SECURITIES PURCHASE AGREEMENT


     SECURITIES   PURCHASE   AGREEMENT   dated  as  of  August  31,   2001  (the
"Agreement"),   between  DBS  Industries  Inc.,  a  Delaware   corporation  (the
"Company"), and Azure Capital Holdings LLC, a Delaware limited liability company
(the "Investor").

     WHEREAS,  the  parties  desire  that,  upon the  terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Investor,
and the Investor shall  purchase from the Company,  an aggregate of (i) $500,000
principal  amount  of the  Company's  6%  Convertible  Debentures  due 2006 (the
"Convertible Debentures") and (ii) warrants (the "Warrants") to purchase 250,000
shares of the Company's common stock, $ .0004 par value.

     WHEREAS,  such  investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and/or Section 4(6) ("Section 4(6)") of the United
States Securities Act of 1933 and/or Regulation D ("Regulation D") and the other
rules and regulations promulgated thereunder (the "Securities Act"), and/or upon
such other exemption from the registration requirements of the Securities Act as
may be available with respect to any or all of the  investments in securities to
be made hereunder.

     NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                               Certain Definitions

     In addition to the definitions set forth in the text of this Agreement, the
following capitalized terms shall have the meanings ascribed to them below:

"Capital  Shares"  shall mean the Common Stock and any shares of any other class
of common  stock,  whether  now or  hereafter  authorized,  having  the right to
participate in the distribution of earnings and assets of the Company.

"Capital Share  Equivalents"  shall mean any securities,  rights, or obligations
that are convertible into or exchangeable for or give any right to subscribe for
any Capital  Shares of the Company or any  warrants,  options or other rights to
subscribe  for,  purchase  or  otherwise  acquire  Capital  Shares  or any  such
convertible or exchangeable securities.

"Closing"  shall mean each closing of the  purchase and sale of the  Convertible
Debentures and Warrants pursuant to Section 2.1.

"Closing  Date" shall mean each date on which (x) all conditions to Closing have
been  satisfied or waived as provided in Section 2.1(b) hereof and (y) a Closing
shall have occurred.

<PAGE>

"Code" shall mean the United States  Internal  Revenue Code of 1986, as amended,
including the Treasury Regulations promulgated thereunder, as applicable.

"Common  Stock"  shall mean the  Company's  common  stock,  $.0004 par value per
share.

"Conversion  Shares"  shall  mean the  shares  of  Common  Stock  issuable  upon
conversion of the Convertible  Debentures,  including any shares of Common Stock
issued in payment of interest under the Convertible Debentures.

"Convertible  Debentures"  shall  mean  the  $500,000  principal  amount  of the
Company's 6% Convertible Debentures due 2006, in the form of Exhibit A hereto.

"Damages" shall mean any loss, claim,  damage,  judgment,  penalty,  deficiency,
liability,  costs  or  expenses  (including,   without  limitation,   reasonable
attorneys' fees and  disbursements  and reasonable  costs and expenses of expert
witnesses and investigation).

"Disclosure Schedule" shall mean the written disclosure schedule delivered on or
prior to the date  hereof by the  Company to the  Investor  that is  arranged in
paragraphs  corresponding to the numbered and lettered  paragraphs  contained in
this Agreement.

"Effective Date" shall mean the date on which the SEC first declares effective a
Registration Statement registering the resale of the Registrable Securities as
set forth in the Registration Rights Agreement.

"Environmental  Laws"  shall  mean  foreign,  Federal,  state and local laws and
regulations  relating  to  the  protection  of  human  health  and  safety,  the
environment,   hazardous  or  toxic   substances   or  wastes,   pollutants   or
contaminants.

"Exchange Act" shall mean the Securities  Exchange Act of 1934, as amended,  and
the rules and regulations promulgated thereunder.

"GAAP" shall mean United  States  generally  accepted  accounting  principles as
shall be in effect from time to time.

"Intellectual  Property" shall mean all trademarks,  trade names, service marks,
service mark registrations,  service names, patents, patent rights,  copyrights,
inventions,  licenses,  approvals,  governmental authorizations,  trade secrets,
know-how  (including  trade  secrets and other  unpatented  and/or  unpatentable
proprietary  or  confidential  information,  systems  or  procedures)  and other
similar proprietary rights, information and knowledge.

"IRS" means the United States Internal Revenue Service.

"Legend" shall mean the legend set forth in Section 9.1.

"Market  Price" on any given date shall mean the lowest closing bid price of the
Common Stock on the  Principal  Market (as  reported by Bloomberg  L.P.) for the
period of five  consecutive  Trading Days ending on the Trading Day  immediately

<PAGE>


prior to the date for which the Market Price is to be determined.

"Material  Adverse  Effect" shall mean any effect on the  business,  operations,
properties, prospects, stock price or financial condition of the Company that is
material and adverse to the Company and its subsidiaries  and affiliates,  taken
as a whole, or any condition,  circumstance, or situation that would prohibit or
otherwise  interfere  with the  ability of the Company to enter into and perform
any of its obligations  under any of the  Transaction  Documents in any material
respect.

"Outstanding,"  when used with reference to any Capital  Shares,  shall mean, at
any date as of which the number of such Capital Shares is to be determined,  all
issued and outstanding Capital Shares, and shall include all such Capital Shares
issuable  in  respect  of  outstanding  scrip or any  certificates  representing
fractional   interests  in  such  Capital  Shares;   provided,   however,   that
"Outstanding" shall not mean any such Capital Shares then directly or indirectly
owned or held by or for the account of the Company.

"Person" shall mean an  individual,  a  corporation,  a  partnership,  a limited
liability  company,  an  association,  a trust or other entity or  organization,
including a government or political  subdivision or an agency or instrumentality
thereof.

"Principal  Amount" shall mean, at any time, the unpaid principal balance of one
or more Convertible Debentures.

"Principal  Market" shall mean the American Stock  Exchange,  the New York Stock
Exchange,  the NASDAQ National Market, or the NASDAQ SmallCap Market,  whichever
is at the time the  principal  trading  exchange or market for the Common Stock,
based upon share volume,  or if the Common Stock is not traded on an exchange or
The Nasdaq Stock Market, the OTC Bulletin Board.

"Purchase Price" shall mean the Principal  Amount of the Convertible  Debentures
purchased.

"Registrable Securities" shall mean the Conversion Shares and the Warrant Shares
until (i) the Registration Statement has been declared effective by the SEC, and
all  Conversion  Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement,  (ii) all Conversion Shares and Warrant Shares have been
sold under  circumstances  under which all of the applicable  conditions of Rule
144 (or any similar  provision  then in force) under the  Securities  Act ("Rule
144") are met,  or (iii) all  Conversion  Shares and  Warrant  Shares  have been
otherwise  transferred to holders who may trade such shares without  restriction
under the  Securities  Act, and the Company has delivered a new  certificate  or
other  evidence of  ownership  for such  securities  not  bearing a  restrictive
Legend.

"Registration Rights Agreement" shall mean the agreement regarding the filing of
the Registration Statement for the resale of the Registrable Securities, entered
into between the Company and the Investor in the form annexed  hereto as Exhibit
C.

<PAGE>


"Registration Statement" shall mean a registration statement on Form SB-2 if use
of such form is then  available to the Company  pursuant to the rules of the SEC
and,  if not,  on such other form  promulgated  by the SEC for which the Company
then  qualifies and which counsel for the Company  shall deem  appropriate,  and
which form shall be available for the resale by the Investor of the  Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement and the  Registration  Rights  Agreement  and in  accordance  with the
intended method of distribution of such securities), for the registration of the
resale by the Investor of the Registrable Securities under the Securities Act.

"Regulation  D" shall  have  the  meaning  set  forth  in the  recitals  of this
Agreement.

"SEC" shall mean the Securities and Exchange Commission.

"SEC  Documents"  shall mean the Company's  Annual Report on Form 10-KSB for the
fiscal  year ended  December  31,  2000 and each  report,  proxy  statement  and
registration  statement  filed  by the  Company  with  the SEC  pursuant  to the
Exchange  Act or the  Securities  Act since the  filing  of such  Annual  Report
through the date hereof.

