capitalization; Voting Rights .
    
     
    
    Company Capitalization
    . The authorized capital stock of the Company consists of (i) thirty
    thousand (30,000) shares of Common Stock, $0.0001 par value, of which ten
    million seven hundred two thousand one hundred seventy-nine (10,702,179) are
    issued and outstanding as of June 30, 2004; and (ii) five million
    (5,000,000) shares of Preferred Stock, $0.0001 par value per share, of which
    no shares are issued and outstanding. Immediately prior to the initial
    Closing, there shall be authorized Three Million Seven Hundred Fifty
    Thousand (3,750,000) shares of Preferred Stock, which are to be designated
    8% Series C Convertible Preferred Stock, none of which are issued and
    outstanding prior to the Initial Closing. Although the Company's Amended and
    Restated Certificate of Incorporation sets forth the rights, preferences,
    privileges and restrictions of two series of Preferred Stock, designated
    Series A Preferred and Series B Preferred, no number of shares has been
    allocated to such series, and the Company represents and warrants that it
    will not issue such series of Preferred Stock.
    
    The outstanding shares of Common Stock (a) have been duly authorized and
    validly issued and (b) are fully paid and nonassessable, with no personal
    liability attaching to the ownership thereof. The designations, powers,
    preferences, rights, qualifications, limitations and restrictions in respect
    of the authorized capital stock of the Company are as stated in the
    Company's Certificate of Incorporation, as amended and currently in effect
    (including the Certificate of Designations), and all such designations,
    powers, preferences, rights, qualifications, limitations and restrictions
    are valid, binding and enforceable and in accordance with all applicable
    laws. The Conversion Shares and the Warrant Shares have been duly and
    validly reserved for issuance. The Shares, when issued in compliance with
    the provisions of this Agreement, the Conversion Shares, when issued in
    compliance with the provisions of this Agreement and the Certificate of
    Designations, and the Warrant Shares, when issued in compliance with the
    provisions of the Class A Warrants or the Class B Warrants, as the case may
    be, will be duly authorized, validly issued, fully paid and nonassessable,
    no personal liability will attach to the ownership thereof, and will be free
    of any liens or encumbrances and will be issued in compliance with
    applicable federal and state securities laws; provided, however, that the
    Shares, the Conversion Shares and the Warrant Shares may be subject to
    restrictions on transfer under state and/or federal securities laws as set
    forth herein or as otherwise required by such laws at the time a transfer is
    proposed.
    
    Voting Rights
    . Except as set forth in the Schedule of Exceptions, (i) there are no
    restrictions on the transfer of shares of capital stock of the Company other
    than those imposed by relevant foreign, state and federal securities laws,
    (ii) there are no agreements, understandings, proxies, trusts or other
    collaborative arrangements concerning the pledge or purchase and sale of the
    capital stock of the Company and (iii) there are no conversion privileges or
    "phantom stock" or "stock appreciation rights" plans, other than as
    specifically created by the Certificate of Designations. Except as provided
    for in the Certificate of Designations, the Company has no obligations
    (contingent or otherwise) to purchase, redeem or otherwise acquire any of
    their equity securities or any interest therein or to pay any dividend or
    make any other distribution in respect thereof.
    
    3.4    Authorization; Binding Obligations .
    
    All corporate action on the part of the Company, its officers, directors and
    stockholders necessary for the authorization, execution and delivery of this
    Agreement and the Registration Rights Agreement, the authorization,
    execution and filing of the Certificate of Designations with the Secretary
    of State of the State of Delaware, the performance of all obligations of the
    Company hereunder and thereunder and the authorization, sale, issuance and
    delivery of the Shares, the Warrants and the Green Shoe Warrants pursuant
    hereto and the Conversion Shares and the Warrant Shares pursuant to the
    respective Warrants has been taken or will be taken prior to the Initial
    Closing. The Agreement, the Registration Rights Agreement, the Warrants and
    the Green Shoe Warrants, when executed and delivered, and the Certificate of
    Designations, when executed and filed with the Secretary of State of the
    State of Delaware, will be valid and binding obligations of the Company
    enforceable in accordance with their terms, except (a) as limited by
    applicable bankruptcy, insolvency, reorganization, moratorium or other laws
    of general application affecting enforcement of creditors' rights;
    (b) general principles of equity that restrict the availability of equitable
    remedies; and (c) to the extent that the enforceability of the
    indemnification provisions in Section 2.8 of the Registration Rights
    Agreement may be limited by applicable federal and state securities laws.
    The sale of the Shares and Warrants, the subsequent conversion of the Shares
    into Conversion Shares and the subsequent exercise of the Warrants into
    Warrant Shares, and issuance of such Conversion Shares and Warrant Shares by
    the Company, are not and will not be subject to any preemptive rights,
    rights of first refusal or other preferential or similar contractual rights
    in favor of any person or entity that have not been properly waived or
    exercised.
    
    3.5    Disclosure Documents .
    
    The Company has delivered to each Purchaser its (i) Annual Report on Form
    10-K, as amended, for the year ended December 31, 2003 ("Form 10-K"); and
    (ii) its Quarterly Report on Form 10-Q for the Quarterly Period ended June
    30, 2004 ("Form 10-Q").
    