"Section  4(2)" and  "Section  4(6)"  shall have the  meanings  set forth in the
recitals of this Agreement.

"Securities"shall mean the Convertible Debentures,  the Warrants, the Conversion
Shares and the Warrant Shares, individually and collectively.

"Securities  Act"  shall  have the  meaning  set forth in the  recitals  of this
Agreement.

"Subsidiary" shall mean any entity in which the Company, directly or indirectly,
owns capital stock or holds an equity or similar interest.

"Tax" or "Taxes" means Federal,  state, county, local, foreign, or other income,
gross  receipts,  ad  valorem,  franchise,  profits,  sales  or  use,  transfer,
registration, excise, utility, environmental,  communications,  real or personal
property,   capital  stock,   license,   payroll,  wage  or  other  withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum,  estimated and other taxes of any kind whatsoever  (including,  without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.

"Tax  Return"  means any return,  information  report or filing with  respect to
Taxes,  including  any  schedules  attached  thereto and including any amendment
thereof.

"Trading Day" shall mean any day during which the Principal Market shall be open
for business.

"Transaction  Documents" shall mean this Agreement,  the Convertible Debentures,
the  Warrants,  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.

<PAGE>

"Warrants" shall mean the warrants to purchase Common Stock substantially in the
form of Exhibit B to be issued to the Investor hereunder.

"Warrant  Shares"  shall  mean all  shares of Common  Stock or other  securities
issued or issuable pursuant to exercise of the Warrants.

                                   ARTICLE II

            Purchase and Sale of Convertible Debentures and Warrants

Section 2.1. Investment.

     (a) Upon the terms and subject to the conditions  set forth herein,  on the
Closing Dates set forth below the Company  agrees to sell to the  Investor,  and
the Investor  agrees to purchase from the Company,  an aggregate of Five Hundred
Thousand Dollars ($500,000) principal amount of Convertible Debentures, together
with  Warrants to purchase up to an aggregate of Two Hundred and Fifty  Thousand
(250,000)  Warrant Shares having an initial exercise price equal to $ 1.06 [125%
of the five day average  stock price  preceding the Closing  Date],  for a total
purchase price of Five Hundred Thousand Dollars ($500,000), as follows:

Concurrently  with the  execution and delivery of this  Agreement,  the Investor
shall  deliver to the  Company  by wire  transfer  in  accordance  with  written
instructions  from the Company  Five  Hundred  Thousand  Dollars  ($500,000)  in
immediately  available  funds,  representing  the purchase price of Five Hundred
Thousand Dollars ($500,000)  principal amount of Convertible  Debentures and Two
Hundred and Fifty Thousand (250,000) Warrants,  and the Company shall deliver to
the Investor  Five  Hundred  Thousand  Dollars  ($500,000)  principal  amount of
Convertible  Debentures and Two Hundred and Fifty Thousand  (250,000)  Warrants,
each registered in the name of the Investor.

     (b)  Closing  shall be subject to the  satisfaction  of the  conditions  to
Closing set forth below:

     (i)  The  obligation  of the  Company  hereunder  to  issue  and  sell  the
Convertible  Debenture(s)  and issue the Warrant(s) to the Investor at a Closing
is subject to the satisfaction,  at or before the relevant Closing Date, of each
of the  following  conditions,  provided  that  these  conditions  are  for  the
Company's  sole benefit and may be waived by the Company at any time in its sole
discretion by providing the Investor with prior written notice thereof:

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

     (B) The Investor shall have delivered to the Company the Purchase Price for
the  Convertible  Debentures and Warrants being purchased by the Investor at the
Closing by wire transfer of immediately  available funds pursuant to the written
wire instructions provided by the Company.

<PAGE>

     (C) The  representations  and  warranties of the Investor shall be true and
correct as of the date when made and as of the  Closing  Date as though  made at
that time (except for representations and warranties that speak as of a specific
date),  and the Investor 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 it at or prior to the Closing Date.

     (ii) The obligation of the Investor  hereunder to purchase the  Convertible
Debenture(s) and Warrant(s) at the Closing is subject to the satisfaction, at or
before the relevant Closing Date, of each of the following conditions,  provided
that these  conditions are for the Investor's  sole benefit and may be waived by
the Investor at any time in its sole discretion:

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

     (B) The Common  Stock  shall be  authorized  for  quotation  on a Principal
Market,  trading  in the  Common  Stock  shall not have been  suspended  by such
Principal Market or the SEC at any time beginning on the date hereof and through
and  including  the Closing  Date,  and,  except as set forth on the  Disclosure
Schedule,  the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock.

     (C) The  representations  and  warranties  of the Company shall be true and
correct as of the date when made and as of the  Closing  Date as though  made at
that time (except for representations and warranties that speak as of a specific
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 at or prior to the Closing
Date. The Investor shall have received a certificate,  executed by the Company's
Chief Executive  Officer,  dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Investor.

     (D) The Investor shall have received the opinion of the Company's  in-house
general  counsel  dated as of the Closing  Date,  in form,  scope and  substance
reasonably satisfactory to the Investor and in substantially the form of Exhibit
D attached hereto.

<PAGE>

     (E) The Company  shall have  executed  and  delivered  to the  Investor the
Convertible  Debenture(s) (in such  denominations as the Investor shall request)
being purchased by the Investor at the Closing.

     (F) The Company  shall have  executed  and  delivered  to the  Investor the
Warrant(s) (in such denominations as the Investor shall request) being purchased
by the Investor at such Closing.

     (G) The Board of  Directors of the Company  shall have adopted  resolutions
consistent  with Section 4.2 below and in a form  reasonably  acceptable  to the
Investor (the "Resolutions").

     (H) As of the Closing  Date,  the Company  shall have  reserved  out of its
authorized  and  unissued  Common  Stock,  for  the  purpose  of  effecting  the
conversion  of, and the payment of interest on, the  Convertible  Debentures and
the exercise of the Warrants, 1,600,000 shares of Common Stock.

     (I) The  Company  shall  have  delivered  to the  Investor  a  certificate,
executed  by the  Company's  Secretary  dated the  Closing  Date,  as to (i) the
resolutions  described in Section 4.2,  (ii) the Articles of  Incorporation  and
(iii) the Bylaws, each as in effect on the Closing Date.

Section 2.2. Liquidated  Damages.  The parties hereto acknowledge and agree that
the amounts payable by the Company to the Investor  pursuant to the Registration
Rights  Agreement  with  respect  to a  Registration  Default  thereunder  shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (i) the amount of loss or damages likely to be incurred as a result of such
Registration  Default is incapable or is difficult to precisely  estimate,  (ii)
the amounts  payable as a result of a  Registration  Default  bear a  reasonable
proportion  to and are not plainly or grossly  disproportionate  to the probable
loss likely to be incurred by the Investor in connection with the failure by the
Company to timely cause the registration of the Registrable Securities under the
Registration  Rights Agreement and (iii) the parties are sophisticated  business
persons and have been represented by sophisticated  and able legal and financial
counsel and negotiated this Agreement at arm's-length.

<PAGE>
                                   ARTICLE III

                 Representations and Warranties of the Investor

The Investor represents and warrants to the Company that:

Section 3.1.  Intent.  The Investor is entering into this  Agreement for its own
account and not with a view to or for sale in connection  with any  distribution
of the Common  Stock.  The Investor has no present  arrangement  (whether or not
legally  binding) at any time to sell the Securities to or through any person or
entity;  provided,  however,  that by making  the  representations  herein,  the
Investor  does not  agree  to hold  such  Securities  for any  minimum  or other
specific term and reserves the right to dispose of the Securities at any time in
accordance   with  Federal  and  state   securities   laws  applicable  to  such
disposition.

Section 3.2.  Sophisticated  Investor.  The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited  investor
(as defined in Rule 501 of Regulation  D), and the Investor has such  experience
in business  and  financial  matters that it has the capacity to protect its own
interests in connection  with this  transaction and is capable of evaluating the
merits and risks of an investment in the Securities.  The Investor  acknowledges
that an investment in the Securities is  speculative  and involves a high degree
of risk.

Section 3.3.  Authority.  This Agreement and each of the  Transaction  Documents
that are required to be executed by the Investor have been duly  authorized  and
validly  executed  and  delivered  by the  Investor  and are a valid and binding
agreements  of the  Investor  enforceable  against it in  accordance  with their
terms, subject to applicable  bankruptcy,  insolvency,  or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
other equitable principles of general application.

Section  3.4.  Not an  Affiliate.  The  Investor is not an officer,  director or
"affiliate"  (as that term is defined in Rule 405 of the Securities  Act) of the
Company.

Section 3.5.  Absence of Conflicts.  The execution,  delivery and performance of
this Agreement and each other Transaction Document,  and the consummation of the
transactions   contemplated   hereby  and  thereby,   and  compliance  with  the
requirements hereof and thereof by the Investor, will not violate any law, rule,
regulation,  order, writ, judgment,  injunction,  decree or award binding on the
Investor or (a) violate any provision of any indenture,  instrument or agreement
to which the Investor is a party or is subject,  or by which the Investor or any
of its assets is bound;  (b)  conflict  with or  constitute  a material  default
thereunder; (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture,  instrument or agreement, or constitute a breach of
any fiduciary  duty owed by the Investor to any third party;  or (d) require the
approval  of any third  party  (which  has not been  obtained)  pursuant  to any
material contract,  agreement,  instrument,  relationship or legal obligation to
which the  Investor  is subject  or to which any of its  assets,  operations  or
management may be subject.

Section 3.6.  Disclosure;  Access to Information.  The Investor has received all
documents, records, books and other publicly available information pertaining to
the  Investor's  investment  in the Company as the Investor has  requested.  The

<PAGE>

Investor  acknowledges  that the  Company is subject to the  periodic  reporting
requirements  of the Exchange  Act, and the Investor has reviewed  copies of all
SEC Documents deemed relevant by the Investor.

Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting,  television advertisement
or any other form of general solicitation or advertising.

Section  3.8  Acknowledgment   Regarding   Investor's  Purchase  of  Convertible
Debentures. The Investor acknowledges and agrees that it is acting solely in the
capacity of arm's-length purchaser with respect to the Transaction Documents and
the transactions contemplated thereby. The Investor further acknowledges that it
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  thereby  and  any  advice  given  by  the  Investor  or any of its
representatives  or agents in connection with the Transaction  Documents and the
transactions  contemplated  thereby  is  merely  incidental  to  the  Investor's
purchase of Securities.  The Investor further represents to the Company that the
Investor's  decision  to enter  into the  Transaction  Documents  has been based
solely on the independent evaluation by the Investor and its representatives.

Section 3.9 No  Misrepresentation.  The  representations  and  warranties of the
Investor contained in this Agreement,  any schedule, annex or exhibit hereto and
any  agreement,  instrument  or  certificate  furnished  by the  Investor to the
Company  pursuant to this  Agreement,  do not contain any untrue  statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.

                                   ARTICLE IV

                  Representations and Warranties of the Company

     The Company  represents  and warrants to the Investor  that,  except as set
forth on the Disclosure Schedule prepared by the Company and attached hereto:

Section 4.1.  Organization  of the Company.  The Company is a  corporation  duly
incorporated,  validly existing and in good standing under the laws of the State
of Delaware and has all requisite  corporate authority to own its properties and
to carry on its business as now being conducted.  The Company's Subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the  jurisdiction  in which  they  are  incorporated  and have the  requisite
corporate  power and  authority  to own their  properties  and to carry on their
business as now being conducted.  The Company does not have any Subsidiaries and
does not own more than  fifty  percent  (50%) of or control  any other  business
entity  except as set forth in the SEC  Documents.  The  Company and each of its
Subsidiaries is duly qualified and is in good standing as a foreign  corporation
to do  business  in every  jurisdiction  in which  the  nature  of the  business
conducted or property owned by it makes such qualification necessary, other than
those in which the  failure  so to  qualify  would not have a  Material  Adverse
Effect.

<PAGE>


Section 4.2.  Authority.  (i) The Company has the requisite  corporate power and
corporate  authority  to enter  into  and  perform  its  obligations  under  the
Transaction  Documents and to issue the Securities  pursuant to their respective
terms; (ii) the execution,  issuance and delivery of the Transaction  Documents,
the Convertible  Debentures and the Warrants by the Company and the consummation
by it of the transactions  contemplated  hereby have been duly authorized by all
necessary  corporate  action and no  further  consent  or  authorization  of the
Company or its Board of Directors or stockholders is required, except insofar as
the Company is required to obtain the approval of its stockholders in accordance
with the corporate  governance rules of the Nasdaq Stock Market for issuances of
Common  Stock in excess of the  Exchange  Cap (as that  term is  defined  in the
Convertible  Debentures);  and (iii) the  Transaction  Documents  have been duly
executed  and  delivered  by  the  Company  and  constitute  valid  and  binding
obligations of the Company  enforceable  against the Company in accordance  with
their  terms,  except  as  such  enforceability  may be  limited  by  applicable
bankruptcy,  insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or other equitable  principles of
general  application.  The Company has duly and validly  authorized and reserved
for issuance  shares of Common Stock  sufficient in number for the conversion of
the  Convertible  Debentures  and for the exercise of the Warrants.  The Company
understands and acknowledges the potentially dilutive effect on the Common Stock
of the issuance of the  Conversion  Shares and the Warrant  Shares.  The Company
further  acknowledges  that its  obligation  to  issue  Conversion  Shares  upon
conversion of the Convertible Debentures and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement,  the Convertible  Debentures  and/or
the Warrants is absolute and  unconditional  regardless  of the dilutive  effect
that such issuance may have on the ownership  interests of other stockholders of
the Company and notwithstanding the commencement of any case under 11 U.S.C. ss.
101 et seq. (the "Bankruptcy Code").

Section  4.3.  Capitalization.  The  authorized  capital  stock  of the  Company
consists of  55,000,000  shares of which  50,000,000  shares shall be designated
Common  Stock,  $ .0004 par value per share,  of which  22,667,654  shares  were
issued  and  outstanding  as of  August  28,  2001.  5,000,000  shares  shall be
designated  "Preferred  Stock" of which 35,897 shares are  authorized,  Series A
Convertible Preferred Stock, $0.0004 par value; 25,899 issued and outstanding as
of June 30,  2001 and 550 Shares  authorized,  Series B  Mandatorily  Redeemable
Convertible Preferred Stock, $0.0004 par value; 440 issued and outstanding as of
June 30, 2001. Except for (i) Series A Convertible  Preferred Stock, (ii) Series
B Mandatorily  Redeemable Convertible Preferred Stock, (iii) outstanding options
and  warrants  as set forth in the SEC  Documents,  and (iv) as set forth in the
Disclosure Schedule,  there are no outstanding Capital Share Equivalents nor any
agreements or understandings pursuant to which any Capital Share Equivalents may
become outstanding.  The Company's stockholders voted to increase the authorized
capital stock of the Company to 110,000,000  shares of which 100,000,000  shares
shall be  designated  Common Stock and  10,000,000  shares  shall be  designated
Preferred  Stock;  this  increase  will take  effect  when  management  files an
amendment with the State of Delaware to the Company's Articles of Incorporation.
The  Company  is  not  a  party  to  any  agreement  granting   preemptive,   or
anti-dilution  rights to any  person  with  respect to any of its equity or debt
securities except for the Company's (i) Series A Convertible Preferred Stock and
(ii) Series B Mandatorily  Redeemable  Convertible  Preferred Stock,. All of the
outstanding  shares of Common  Stock of the  Company  have been duly and validly
authorized and issued and are fully-paid and nonassessable.