    The financial statements included in the Form 10-K and Form 10-Q, including
    as applicable the notes thereto (collectively, the "Financial Statements"),
    are complete and correct in all material respects, have been prepared in
    accordance with generally accepted accounting principles consistently
    applied; provided, however, that the unaudited financial statements included
    in the Form 10-Q are subject to normal recurring year-end audit adjustments,
    and do not contain all footnotes required under generally accepted
    accounting principles, and present fairly the financial condition and
    position of the Company as of such dates and the results of its operations
    for the periods ending on such dates.
    
    3.6    Changes .
    
    Since June 30, 2004, there has not been:
    
     a. Any change in the business, assets, liabilities, financial condition or
        operations of the Company from that reflected in the Financial
        Statements, other than changes in the ordinary course of business, none
        of which has resulted in or, to the knowledge and reasonable
        expectations of the Company would be expected to result in, whether
        individually or in the aggregate, a Material Adverse Effect;
     b. Any resignation or termination of any key officers of the Company; and
        the Company, to the best of its knowledge, does not know of the
        impending resignation or termination of employment of any such officer,
        except as set forth in Schedule of Exceptions;
     c. Any waiver by the Company of a valuable right or of a material debt owed
        to it, except as set forth in Schedule of Exceptions;
     d. Any declaration or payment of any dividend or other distribution of the
        assets of the Company;
     e. Any debt, obligation or liability incurred, assumed or guaranteed by the
        Company, whether directly or contingently, except those for immaterial
        amounts and for current liabilities incurred in the ordinary course of
        business;
     f. Any sale, assignment or transfer of any patents, trademarks, copyrights,
        trade secrets or other intangible assets, other than those which have
        occurred between the Company;
     g. Any change in any material agreement to which the Company is a party or
        by which it is bound which has resulted in or, to the knowledge and
        reasonable expectations of the Company, which would reasonably be
        expected to result in, whether individually or in the aggregate, a
        Material Adverse Effect; or
     h. Any other event or condition of any character that, either individually
        or in the aggregate, has resulted in or, to the knowledge of the Company
        would reasonably be expected to result in a Material Adverse Effect.
    
    3.7    Offering Valid .
    
    Assuming the accuracy of the representations and warranties of the
    Purchasers contained in Section 4.2 hereof, the offer, sale and issuance of
    the Shares, the Warrants, the Green Shoe Warrants, the Conversion Shares and
    the Warrant Shares will be exempt from the registration requirements of the
    Securities Act of 1933, as amended (the "Securities Act") and will have been
    registered or qualified (or are exempt from registration and qualification)
    under the registration, permit or qualification requirements of all
    applicable state securities laws. Neither the Company or any agent on its
    behalf has solicited or will solicit any offers to sell or has offered to
    sell or will offer to sell all or any part of the Securities to any person
    or persons so as to bring the sale of such Securities by the Company within
    the registration provisions of the Securities Act or any state securities
    laws.
    
    3.8    Disclosure .
    
    The Company and the Subsidiary have fully provided the Purchasers with all
    the information that the Purchasers have requested for deciding whether to
    acquire the Securities that the Company believes is reasonably necessary to
    enable the Purchasers to make such a decision.

 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

    Each Purchaser severally, but not jointly, hereby represents and warrants to
    the Company solely as to itself as follows (such representations and
    warranties do not lessen or obviate the representations and warranties of
    the Company set forth in this Agreement or the right of any Purchaser to
    rely thereon):

    4.1    Requisite Power and Authority .
    
    Purchaser has all necessary power and authority under all applicable
    provisions of law to execute and deliver this Agreement and the Registration
    Rights Agreement and to carry out their provisions. All action on
    Purchaser's part required for the lawful execution and delivery of this
    Agreement and the Registration Rights Agreement have been or will be
    effectively taken prior to the Closing. Upon their execution and delivery,
    this Agreement and the Registration Rights Agreement will be valid and
    binding obligations of Purchaser, enforceable in accordance with their
    terms, except (a) as limited by applicable bankruptcy, insolvency,
    reorganization, moratorium or other laws of general application affecting
    enforcement of creditors' rights, (b) general principles of equity that
    restrict the availability of equitable remedies, and (c) to the extent that
    the enforceability of the indemnification provisions of Section 1.8 of the
    Registration Rights Agreement may be limited by applicable laws.
    
    4.2    Organization, Good Standing.
    
    If Purchaser is not an individual, it is duly organized, validly existing
    and in good standing under the laws of its state of incorporation or
    formation.
    