<PAGE>

Section 4.4. Common Stock.  The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full  compliance  with all
reporting  requirements  of the Exchange  Act, and the Company is in  compliance
with all  requirements  for the  continued  listing or  quotation  of its Common
Stock,  and such  Common  Stock is  currently  listed or quoted on, a  Principal
Market.  As of the date hereof,  the Principal Market is the OTC Bulletin Board,
and except as set forth in the SEC  Documents,  the Company has not received any
notice regarding, and to its knowledge there is no threat of, the termination or
discontinuance of the eligibility of the Common Stock for such listing.

Section 4.5. SEC  Documents.  The Company has delivered to the Investor true and
complete copies of the SEC Documents.  The Company has not provided the Investor
any information  that,  according to applicable law, rule or regulation,  should
have been disclosed publicly prior to the date hereof by the Company,  but which
has not been so  disclosed.  As of their  respective  dates,  the SEC  Documents
complied in all material respects with the requirements of the Securities Act or
the  Exchange  Act,  as the case may be,  and rules and  regulations  of the SEC
promulgated  thereunder,  and  the SEC  Documents  did not  contain  any  untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein or necessary in order to make the statements therein, in light of
the  circumstances  under which they were made,  not  misleading.  The financial
statements of the Company included in the SEC Documents complied in all material
respects with applicable  accounting  requirements and the rules and regulations
of the SEC or other applicable rules and regulations with respect thereto at the
time  of such  inclusion.  Such  financial  statements  have  been  prepared  in
accordance with GAAP applied on a consistent  basis 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 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 operations  and cash flows for the periods then
ended (subject, in the case of unaudited interim statements,  to normal year-end
audit  adjustments).  Neither the Company  nor any of its  subsidiaries  has any
material indebtedness,  obligations or liabilities of any kind (whether accrued,
absolute,  contingent or otherwise, and whether due or to become due) that would
have been required to be reflected in, reserved  against or otherwise  described
in the financial  statements  or in the notes  thereto in accordance  with GAAP,
which was not fully reflected in, reserved against or otherwise described in the
financial  statements or the notes thereto  included in the SEC Documents or was
not incurred in the ordinary  course of business  consistent  with the Company's
past  practices  since  the last  date of such  financial  statements.  No other
information  provided by or on behalf of the Company to the Investor that is not
included  in the  SEC  Documents,  including,  without  limitation,  information
referred to in Section 3.6 of this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements  therein,  in the light of the  circumstance  under which they are or
were made, not misleading.

Section  4.6.  Exemption  from  Registration;  Valid  Issuances.  Subject to the
accuracy of the Investor's representations in Article III, the Company's sale of
the Convertible Debentures and its issuance of the Warrants under this Agreement
does not, and the Company's  issuance of the Conversion Shares on the Investor's

<PAGE>


conversion of the Convertible  Debentures and the Warrant Shares on the exercise
of the Warrants will not, require  registration  under the Securities Act and/or
any applicable  state securities law, except as provided for in the Registration
Rights  Agreement.  When issued in accordance  with the terms of the Convertible
Debentures  or  issued  and  paid  for in  accordance  with  the  Warrants,  the
Conversion  Shares and the Warrant Shares,  as the case may be, will be duly and
validly  issued,  fully-paid,  and  nonassessable.  Neither  the  sales  of  the
Securities pursuant to, nor the Company's  performance of its obligations under,
the  Transaction  Documents will (i) result in the creation or imposition by the
Company  of any liens,  charges,  claims or other  encumbrances  upon any of the
Securities or, except as contemplated  herein, any of the assets of the Company,
or (ii) entitle the holders of Outstanding Capital Shares to preemptive or other
rights to subscribe for or acquire the Capital Shares or other securities of the
Company.  None of the Securities will subject the Investor to personal liability
to the Company or its creditors by reason of the Investor's possession thereof.

Section  4.7.  No  General   Solicitation  or  Advertising  in  Regard  to  this
Transaction. Neither the Company nor any of its affiliates nor any person acting
on  its  or  their  behalf  (i)  has  conducted  or  will  conduct  any  general
solicitation  (as that term is used in Rule 502(c) of  Regulation  D) or general
advertising  with  respect  to the  sale of the  Convertible  Debentures  or the
Warrants,  or (ii) has made any offers or sales of any security or solicited any
offers  to  buy  any  security  under  any  circumstances   that  would  require
registration of the Securities under the Securities Act.

Section 4.8. No Conflicts. The Company's execution,  delivery and performance of
the Transaction  Documents,  the Company's  performance of its obligations under
the Convertible  Debentures,  and the Company's consummation of the transactions
contemplated hereby and thereby do not and will not (i) result in a violation of
the Company's  Articles of  Incorporation  or By-Laws or (ii) conflict  with, or
constitute  a default  (or an event  that  with  notice or lapse of time or both
would  become a default)  under,  or give to others  any rights of  termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
law, rule,  regulation,  order,  judgment or decree (including Federal and state
securities  laws and  regulations and the rules and regulations of the Principal
Market) except the applicable  rules and  regulations of the Nasdaq Stock Market
with regard to  issuances of Common Stock in excess of the Exchange Cap that may
require the Company to obtain the approval of its  stockholders,  applicable  to
the  Company  or by which  any  property  or asset  of the  Company  is bound or
affected. The Company is not otherwise in violation of any term of or in default
under its Articles of  Incorporation  or By-laws,  or any  contract,  agreement,
mortgage, indebtedness,  indenture, instrument, judgment, decree or order or any
statute,  rule or  regulation  applicable  to the  Company,  except for possible
conflicts, defaults, terminations, amendments, accelerations,  cancellations and
violations  that  would not  individually  or in the  aggregate  have a Material
Adverse  Effect.  The Company's  business is not being conducted in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not result in a Material
Adverse  Effect.  Except as  specifically  contemplated by this Agreement and as
required  by the  Securities  Act,  the  Company is not  required  to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory  organization,
in order for it to execute,  deliver or perform any of its obligations  under or
contemplated by the Transaction  Documents,  in each case in accordance with the

<PAGE>


terms  hereof or thereof.  All  consents,  authorizations,  orders,  filings and
registrations  that the Company is required to obtain  pursuant to the preceding
sentence  have been  obtained or effected  on or prior to the date  hereof.  The
Company is not in violation of the listing  requirements of the Principal Market
as in  effect on the date  hereof  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.

Section  4.9. No  Material  Adverse  Change.  Since June 30,  2001,  no Material
Adverse  Effect has occurred or exists with  respect to the  Company,  except as
disclosed  in any SEC  Documents  filed at least five (5) days prior to the date
hereof and available on EDGAR. The Company has not taken any steps, and does not
currently  expect  to  take  any  steps,  to  seek  protection  pursuant  to the
Bankruptcy Code or any law generally  affecting  creditors'  rights nor does the
Company have any  knowledge or reason to believe  that its  creditors  intend to
initiate involuntary bankruptcy proceedings.

Section   4.10.   No   Undisclosed   Events,   Liabilities,   Developments,   or
Circumstances. No event, liability,  development or circumstance has occurred or
exists  with  respect to the  Company or its  Subsidiaries  or their  respective
businesses,  properties,  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 that has not been publicly announced.

Section  4.11.  No  Integrated  Offering.  The  Company  has  not,  directly  or
indirectly, made any offers or sales of any security, or solicited any offers to
buy any security,  under circumstances that would require registration of any of
the Securities  under the Securities Act or cause this offering of Securities to
be integrated  with prior offerings of securities by the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Principal Market; nor
will the Company or any of its  Subsidiaries,  to the best of its ability,  take
any action or steps that would require  registration of the Securities under the
Securities  Act or cause the offering of the  Securities to be  integrated  with
other offerings.

Section 4.12.  Litigation and Other Proceedings.  Except as disclosed in the SEC
Documents,  there are no lawsuits or proceedings pending or, to the knowledge of
the Company,  threatened,  against the Company or any Subsidiary or any of their
officers or directors in their  capacities as such, nor has the Company received
any  written  or  oral  notice  of  any  such  action,   suit,   proceeding   or
investigation,  which could  reasonably  be expected to have a Material  Adverse
Effect.  Except as set forth in the SEC  Documents,  no judgment,  order,  writ,
injunction  or decree or award has been  issued by or, to the  knowledge  of the
Company,  requested of any court,  arbitrator or governmental  agency that could
result in a Material Adverse Effect.

Section 4.13. No Misleading or Untrue Communication. Neither the Company nor, to
the knowledge of the Company,  any person  representing the Company or any other
person selling or offering to sell the Convertible Debentures or the Warrants in
connection with the transaction contemplated by this Agreement, has made, at any
time, any oral  communication  in connection  with the offer or sale of the same
that  contained any untrue  statement of a material fact or omitted to state any

<PAGE>


material  fact  necessary in order to make the  statements,  in the light of the
circumstances under which they were made, not misleading.

Section 4.14. Material Non-Public Information.  The Company has disclosed to the
Investor material non-public information that if disclosed,  would reasonably be
expected to have a material effect on the price of the Common Stock and Investor
shall remain  bound by the terms of the  confidentiality  agreement  signed with
Company ("Confidentiality Agreement").

Section 4.15. Insurance.  The Company and each subsidiary maintains property and
casualty,  general  liability,  workers'  compensation,   environmental  hazard,
personal injury and other similar types of insurance with financially  sound and
reputable  insurers that is adequate and consistent with industry  standards and
the  Company's  historical  claims  experience.  Neither  the  Company  nor  any
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  materially  and
adversely  affect  the  condition,  financial  or  otherwise,  or the  earnings,
business or operations of the Company and its Subsidiaries, taken as a whole.

Section 4.16. Tax Matters.

     (a) The Company and each  Subsidiary  have filed all Tax Returns  that they
are required to file under  applicable  laws;  all such Tax Returns are true and
accurate and have been  prepared in compliance  with all  applicable  laws;  the
Company has paid all Taxes due and owing by it or any Subsidiary (whether or not
such Taxes are  required to be shown on a Tax Return) and has  withheld and paid
over to the appropriate  taxing authorities all Taxes which it or any Subsidiary
is required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third  parties;  and since  December  31,  2000,  the charges,
accruals  and  reserves  for Taxes with  respect to the Company  (including  any
provisions for deferred income taxes)  reflected on the books of the Company are
adequate to cover any Tax  liabilities of the Company as if its current tax year
were treated as ending on the date hereof.

     (b) No claim has been made by a taxing  authority in a  jurisdiction  where
the Company does not file tax returns that the Company or any  Subsidiary  is or
may be subject to taxation by that jurisdiction.  There are no foreign, Federal,
state or local tax audits or administrative or judicial  proceedings  pending or
being  conducted with respect to the Company or any  Subsidiary;  no information
related to Tax matters has been  requested  by any  foreign,  Federal,  state or
local taxing  authority;  and,  except as  disclosed  above,  no written  notice
indicating  an intent to open an audit or other review has been  received by the
Company or any  subsidiary  from any  foreign,  Federal,  state or local  taxing
authority.  There are no material unresolved  questions or claims concerning the
Company's  Tax  liability.  The Company (A) has not  executed or entered  into a
closing agreement pursuant to ss. 7121 of the Code or any predecessor  provision
thereof or any similar provision of state, local or foreign law; and (B) has not
agreed to, and is not required to, make any adjustments  pursuant to ss. 481 (a)
of the Code or any similar provision of state, local or foreign law by reason of
a  change  in  accounting  method  initiated  by  the  Company  or  any  of  its
subsidiaries, and has no knowledge that the IRS has proposed any such adjustment

<PAGE>


or change in accounting method,  and does not have any application  pending with
any taxing authority requesting permission for any changes in accounting methods
that relate to the business or  operations  of the Company.  The Company has not
been a United States real property holding corporation within the meaning of ss.
897(c)(2)  of  the  Code  during  the   applicable   period   specified  in  ss.
897(c)(1)(A)(ii) of the Code.

     (c) The Company has not made an election  under ss. 341(f) of the Code. The
Company,  to its best  knowledge,  is not liable for the Taxes of another person
that is not a Subsidiary of the Company under (A) Treas.  Reg. ss.  1.1502-6 (or
comparable  provisions of state,  local or foreign law),  (B) as a transferee or
successor,  (C) by contract or indemnity or (D) otherwise.  The Company is not a
party to any tax sharing  agreement.  The Company has not made any payments,  is
not  obligated to make  payments  and is not a party to an agreement  that could
obligate it to make any payments that would not be deductible  under ss. 280G of
the Code.

Section 4.17.  Property.  Each of the Company and its  subsidiaries has good and
marketable  title to or leasehold  interests  in all property  real and personal
(tangible or intangible) that it owns, free and clear of all liens, encumbrances
and defects,  except such as do not materially affect the value of such property
and do not  materially  interfere  with the use made and  proposed to be made of
such  property  by the  Company  and/or  its  Subsidiary;  and to the  Company's
knowledge,  any real property,  mineral or water rights,  and buildings that the
Company holds under lease as a tenant are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and  intended  to be made of such  property,  mineral or water
rights, and buildings by the Company and its Subsidiaries.

Section 4.18.  Intellectual  Property.  Each of the Company and its Subsidiaries
owns or  possesses  adequate  and  enforceable  rights  or  licenses  to use all
Intellectual  Property  necessary  for the conduct of its  business as now being
conducted.  None of the  Company's  or any  Subsidiary's  Intellectual  Property
necessary  to  conduct  its  business  as now  conducted  or as  proposed  to be
conducted  has expired or  terminated,  or is  expected  to expire or  terminate
within two years from the date of this  Agreement.  To the Company's  knowledge,
except as  disclosed  in the SEC  Documents,  neither the Company nor any of its
subsidiaries  is  infringing  upon or in  conflict  with any  right of any other
person with respect to any Intellectual Property. Except as disclosed in the SEC
Documents,  no adverse  claims have been asserted by any person to the ownership
or use of any  Intellectual  Property,  and the Company has no  knowledge of any
basis for such claim.

Section 4.19. Internal Controls and Procedures.  The Company maintains books and
records and internal accounting controls that provide reasonable  assurance that
(i) all  transactions  to which the Company or any  Subsidiary  is a party or by
which its  properties  are bound are executed with  management's  authorization;
(ii) the recorded  accounting of the Company's  consolidated  assets is compared
with  existing  assets at  regular  intervals;  (iii)  access  to the  Company's
consolidated   assets  is  permitted  only  in  accordance   with   management's
authorization;  and (iv) all transactions to which the Company or any Subsidiary
is a party or by which its  properties  are bound are  recorded as  necessary to
permit preparation of the financial statements of the Company in accordance with
GAAP.

<PAGE>

Section 4.20. Payments and Contributions.  Neither the Company,  any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used  any  Company  funds  for any  unlawful  contribution,  endorsement,  gift,
entertainment  or other unlawful expense  relating to political  activity;  (ii)
made any direct or indirect  unlawful payment of Company funds to any foreign or
domestic government  official or employee;  (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended;  or (iv)
made any bribe,  rebate,  payoff,  influence payment,  kickback or other similar
payment to any person with respect to Company matters.

Section  4.21.   Acknowledgment  Regarding  Investor'  Purchase  of  Convertible
Debentures.  The Company  acknowledges  and agrees that each of the  Investor is
acting  solely in the  capacity of  arm's-length  purchaser  with respect to the
Transaction  Documents and the transactions  contemplated  thereby.  The Company
further  acknowledges  that no  Investor  is acting as a  financial  advisor  or
fiduciary  of the  Company  (or in any  similar  capacity)  with  respect to the
Transaction  Documents and the transactions  contemplated thereby and any advice
given by any of the  Investor  or any of  their  respective  representatives  or
agents  in  connection  with  the  Transaction  Documents  and the  transactions
contemplated  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.

Section 4.22. Labor Matters.  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 Securities Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company.

Section 4.23.  Environmental  Laws. The Company and its  Subsidiaries (i) are in
compliance  with any and all applicable  Environmental  Laws, (ii) have received
all  permits,  licenses or other  approvals  required  of them under  applicable
Environmental  Laws to  conduct  their  respective  businesses  and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where,  in each of the three  foregoing  cases,  the failure to so comply  would
have, individually or in the aggregate, a Material Adverse Effect.