    4.3    Investment Representations .
    
    Purchaser understands that none of the Shares, the Warrants, the Green Shoe
    Warrants, the Conversion Shares or the Warrant Shares has been registered
    under the Securities Act. Purchaser also understands that the Securities are
    being offered and sold pursuant to an exemption from registration contained
    in the Securities Act based in part upon Purchaser's representations
    contained in this Agreement. Each Purchaser severally, but not jointly,
    hereby represents and warrants solely as to itself as follows:
    
    Purchaser Bears Economic Risk
    . Purchaser has substantial experience in evaluating and investing in
    private placement transactions of securities in companies similar to the
    Company so that it is capable of evaluating the merits and risks of its
    investment in the Company and has the capacity to protect its own interests.
    Purchaser must bear the economic risk of this investment indefinitely unless
    the Shares (or the Conversion Shares or the Warrant Shares) are registered
    pursuant to the Securities Act, or an exemption from registration is
    available. Purchaser understands that while the Company intends to use its
    best efforts to cause a registration statement covering the resale of the
    Conversion Shares and the Warrant Shares to be declared effective by the
    Securities and Exchange Commission, the Company cannot guarantee that such
    registration statement will be declared effective at a time that would best
    serve Purchaser's purposes or needs, if at all. Purchaser also understands
    that there is no assurance that any exemption from registration under the
    Securities Act will be available and that, even if available, such exemption
    may not allow Purchaser to transfer all or any portion of the Shares, the
    Warrants, the Conversion Shares or the Warrant Shares under the
    circumstances, in the amounts or at the times Purchaser might propose.
    Acquisition for Own Account
    . Purchaser is acquiring the Shares, the Warrants, the Conversion Shares and
    the Warrant Shares for Purchaser's own account for investment only, and not
    with a view towards their distribution.
    Purchaser Can Protect Its Interest
    . Purchaser represents that by reason of its, or of its management's,
    business or financial experience, Purchaser has the capacity to protect its
    own interests in connection with the transactions contemplated in this
    Agreement, the Warrants and the Registration Rights Agreement. Further,
    Purchaser is aware of no publication of any advertisement in connection with
    the transactions contemplated in the Agreement.
    Accredited Investor
    . Purchaser represents that it is an accredited investor within the meaning
    of Regulation D under the Securities Act. See Exhibit F.
    Company Information
    . Purchaser has received and read the Form 10-K and Form 10-Q, including the
    Financial Statements and risk factors contained therein, and has had an
    opportunity to discuss the Company's business, management and financial
    affairs with directors, officers and management of the Company and has had
    the opportunity to review the Company's operations and facilities. Purchaser
    has also had the opportunity to ask questions of and receive answers from,
    the Company and its management regarding the terms and conditions of this
    investment.
    Rule 144
    . Purchaser acknowledges and agrees that the Shares and Warrants, and, if
    issued, the Conversion Shares and Warrant Shares must be held indefinitely
    unless they are subsequently registered under the Securities Act or an
    exemption from such registration is available. Purchaser has been advised or
    is aware of the provisions of Rule 144 promulgated under the Securities Act
    as in effect from time to time, which permits limited resale of shares
    purchased in a private placement subject to the satisfaction of certain
    conditions, including, among other things: the availability of certain
    current public information about the Company, the resale occurring following
    the required holding period under Rule 144 and the number of shares being
    sold during any three-month period not exceeding specified limitations. See
    Exhibit G.
    Residence
    . If the Purchaser is an individual, then the Purchaser resides in the
    state, province or foreign country identified in the address of the
    Purchaser set forth on
    Exhibit A
    ; if the Purchaser is a partnership, corporation, limited liability company
    or other entity, then the office or offices of the Purchaser in which its
    investment decision was made is located at the address or addresses of the
    Purchaser set forth on
    Exhibit A
    .
    
    4.4    Transfer Restrictions .
    
    Each Purchaser acknowledges and agrees that the Shares and Warrants and, if
    issued, the Conversion Shares and Warrant Shares are subject to restrictions
    on transfer as set forth in the Registration Rights Agreement.
    
    4.5    Broker's Fees; Agent's Compensation .
    
    The Company has retained Bailey & Company Inc., Toronto, Ontario, to serve
    as a non-exclusive placement agent in connection with the offer of the
    Securities. In connection therewith, the Company has agreed to pay such
    agent a six percent (6%) commission and a two percent (2%) expense
    allowance, based on the total gross proceeds received by the Company as a
    direct result of the agent's contacts becoming Purchasers in this offering.
    In addition, the agent will receive warrants entitling it to purchase up to
    ten percent (10%) of the number of Series C Preferred Stock and Warrants
    purchased by such agent's contacts. All other offers are being made by the
    Company directly and are not subject to any broker's or finder's fee or any
    other commission directly or indirectly in connection with the transactions
    contemplated herein. Each Purchaser hereto further agrees severally, but not
    jointly, to indemnify the Company for any claims, losses or expenses
    incurred by the Company resulting directly from such Purchaser's
    representation in this Section 4.5 being untrue.

 5. CONDITIONS TO CLOSING

    5.1    Conditions to Purchasers' Obligations at the Initial Closing .
    
    The obligation of each Purchaser at the Initial Closing to purchase the
    Securities to be purchased by it at the Closing are subject to the
    satisfaction, at or prior to the Initial Closing Date, of the following
    conditions:
    
    Representations and Warranties True; Performance of Obligations.
    The representations and warranties made in Section 3 hereof shall be true,
    complete and correct in all material respects on and as of the Initial
    Closing Date with the same force and effect as if they had been made on and
    as of the Initial Closing Date, and the Company shall have duly performed
    all obligations and conditions herein required to be performed or observed
    by it on or prior to the Initial Closing.
    Legal Investment
    . On the Initial Closing Date, the sale and issuance of the Shares, the
    Class A Warrants and the Green Shoe Warrants, and the proposed issuance of
    the Class B Warrants, the Conversion Shares and the Warrant Shares shall be
    legally permitted by all laws and regulations to which Purchasers and the
    Company are subject.
    Consents, Permits, and Waivers
    . The Company shall have obtained any and all consents, permits and waivers
    necessary or appropriate for consummation of the transactions contemplated
    by the Agreement and the Registration Rights Agreement (except for such as
    may be properly obtained subsequent to the Initial Closing).
    Filing of Certificate of Designations
    . The Certificate of Designations shall have been filed with and accepted
    for filing by the Secretary of State of the State of Delaware, and each
    Purchaser or its counsel shall have received a copy of the same certified by
    said Secretary of State.
    Corporate Documents
    . The Company shall have delivered to Purchasers, copies of all corporate
    documents of the Company as Purchasers shall reasonably request.
    Reservation of Conversion Shares and Warrant Shares
    . The Conversion Shares issuable upon conversion of the Shares and the
    Warrant Shares issuable upon exercise of the Warrants (in both instances,
    including any Shares and Warrants issuable upon exercise of the Green Shoe
    Warrant) shall have been duly authorized and reserved for issuance upon such
    conversion or exercise, as the case may be.
    Registration Rights Agreement
    . A Registration Rights Agreement substantially in the form attached hereto
    as Exhibit H shall have been executed and delivered by the parties thereto.
    Proceedings and Documents
    . All corporate and other proceedings in connection with the transactions
    contemplated at the Initial Closing hereby and all documents and instruments
    incident to such transactions shall be reasonably satisfactory in substance
    and form to each Purchaser, and each Purchaser shall have received all such
    counterpart originals or certified or other copies of such documents as they
    may reasonably request.
    Lock-up Agreements
    . The officers and directors of the Company shall have entered into
    agreements with the Company providing that they will not publicly sell any
    shares of the Company's Common Stock owned by them or by their affiliated
    entities for a period of six months from the Initial Closing.
    Simultaneous Closing
    . Each of the Purchasers participating in the Initial Closing shall have
    tendered the purchase price and accepted delivery of the Shares, the Class A
    Warrants and the Green Shoe Warrants to be issued to them at the Initial
    Closing as set forth in
    Exhibit A
    .
    
    5.2    Conditions to Additional Purchasers' Obligations at Subsequent
    Closings .
    
    The obligation of each Additional Purchaser at a Subsequent Closing to
    purchase the Securities to be purchased by it at such Subsequent Closing are
    subject to the satisfaction, at or prior to the Subsequent Closing Date, of
    the following conditions:
    
    Representations and Warranties True; Performance of Obligations
    . The representations and warranties made in Section 3 hereof shall be true,
    complete and correct in all material respects on and as of the Subsequent
    Closing Date with the same force and effect as if they had been made on and
    as of the Subsequent Closing Date, and the Company shall have duly performed
    all obligations and conditions herein required to be performed or observed
    by it on or prior to the Subsequent Closing.
    Legal Investment
    . On the Subsequent Closing Date, the sale and issuance of the Shares, the
    Class A Warrants and the Green Shoe Warrants, and the proposed issuance of
    the Class B Warrants, the Conversion Shares and the Warrant Shares shall be
    legally permitted by all laws and regulations to which Additional Purchasers
    and the Company are subject.
    Consents, Permits, and Waivers
    . The Company shall have obtained any and all consents, permits and waivers
    necessary or appropriate for consummation of the transactions contemplated
    by the Agreement and the Registration Rights Agreement (except for such as
    may be properly obtained subsequent to the Subsequent Closing).
    Certificate of Designations
    . Each Additional Purchaser shall have received a copy of the Certificate of
    Designations, as filed with and accepted for filing by the Secretary of
    State of the State of Delaware, certified by said Secretary of State.
    Corporate Documents
    . The Company shall have delivered to each Additional Purchaser or its
    counsel, copies of all corporate documents of the Company as such Additional
    Purchaser shall reasonably request.
    Reservation of Conversion Shares and Warrant Shares
    . The Conversion Shares issuable upon conversion of the Shares and the
    Warrant Shares issuable upon exercise of the Warrants (in both instances,
    including any Shares and Warrants issuable upon exercise of the Green Shoe
    Warrant) shall have been duly authorized and reserved for issuance upon such
    conversion or exercise, as the case may be.
    Joinder Agreements
    . The Company and each Additional Purchaser participating in such Subsequent
    Closing shall have entered into a Joinder Agreement to this Agreement and
    the Registration Rights Agreement, pursuant to which such Additional
    Purchaser agrees to be a party to and to be bound by the terms and
    conditions of this Agreement and the Registration Rights Agreement effective
    as of such Subsequent Closing Date.
    Proceedings and Documents
    . All corporate and other proceedings in connection with the transactions
    contemplated at the Subsequent Closing hereby and all documents and
    instruments incident to such transactions shall be reasonably satisfactory
    in substance and form to each Additional Purchaser and its counsel, and each
    Additional Purchaser and its counsel shall have received all such
    counterpart originals or certified or other copies of such documents as they
    may reasonably request.
    Simultaneous Closing
    . Each of the Additional Purchasers participating in such Subsequent Closing
    shall have tendered the purchase price and accepted delivery of the Shares,
    the Class A Warrants and the Green Shoe Warrants to be issued to them at
    such Subsequent Closing as set forth in
    Exhibit A
    , as amended.
    