Section 4.24.  Regulatory Permits.  The Company and its Subsidiaries possess all
certificates,  authorizations  and permits  issued by the  appropriate  Federal,
state or foreign  regulatory  authorities  necessary to conduct their respective
businesses,  except  where the  failure  to possess  such items  would not have,
individually or in the aggregate,  a Material  Adverse  Effect,  and neither the
Company nor any such Subsidiary has received any notice of proceedings  relating
to the revocation or  modification  of any such  certificate,  authorization  or
permit.

Section 4.25. 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  that in the
judgment of the Company's  officers has a Material  Adverse Effect.  Neither the

<PAGE>


Company nor any of its Subsidiaries is a party to any contract or agreement that
in the reasonable  judgment of the Company's officers has or is expected to have
a Material Adverse Effect.

Section  4.26.  Certain  Transactions.  Except as set forth in the SEC Documents
filed at least ten 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
Disclosure  Schedule,  none of the  officers  or  directors  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 or director or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any  officer or  director  has a  substantial  interest  or is an officer,
director, trustee or partner.

Section  4.27.  Transactions  With  Affiliates.  Except  as set forth in the SEC
Documents  filed at least ten days  prior to the date  hereof and other than the
grant  of  stock  options  disclosed  on the  Disclosure  Schedule,  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.

Section 4.28. Application of Takeover Protections.  The Company and its Board of
Directors  have  taken  all  necessary  action,  if  any,  in  order  to  render
inapplicable  any  control  share  acquisition,  business  combination  or other
similar anti-takeover provision under the laws of the state of its incorporation
that  is or  could  become  applicable  to  the  Investor  as a  result  of  the
transactions contemplated by this Agreement,  including, without limitation, the
Company's  issuance  of the  Securities  and  the  Investor's  ownership  of the
Securities.

Section 4.29. No Other Agreements.  The Company has not, directly or indirectly,
made any agreements with any Investor relating to the terms or conditions of the
transactions  contemplated by the Transaction Documents,  except as set forth in
the Transaction Documents.

Section 4.30. No  Misrepresentation.  The  representations and warranties of the
Company contained in this Agreement,  any schedule,  annex or exhibit hereto and
any  agreement,  instrument  or  certificate  furnished  by the  Company  to the
Investor  pursuant to this Agreement,  do not contain any untrue  statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.

<PAGE>

                                    ARTICLE V

                            Covenants of the Investor

Section 5.1. Best Efforts. The Investor covenants with the Company that it shall
use its best efforts to timely satisfy each of the conditions to be satisfied by
it as provided in Article II of this Agreement.

Section  5.2.  Certain  Selling  Restrictions.  So  long  as the  Company  is in
compliance in all material  respects with its  obligations to the Investor under
this Agreement,  the Convertible  Debenture,  Warrant,  and Registration  Rights
Agreement,  during the 10  consecutive  Trading Day  immediately  preceding  any
Conversion Date (as defined in the Convertible  Debenture),  the Investor agrees
on its behalf and on behalf of its  Affiliates (as defined in Rule 405 under the
Securities Act) that it will not sell, or engage in any short sales with respect
to, any shares of Common Stock on any Principal Market where the Common Stock is
then listed for trading.

                                   ARTICLE VI

                            Covenants of the Company

Section  6.1.  Best  Efforts.  The Company  shall use its best efforts to timely
satisfy each of the  conditions  to be satisfied by it as provided in Article II
of this Agreement.

Section  6.2.  Registration  Rights.  The Company  shall cause the  Registration
Rights  Agreement  to remain in full force and  effect,  and the  Company  shall
comply in all material respects with the terms thereof.

Section 6.3. Reservation of Common Stock. As of the date hereof, the Company has
reserved, for the purpose of enabling the Company to issue the Conversion Shares
and the Warrant Shares pursuant to any conversion of the Convertible  Debentures
or  exercise  of the  Warrants,  not less than  150% of the  number of shares of
Common Stock needed to provide for the issuance of the Conversion Shares and the
Warrant Shares.

Section 6.4.  Listing of Common Stock. The Company shall use its best efforts to
maintain the listing of the Common  Stock on a Principal  Market and, as soon as
required by the rules of the Principal Market and any other national  securities
exchange or  automated  quotation  system,  if any,  upon which shares of Common
Stock are listed, shall list the Conversion Shares and the Warrant Shares on the
Principal  Market and each such other  exchange or system.  The Company  further
agrees,  if the  Company  applies to have the Common  Stock  traded on any other
Principal Market, that it will include in such application the Conversion Shares
and the  Warrant  Shares,  and will take such other  action as is  necessary  or
desirable  in the  opinion of the  Investor to cause the  Conversion  Shares and
Warrant  Shares to be listed  on such  other  Principal  Market as  promptly  as
possible. The Company will take all action necessary to continue the listing and
trading  of  its  Common  Stock  on  a  Principal  Market  (including,   without
limitation,  maintaining  sufficient net tangible assets) and will comply in all
respects with the Company's  reporting,  filing and other  obligations under the

<PAGE>

bylaws or rules of the Principal  Market and shall  provide  Investor on request
with  copies of any  correspondence  to or from  such  Principal  Market,  which
questions  or  threatens  delisting  of the Common  Stock,  upon  request by the
Investor,  until  the  Investor  have  disposed  of  all  of  their  Registrable
Securities.

Section 6.5. Exchange Act Registration.  The Company will cause its Common Stock
to continue to be  registered  under  Section  12(b) or (g) of the Exchange Act,
will use its best  efforts  to comply in all  respects  with its  reporting  and
filing  obligations under the Exchange Act, and will not take any action or file
any  document  (whether  or not  permitted  by  the  Exchange  Act or the  rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing  obligations  under the Exchange Act until the Investor
have disposed of all of their Registrable Securities.

Section 6.6.  Legends.  The certificates  evidencing the Registrable  Securities
shall be free of legends, except as set forth in Article IX.

Section 6.7. Corporate Existence;  Conflicting Agreements. The Company will take
all steps  necessary  to preserve  and continue  its  corporate  existence.  The
Company shall not enter into any agreement,  the terms of which  agreement would
restrict  or impair the right or ability  of the  Company to perform  any of its
obligations under this Agreement or any of the other Transaction Documents.

Section 6.8. Consolidation; Merger. The Company shall not, at any time after the
date hereof,  effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially  all of the assets of the Company to, another
entity (a  "Consolidation  Event")  unless the resulting  successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investor such shares of stock and/or securities
as the  Investor  are  entitled to receive  pursuant to this  Agreement  and the
Convertible Debentures.

Section 6.9. Issuance of Convertible  Debentures and Warrant Shares. To the best
of the  Company's  knowledge  the  sale of the  Convertible  Debentures  and the
Warrants  and the  issuance  of the Warrant  Shares  pursuant to exercise of the
Warrants and the Conversion Shares upon conversion of the Convertible Debentures
shall be made in accordance  with the  provisions  and  requirements  of Section
4(2),  Section 4(6) or Regulation D and any applicable state securities law. The
Company  shall  file a Form D with  respect  to the  Convertible  Debentures  as
required under Regulation D and provide a copy thereof to the Investor  promptly
after such filing. The Company shall take such action as reasonably necessary to
qualify the Convertible  Debentures for, or obtain exemption for the Convertible
Debentures  for, sale to the Investor at the Closing  pursuant to this Agreement
under  applicable  securities  or "Blue  Sky" laws of the  states of the  United
States,  and shall provide  evidence of any such action so taken to the Investor
on or prior to the Closing Date.  The Company shall make all filings and reports
relating to the offer and sale of the  Securities  required under the applicable
securities or "Blue Sky" laws of the states of the United  States  following the
Closing Date.

<PAGE>

Section 6.10.  Relief in Bankruptcy.  The Company shall not seek judicial relief
from its obligations  hereunder,  except pursuant to the Bankruptcy Code. In the
event the Company is a debtor  under the  Bankruptcy  Code,  the Company  hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C.  ss. 362 in respect of the conversion of the  Convertible  Debentures and
the exercise of the Warrants. The Company agrees, without cost or expense to the
Investor,  to take or  consent  to any and all action  necessary  to  effectuate
relief under 11 U.S.C. ss. 362.