    5.3    Conditions to Purchasers' and Additional Purchasers' Obligations at
    the Green Shoe Closing .
    
    The obligation of each Purchaser and Additional Purchaser at a Green Shoe
    Closing to purchase the Securities to be purchased by it at such Green Shoe
    Closing are subject to the satisfaction, at or prior to the Green Shoe
    Closing Date, of the following conditions:
    
    Representations and Warranties True; Performance of Obligations
    . The representations and warranties made in Section 3 hereof shall be true,
    complete and correct in all material respects on and as of the Green Shoe
    Closing Date with the same force and effect as if they had been made on and
    as of the Green Shoe Closing Date, and the Company shall have duly performed
    all obligations and conditions herein required to be performed or observed
    by it on or prior to the Green Shoe Closing.
    Legal Investment
    . On the Green Shoe Closing Date, the sale and issuance of the Shares and
    the Class A Warrants, and the proposed issuance of the Class B Warrants, the
    Conversion Shares and the Warrant Shares shall be legally permitted by all
    laws and regulations to which Purchasers, Additional Purchasers and the
    Company are subject.
    Consents, Permits, and Waivers
    . The Company shall have obtained any and all consents, permits and waivers
    necessary or appropriate for consummation of the transactions contemplated
    by the Agreement and the Registration Rights Agreement (except for such as
    may be properly obtained subsequent to the Green Shoe Closing).
    Reservation of Conversion Shares and Warrant Shares
    . The Conversion Shares issuable upon conversion of the Shares and the
    Warrant Shares issuable upon exercise of the Warrants issued or issuable in
    the Green Shoe Closing shall have been duly authorized and reserved for
    issuance upon such conversion or exercise, as the case may be.
    Proceedings and Documents
    . All corporate and other proceedings in connection with the transactions
    contemplated at the Green Shoe Closing hereby and all documents and
    instruments incident to such transactions shall be reasonably satisfactory
    in substance and form to each Purchaser or Additional Purchaser and its
    counsel, and each Purchaser or Additional Purchaser and its counsel shall
    have received all such counterpart originals or certified or other copies of
    such documents as they may reasonably request.
    Simultaneous Closing
    . Each of the Purchasers and Additional Purchasers participating in such
    Green Shoe Closing shall have tendered the purchase price and accepted
    delivery of the Shares and the Class A Warrants to be issued to them at such
    Green Shoe Closing as set forth in
    Exhibit A
    , as amended.
    
    5.4    Conditions to Obligations of the Company
    
    .
    
    The Company's obligation to issue and sell the Securities at the Closing, at
    any Subsequent Closing or at the Green Shoe Closing, is subject to the
    satisfaction, on or prior to such Closing, any Subsequent Closing or the
    Green Shoe Closing, as the case may be, of the following conditions:
    
    Representations and Warranties True
    . The representations and warranties made by each Purchaser or Additional
    Purchaser in Section 4 hereof, and with respect to such Additional
    Purchaser, in its Joinder Agreement, shall be true and correct in all
    material respects on and as of the Closing Date, the Subsequent Closing Date
    or the Green Shoe Closing Date, as applicable, with the same force and
    effect as if they had been made on and as of such date.
    Performance of Obligations
    . Each Purchaser or Additional Purchaser, as applicable, shall have
    performed and complied with all agreements and conditions herein required to
    be performed or complied with by such Purchaser or Additional Purchaser, as
    applicable, on or before the Closing Date or the Subsequent Closing Date, as
    applicable.
    Registration Rights Agreement; Joinder Agreement
    . With respect to the Closing, the Registration Rights Agreement
    substantially in the form attached hereto as
    Exhibit H
    shall have been executed and delivered by the parties thereto. With respect
    to a Subsequent Closing, each Additional Purchaser participating in such
    Subsequent Closing shall have entered into a Joinder Agreement to this
    Agreement and the Registration Rights Agreement, pursuant to which such
    Additional Purchaser agrees to be a party to and to be bound by the terms
    and conditions of this Agreement and the Registration Rights Agreement
    effective as of such Subsequent Closing Date.

 6. MISCELLANEOUS

    6.1    Governing Law .
    
    This Agreement shall be governed in all respects by the laws of the State of
    California as such laws are applied to agreements between California
    residents entered into and performed entirely in California.
    
    6.2    Survival .
    
    The representations, warranties, covenants and agreements made and deemed to
    be made, pursuant to the next sentence of this Section 6.2, herein shall
    survive the execution and delivery hereof, any investigation made by any
    Purchaser or Additional Purchaser and the Closing, each Subsequent Closing
    and the Green Shoe Closing and shall remain in full force and effect
    thereafter, but within the limits set forth under Section 6.9.
    
    6.3    Successors and Assigns .
    
    Except as otherwise expressly provided herein, the provisions hereof shall
    inure to the benefit of, and be binding upon, the successors, assigns,
    heirs, executors and administrators of the parties hereto and shall inure to
    the benefit of and be enforceable by each person who shall be a holder of
    the Securities from time to time.
    
    6.4    Entire Agreement .
    
    This Agreement, the Exhibits and Schedules hereto, the Registration Rights
    Agreement, each Joinder Agreement, if any, and the other documents delivered
    pursuant hereto constitute the full and entire understanding and agreement
    between the parties with regard to the subjects hereof and no party shall be
    liable or bound to any other in any manner by any representations,
    warranties, covenants and agreements except as specifically set forth herein
    and therein.
    
    6.5    Severability .
    
    In case any provision or any portion thereof, of the Agreement shall be
    deemed by a court of competent jurisdiction to be invalid, illegal or
    unenforceable, the parties agree to renegotiate such provisions in good
    faith. In the event that the parties cannot reach a mutually agreeable and
    enforceable replacement for such provision, then such provision, or portion
    thereof, shall be deemed limited to the extent that such court deems it
    enforceable, and as so limited shall remain in full force and effect. In the
    event that such court shall deem any such provision, or portion thereof,
    wholly unenforceable, the validity, legality and enforceability of the
    remaining provisions shall not in any way be affected or impaired thereby
    and shall remain in full force and effect.
    
    6.6    Amendment and Waiver.
    
     a. This Agreement may be amended or modified only upon the written consent
        of the Company and holders of at least sixty percent (60%) of the Shares
        (treated as if converted and including any Conversion Shares into which
        the Shares have been converted or Warrant Shares into which the Class A
        or Class B Warrants have been exercised that have not been sold to the
        public).
     b. The obligations of the Company and the rights of the holders of the
        Shares, the Warrants, the Conversion Shares and the Warrant Shares under
        the Agreement may be waived only with the written consent of all holders
        of the Shares (treated as if converted and including any Conversion
        Shares into which the Shares have been converted or Warrant Shares into
        which the Class A or Class B Warrants have been exercised that have not
        been sold to the public that have not been sold to the public).
    
    6.7    Delays or Omissions .
    
    It is agreed that no delay or omission to exercise any right, power or
    remedy accruing to any party, upon any breach, default or noncompliance by
    another party under this Agreement, the Registration Rights Agreement, the
    Certificate of Designations or the Warrants, and no course of dealing
    between or among parties hereto, shall impair any such right, power or
    remedy, nor shall it be construed to be a waiver of any such breach, default
    or noncompliance, or any acquiescence therein, or of or in any similar
    breach, default or noncompliance thereafter occurring. No single or partial
    exercise of any right, power or remedy under this Agreement by a party
    hereto, nor any abandonment or discontinuance of steps to enforce any such
    right, power or remedy, shall preclude such party from any other or further
    exercise thereof or the exercise of any other right, power or remedy
    hereunder. No notice to or demand on a party not expressly required under
    this Agreement shall entitle the party receiving such notice or demand to
    any other or further notice or demand in similar or other circumstances or
    constitute a waiver of the rights of the party giving such notice or demand
    to any other or further action in any circumstances without such notice or
    demand. It is further agreed that any waiver, permit, consent or approval of
    any kind or character on any Purchaser's or Additional Purchaser's part of
    any breach, default or noncompliance under this Agreement, the Warrants, the
    Registration Rights Agreement, and, if applicable, Joinder Agreement or
    under the Certificate of Designations or any waiver on such party's part of
    any provisions or conditions of the Agreement, the Warrants, the
    Registration Rights Agreement, any Joinder Agreement or the Certificate of
    Designations must be in writing and shall be effective only to the extent
    specifically set forth in such writing. All remedies, either under this
    Agreement, the Warrants, the Registration Rights Agreement, the Certificate
    of Designations, by law, or otherwise afforded to any party, shall be
    cumulative and not alternative.
    
    6.8    Waiver of Conflicts .
    
    Each party to this Agreement acknowledges that legal counsel for the
    Company, Wickersham & Murphy, P.C. ("W&M"), has in the past and may continue
    in the future to perform legal services for one or more of the Purchasers,
    Additional Purchasers or their affiliates in matters unrelated to the
    transactions contemplated by this Agreement, including, but not limited to,
    the representation of the such parties in matters of a similar nature to the
    transactions contemplated herein, including prior private offerings of the
    Company's securities. Each party to this Agreement hereby (a) acknowledges
    that they have had an opportunity to ask for and have obtained information
    relevant to such representation, including disclosure of the reasonably
    foreseeable adverse consequences of such representation; (b) acknowledges
    that with respect to the transactions contemplated herein, W&M has
    represented the Company and not any other party; and (c) gives its informed
    consent to W&M's representation of the Company in the transactions
    contemplated by this Agreement and W&M's representation of one or more of
    the Purchasers, Additional Purchasers or their affiliates in matters
    unrelated to such transactions; provided, however, that no consent is hereby
    given to W&M to represent the Purchasers or any other party in connection
    with any dispute arising out of the transactions contemplated hereby, and it
    is expressly understood and agreed that should such a dispute arise,
    irrespective of the disputing party, W&M shall decline to represent either
    the Company or any Purchaser or Additional Purchaser in such dispute.
    