Section 6.11.  Use of Proceeds.  The Company will use the proceeds from the sale
of the Convertible  Debentures for general  working capital  purposes and in the
operation of the Company's business. None of the proceeds will be used, directly
or indirectly, to make any loan to or investment in any other Person (other than
financing the Company's  Subsidiaries  in the ordinary  course of business or in
connection  with an acquisition of another  corporation or business or assets of
another corporation or business).

Section 6.12.  Financial  Information.  Until all Registrable  Securities may be
sold without  registration  under the Securities Act, the Company shall send the
following to each holder of  Registrable  Securities  if not  available  via the
Internet through EDGAR or any similar service: (i) within five (5) business days
after the  filing  thereof  with the SEC,  a copy of its  Annual  Report on Form
10-KSB,  its Quarterly  Reports on Form 10-QSB,  any Current Reports on Form 8-K
and any  registration  statements or  amendments  (other than on Form S-8) filed
pursuant  to the  Securities  Act;  and (ii)  copies  of any  notices  and other
information  made  available  or  given  to  the  stockholders  of  the  Company
generally,  contemporaneously with the making available or giving thereof to the
stockholders.

Section  6.13.  Transactions  With  Affiliates.  So long as (i) any  Convertible
Debentures  or Warrants are  outstanding  or (ii) the Investor  owns  Conversion
Shares  and/or  Warrant  Shares  with a market  value  equal to or greater  than
$500,000,  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  years,
stockholders  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 (a) customary
employment  arrangements  and benefit  programs  on  reasonable  terms,  (b) any
agreement,  transaction,  commitment or arrangement on an arm's-length  basis on
terms no less favorable than terms that would have been obtainable from a person
other than such Related Party, or (c) any agreement, transaction,  commitment or
arrangement that 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  Subsidiary  of the Company  shall not be a  disinterested  director with
respect  to  any  such  agreement,   transaction,   commitment  or  arrangement.
"Affiliate"  for  purposes of this  Section  means,  with respect to any Person,
another  Person  that,  directly  or  indirectly,  (i) has a 5% or  more  equity
interest in that Person,  (ii) has 5% or more common ownership with that Person,
(iii)  controls  that Person,  or (iv) shares  common  control with that Person.

<PAGE>


"Control" or "controls" for purposes of this  Agreement  means that a Person has
the power,  direct or  indirect,  to conduct or govern the  policies  of another
Person.

Section 6.14.  DWAC.  The Company  shall set up and provide  procedures by which
issuance of its Common Stock upon  conversion of the  Convertible  Debenture and
exercise of the Warrant will be completed  by filing via Deposit  Withdrawal  at
Custodian  ("DWAC")  system.  The details of the DWAC system  procedure  will be
delivered  to the  Investor  within  thirty days of the  Closing  Date in a form
satisfactory to the Investor.

                                   ARTICLE VII

                            Survival; Indemnification

Section 7.1.  Survival.  The  representations,  warranties and covenants made by
each of the Company and the Investor in this Agreement,  the annexes,  schedules
and exhibits hereto and in each  instrument,  agreement and certificate  entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions  contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation  available to it under
the provisions of this Agreement,  irrespective of any investigation  made by or
on behalf of such party on or prior to the Closing Date.

Section 7.2.  Indemnity by Company.  To the extent permitted by law, the Company
shall indemnify and hold harmless the Investor,  their respective Affiliates and
their respective officers, directors, partners and members (each an "Indemnified
Party"),  from  and  against  any and  all  Damages,  and  shall  reimburse  the
Indemnified  Parties for all reasonable  out-of-pocket  expenses  (including the
reasonable  fees and  expenses  of legal  counsel),  in each  case  promptly  as
incurred  by such  Indemnified  Party  and to the  extent  arising  out of or in
connection with:

(i)  any  misrepresentation,  omission of fact or breach of any of the Company's
     representations   or  warranties   contained  in  any  of  the  Transaction
     Documents,  the annexes,  schedules or exhibits  thereto or any instrument,
     agreement or certificate  entered into or delivered by the Company pursuant
     hereto or thereto; or

(ii) any  failure by the Company to perform in any  material  respect any of its
     covenants, agreements,  undertakings or obligations set forth in any of the
     Transaction  Documents,  the annexes,  schedules or exhibits thereto or any
     instrument,  agreement  or  certificate  entered  into or  delivered by the
     Company pursuant hereto or thereto; or

(iii)any  action  instituted  against  the  Investor,  or  any of  them,  by any
     stockholder  of the Company who is not an Affiliate of the  Investor,  with
     respect  to  any  of  the  transactions  contemplated  by  the  Transaction
     Documents.


<PAGE>


provided,  however,  that the indemnity  agreement contained in this Section 7.2
shall not apply to amounts paid in settlement of any such loss,  claim,  damage,
liability,  or action if such settlement is effected  without the consent of the
Company (which consent shall not be unreasonably withheld), and that the Company
shall  not be  liable  in any  such  case  for any  such  loss,  claim,  damage,
liability,  or action to the  extent  that it arises  out of or is based  upon a
statement,  omission,  or  violation  which  occurs  in  reliance  upon  and  in
conformity with written information furnished in a certificate expressly for use
in  connection  with such  registration  by any such  Investor,  underwriter  or
controlling person.

Section 7.3 Indemnity by Investor. To the extent permitted by law, each Investor
will  indemnify  and  hold  harmless  the  Company,  each of its  directors  and
officers,  any  underwriters (as defined in the Securities Act) for the Company,
each person, if any, who controls the Company or any such underwriter within the
meaning  of the  Securities  Act or the  1934  Act,  and  any  Investor  selling
securities in such registration statement or any of its directors or officers or
any person who controls such Investor (each an "Indemnified  Party") against any
losses,  claims,  damages,  or liabilities (or actions in respect thereto) which
arise out of or are based upon any of the  following  statements,  omissions  or
violations  ("Violation"),  in each case to the extent  (and only to the extent)
that such  Violation  occurs in reliance  upon and in  conformity  with  written
information  furnished by such  Investor in a  certificate  expressly for use in
connection  with such  registration;  and each such Investor will  reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer,  any person who controls the Company,  any  underwriter  or controlling
person of any such underwriter,  any other such Investor,  officer, director, or
controlling  person in connection with investigating or defending any such loss,
claim,  damage,  liability,  or action;  provided  however,  that the  indemnity
agreement  contained  in this  Section  7.3 shall not apply to  amounts  paid in
settlement  of any  such  loss,  claim,  damage,  liability  or  action  if such
settlement is effected  without the consent of the Investor (which consent shall
not be unreasonably withheld), and provided further that the obligations of each
selling  Investor of the shares sold by each such selling  Investor  pursuant to
such registration.

Section 7.4 Contribution.  If a court of competent  jurisdiction  holds that the
foregoing indemnity is unavailable, then the indemnifying party shall contribute
to the  amount  paid or  payable  by the  indemnified  party as a result of such
losses,  claims,  damages,  liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying  party
on  the  one  hand  and  the  indemnified   party  on  the  other  (taking  into
consideration,   among  other  things,  the  fact  that  the  provision  of  the
registration  rights and  indemnification  hereunder is a material inducement to
the  Investors to purchase  Registrable  Securities)  or (ii) if the  allocation
provided by clause (i) above is not  permitted by  applicable  law or provides a
lesser sum to the indemnified party than the amount hereinafter  calculated,  in
such  proportion  as is  appropriate  to reflect not only the relative  benefits
received by the indemnifying  party on the one hand and the indemnified party on
the other  (taking into  consideration,  among other  things,  the fact that the
provision of the registration rights and indemnification hereunder is a material
inducement to the  Investors to purchase  Registrable  Securities)  but also the
relative fault of the  indemnifying  party and the indemnified  party as well as
any  other  relevant  equitable  considerations.  The  relative  fault  shall be

<PAGE>

determined by reference  to, among other  things,  whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a  material  fact  relates  to  information  supplied  by or on  behalf  of  the
indemnifying  party or the indemnified  party and the parties'  relative intent,
knowledge,  access to  information  and  opportunity  to correct or prevent such
untrue statement or omission.  No Person guilty of fraudulent  misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution   from  any  Person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  Notwithstanding anything to the contrary in this Section 7.,
no Investor  shall be required,  pursuant to this Section 7., to contribute  any
amount in excess of the net proceeds  received by such  indemnifying  party from
the sale of  securities  in the offering to which the losses,  claims,  damages,
liabilities or expenses of the indemnified party relate.