    6.9    Indemnification and Advancement for Third-Party Claims .
    
     a. The Company (the "Indemnitor") hereby agrees to jointly and severally
        indemnify, defend and hold harmless each Purchaser, each Additional
        Purchaser and each of their respective owners, officers, directors,
        employees and agents, and their respective successors and assigns
        (collectively, referred to as the "Investor Indemnitees") from, against
        and with respect to any claim, liability, obligation, loss, damage,
        assessment, judgment, amount paid in settlement, cost and expense
        (including, without limitation, reasonable attorneys' and accountants'
        fees and costs and expenses reasonably incurred in investigating,
        preparing, defending against or prosecuting any litigation or claim,
        action, suit, proceeding or demand) of any kind or character, arising
        out of or in any manner incident, relating or attributable to any breach
        of a representation, warranty or covenant of this Agreement (a "Loss").
        Survival of Representations and Warranties
        . Notwithstanding the foregoing, all of the representations and
        warranties contained in Section 3 of this Agreement shall survive the
        Closing and shall expire at 5:00 pm, California time, on the second
        anniversary of the Closing.
        Exclusive Remedy
        . Resort to the indemnification obligations of this Section 6.9 shall be
        the sole and exclusive right and remedy of the Investor Indemnitees for
        breaches of the representations, warranties, and covenants contained in
        this Agreement, except in the case of fraud or intentional or knowing
        breach in connection with the making of the representations and
        warranties or covenants of the Company contained in this Agreement.
        Threshold and Indemnification Cap
        . Notwithstanding the foregoing, after the Closing, no Investor
        Indemnitee shall be entitled to indemnification for a Loss unless and
        until indemnifiable Losses in excess of one hundred thousand dollars
        ($100,000) shall have been identified by the Investor Indemnitee, in
        which case the full amount of such Loss shall be paid to such Investor
        Indemnitee in accordance with the terms hereof. The maximum aggregate
        liability of the Indemnitor with respect to each Purchaser or Additional
        Purchaser, or agent thereof, in connection with the terms hereof shall
        not exceed the amount of the purchase price paid by such Purchaser or
        Additional Purchaser for the Shares of Series C Preferred Stock
        purchased hereunder.
        Satisfaction of Indemnification Obligation
        . The indemnification obligations of the Company hereof shall, unless
        otherwise determined by the Investor Indemnitees, be satisfied by the
        payment of cash in the amount of the Loss, unless and to the extent that
        it is determined by the auditors of the Company that the Company would
        be unable to meet their debts and obligations as they became due if the
        full amount of the Loss was paid in cash, in which case the amount of
        the Loss that is equal to the amount that is required to be maintained
        by the Company and the Subsidiary in order to meet their debts and
        obligations as they become due shall be satisfied by the issuance of
        shares of the same class and Series Cnd with the same terms and
        conditions as being purchased by the Purchasers or Additional Purchasers
        pursuant to this Agreement with a purchase price per share as determined
        by the Board of Directors, acting in good faith (except that, in any
        case the number of shares to be issued in this respect shall not be in
        excess of the number of shares of Common Stock of the Company, on an as
        converted basis, then held by such Purchaser or Additional Purchaser),
        and the remainder of the Loss shall be satisfied by the payment of cash.
    
    6.10    Notices .
    
    All notices required or permitted hereunder shall be in writing and shall be
    deemed effectively given: (a) upon personal delivery to the party to be
    notified; (b) when sent by confirmed telex or facsimile if sent during
    normal business hours of the recipient, if not, then on the next business
    day; (c) five (5) days after having been sent by registered or certified
    mail, return receipt requested, postage prepaid; or (d) one (1) business day
    after deposit (or, in the case of parties located outside the United States,
    two (2) business days after deposit) with a nationally recognized overnight
    courier, specifying next day delivery, with written verification of receipt.
    All communications shall be sent to the Company at the address as set forth
    on the signature page hereof and to Purchaser or Additional Purchaser at the
    address set forth on Exhibit A attached hereto, as amended, or at such other
    address as the Company, Purchaser or Additional Purchaser may designate by
    ten (10) days advance written notice to the other parties hereto.
    
    6.11    Expenses .
    
    The Company shall pay all costs and expenses incurred with respect to the
    negotiation, execution, delivery and performance of this Agreement, the
    Warrants, the Green Shoe Warrant, the Registration Rights Agreement, the
    Certificate of Designations, each Joinder Agreement and any other document,
    instrument or agreement contemplated hereby or prepared and/or delivered in
    connection herewith. Purchasers and Additional Purchasers may, if they so
    choose, hire counsel to represent their interests in these transactions, but
    at their own expense.
    
    6.12    Attorneys' Fees .
    
    In the event that any dispute among the parties to this Agreement should
    result in litigation, the prevailing party in such dispute shall be entitled
    to recover from the losing party all fees, costs and expenses of enforcing
    any right of such prevailing party under or with respect to this Agreement,
    including without limitation, such reasonable fees and expenses of attorneys
    and accountants, which shall include, without limitation, all fees, costs
    and expenses of appeals.
    
    6.13    Titles .
    
    The titles of the sections and subsections of the Agreement are for
    convenience of reference only and shall in no way modify, or affect the
    meaning or construction of any of the terms or provisions hereof.
    
    6.14    Counterparts .
    
    This Agreement may be executed in any number of counterparts, including by
    way of execution of one or more Joinder Agreements, each of which shall be
    an original, but all of which together shall constitute one and the same
    instrument.
    
    6.15    Exculpation Among Purchasers .
    
    Each Purchaser and Additional Purchaser acknowledges that it is not relying
    upon any person, firm, or corporation (including without limitation any
    other Purchaser or Additional Purchaser), other than the Company and its
    officers and directors, in making its investment or decision to invest in
    the Company. Each Purchaser and Additional Purchaser agrees that no other
    Purchaser or other Additional Purchaser, nor their respective controlling
    persons, officers, directors, partners, agents, or employees, shall be
    liable to such Purchaser or Additional Purchaser for any losses incurred by
    such Purchaser or Additional Purchaser in connection with its investment in
    the Company.
    
    6.16    Pronouns .
    
    All pronouns contained herein, and any variations thereof, shall be deemed
    to refer to the masculine, feminine or neutral, singular or plural, as to
    the identity of the parties hereto may require.
    
    6.17    California Corporate Securities Law .
    
    THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT
    BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
    CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF
    ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE
    ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE
    OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR
    25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
    AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED,
    UNLESS THE SALE IS SO EXEMPT.
    
    6.18    Reliance .
    
    The parties hereto agree that, notwithstanding any right of any party to
    this Agreement to investigate the affairs of any other party to this
    Agreement, the party having such right to investigate shall have the right
    to rely fully upon the representations and warranties of the other parties
    expressly contained in this Agreement and on the accuracy of any schedule or
    other document attached hereto or referred to herein or delivered by such
    other parties or pursuant to this Agreement.
    
    6.19    Publicity .
    
    No party shall issue any press releases or otherwise make any public
    statement with respect to the transactions contemplated by this Agreement
    without the prior written consent of the other parties hereto, except as may
    be required by law or otherwise expressly permitted by this Agreement.
    
    6.20    Like Treatment of Holders .
    
    Neither the Company nor any of its affiliates shall, directly or indirectly,
    pay or cause to be paid any consideration, whether by way of interest, fee,
    payment for the redemption or exchange of any Preferred Stock, or otherwise,
    to any holder of the Shares for or as in inducement to, or in connection
    with solicitation of, any consent, waiver or amendment of any terms or
    provisions of the Shares or this Agreement, the Registration Rights
    Agreement, the Warrants or any other agreement entered into herewith, unless
    such consideration is paid to all holders of Shares bound by such consent,
    waiver or amendment, whether or not such holders so consent, waive or agree
    to amend and whether or not such holders tender their Shares for redemption
    or exchange.
    
    6.21    Delivery by Facsimile .
    
    This Agreement, the agreements referred to herein, and each other agreement
    or instrument entered into in connection herewith or therewith or
    contemplated hereby or thereby, and any amendments hereto or thereto, to the
    extent signed and delivered by means of a facsimile machine, shall be
    treated in all manner and respects as an original agreement or instrument
    and shall be considered to have the same binding legal effect as if it were
    the original signed version thereof delivered in person. At the request of
    any party hereto or to any such agreement or instrument, each other party
    hereto or thereto shall re-execute original forms thereof and deliver them
    to all other parties. No party hereto or to any such agreement or instrument
    shall raise the use of a facsimile machine to deliver a signature or the
    fact that any signature or agreement or instrument was transmitted or
    communicated through the use of a facsimile machine as a defense to the
    enforceability of a contract and each such party forever waives any such
    defense.

    [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

    IN WITNESS WHEREOF, the parties hereto have executed the 8% SERIES C
    CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in
    the first paragraph hereof.

    COMPANY:
    
    PURCHASER (if an entity):
    
    DIGITAL VIDEO SYSTEMS, INC.
    
    _____________________________________
    
    By: /s/ Thomas A. Spanier
    Thomas A Spanier
    Chairman and Chief Executive Officer
    
    By: __/s/______________

    

    PURCHASER (if an individual):

    ___/s/___________________________

    
    
    
    
    
    

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

    
    
    
    
    
    

    EXHIBIT A
    
    
    SCHEDULE OF PURCHASERS
    
    
    
    First Closing - September 20, 2004

    Name

Purchase Price

Series C Preferred Stock

Class A Warrants

Aggregate Purchase Price

Empire Capital Partners, LP

$0.61

334,052

167,026

$203,771.72

Empire Capital Partners, Ltd.

$0.61

622,865

311,432

$379,947.65

Empire Capital Partners II, Ltd.

$0.61

116,031

58,015

$70,778.91

Charter Oak Partners, LP

$0.61

61,945

30,972

$37,786.45

Charter Oak Partners II, LP

$0.61

12,647

6,323

$7,714.67

Glenbrook Capital, LP

$0.61

409,836

204,918

$249,999.96

Sanctus Spiritus Antilles, NV

$0.61

327,868

163,934

$199,999.48

Maria Molinsky

$0.61

81,967

40,983

$49,999.87

Edmund Y. Sun

$0.61

81,967

40,983

$49,999.87

Yuchien Chang

$0.61

32,786

16,393

$19,999.46

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