Section 7.5.  Notice.  Promptly  after receipt by an  Indemnified  Party seeking
indemnification  pursuant to Section 7.2 or Section 7.4 of written notice of any
investigation,   claim,   proceeding   or  other  action  in  respect  of  which
indemnification  is being  sought  (each,  a  "Claim"),  the  Indemnified  Party
promptly  shall  notify the other  party of the  commencement  thereof;  but the
omission so to notify the other  party  shall not relieve it from any  liability
that it otherwise may have to the Indemnified  Party,  except to the extent that
the other party is actually  prejudiced by such omission or delay. In connection
with any Claim as to which both the  Indemnified  Party and the other  party are
parties,  the other  party  shall be  entitled  to assume the  defense  thereof.
Notwithstanding  the  assumption of the defense of any Claim by the other party,
the Indemnified  Party shall have the right to employ separate legal counsel and
to participate in the defense of such Claim,  and the other party shall bear the
reasonable fees, out-of-pocket costs and expenses of such separate legal counsel
to the Indemnified Party if (and only if): (x) the other party shall have agreed
to pay such fees,  out-of-pocket  costs and expenses,  (y) the Indemnified Party
reasonably shall have concluded that representation of the Indemnified Party and
the other party by the same legal counsel would not be appropriate due to actual
or,  as  reasonably  determined  by  legal  counsel  to the  Indemnified  Party,
potentially  differing  interests  between  such  parties in the  conduct of the
defense  of such  Claim,  or if there  may be legal  defenses  available  to the
Indemnified  Party that are in addition to or disparate from those  available to
the other  party,  or (z) the other  party  shall  have  failed to employ  legal
counsel  reasonably  satisfactory to the  Indemnified  Party within a reasonable
period  of  time  after  notice  of  the  commencement  of  such  Claim.  If the
Indemnified Party employs separate legal counsel in circumstances  other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne  exclusively by the  Indemnified  Party.  Except as
provided  above,  the other party shall not, in connection with any Claim in the
same jurisdiction,  be liable for the fees and expenses of more than one firm of
legal  counsel  for the  Indemnified  Party  (together  with  appropriate  local
counsel).  The other party shall not,  without the prior written  consent of the
Indemnified Party (which consent shall not unreasonably be withheld),  settle or
compromise  any  Claim or  consent  to the entry of any  judgment  that does not
include an unconditional  release of the Indemnified  Party from all liabilities
with respect to such Claim or judgment.

Section 7.6.  Direct  Claims.  In the event an  Indemnified  Party should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party,  the  Indemnified  Party promptly shall deliver notice of such
claim to the other party.  If the  Indemnified  Party  disputes the claim,  such
dispute shall be resolved by mutual  agreement of the Indemnified  Party and the

<PAGE>


other  party  or  by  binding  arbitration  conducted  in  accordance  with  the
procedures  and rules of the American  Arbitration  Association  as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.

                                  ARTICLE VIII

         Due Diligence Review; Non-Disclosure of Non-Public Information.

Section 8.1. Due  Diligence  Review.  Subject to Section 8.2, the Company  shall
make  available  for  inspection  and review by the  Investor,  advisors  to and
representatives  of the  Investor  (who  may or may not be  affiliated  with the
Investor and who are  reasonably  acceptable  to the Company),  any  underwriter
participating in any disposition of the Registrable  Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement  thereto or any blue sky, Nasdaq or other filing, all
SEC Documents and other filings with the SEC, and all other  publicly  available
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers,  directors and
employees to supply all such publicly available information reasonably requested
by the Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including,  without limitation, in response to
all questions and other inquiries  reasonably made or submitted by any of them),
prior to and  from  time to time  after  the  filing  and  effectiveness  of the
Registration  Statement  for the sole  purpose of enabling the Investor and such
representatives,  advisors and underwriters and their respective accountants and
attorneys  to conduct  initial  and ongoing due  diligence  with  respect to the
Company and the accuracy of the Registration Statement.

Section 8.2. Non-Disclosure of Non-Public Information.

     (a) The Company shall not further disclose material non-public  information
to the Investor,  advisors to or representatives of the Investor unless prior to
disclosure of such information the Company  identifies such information as being
non-public   information   and  provides  the   Investor,   such   advisors  and
representatives  with the  opportunity  to  accept  or  refuse  to  accept  such
non-public  information for review. Other than disclosure of any comment letters
received  from the SEC staff with  respect to the  Registration  Statement,  the
Company may, as a condition to disclosing any non-public  information hereunder,
require  the   Investor'   advisors   and   representatives   to  enter  into  a
confidentiality  agreement in form and content  reasonably  satisfactory  to the
Company  and the  Investor.  With  respect to  material  non-public  information
disclosed to Investor prior to Closing under Confidentiality Agreement, Investor
shall remain bound by the terms of that Confidentiality Agreement.

     (b)  Nothing  herein  shall  require  the  Company  to  disclose   material
non-public information to the Investor or their advisors or representatives, and
the Company  represents  that,  outside of disclosures  made pursuant to written
confidentiality   agreements,   it  does  not  disseminate  material  non-public
information  to any  investors  who  purchase  stock in the  Company in a public
offering, to money managers or to securities analysts;  provided,  however, that

<PAGE>

notwithstanding   anything  herein  to  the  contrary,   the  Company  will,  as
hereinabove  provided,  promptly notify the advisors and  representatives of the
Investor  and,  if any,  underwriters,  of any  event  or the  existence  of any
circumstance   (without  any  obligation  to  disclose  the  specific  event  or
circumstance)  of which  it  becomes  aware,  constituting  material  non-public
information  (whether or not requested of the Company  specifically or generally
during the course of due diligence by such persons or entities),  which,  if not
disclosed in the prospectus  included in the Registration  Statement would cause
such  prospectus to include a material  misstatement  or to omit a material fact
required to be stated therein in order to make the statements  therein, in light
of the circumstances in which they were made, not misleading.  Nothing contained
in this  Section 8.2 shall be  construed  to mean that such  persons or entities
other than the Investor  (without the written  consent of the Investor  prior to
disclosure of such  information  as set forth in Section  8.2(a)) may not obtain
non-public  information  in the course of conducting due diligence in accordance
with the terms of this  Agreement  and  nothing  herein  shall  prevent any such
persons or entities  from  notifying  the Company of their opinion that based on
such due diligence by such persons or entities,  that the Registration Statement
contains  an  untrue  statement  of a  material  fact or omits a  material  fact
required to be stated in the  Registration  Statement  or  necessary to make the
statements  contained therein,  in light of the circumstances in which they were
made, not misleading.

                                   ARTICLE IX

                      Legends; Transfer Agent Instructions

Section  9.1.  Legends.   Unless  otherwise  provided  below,  each  certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):

THE SECURITIES  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S.  SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR ANY OTHER
APPLICABLE  SECURITIES  LAWS AND HAVE BEEN ISSUED IN RELIANCE  UPON AN EXEMPTION
FROM  THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT  AND  SUCH  OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION  HEREIN
MAY BE SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.

Section 9.2. No Other  Legend or Stock  Transfer  Restrictions.  No legend other
than the one  specified  in Section 9.1 has been or shall be placed on the share
certificates  representing  the  Registrable  Securities and no  instructions or
"stop transfer  orders," "stock transfer  restrictions,"  or other  restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.

<PAGE>


Section 9.3. Investor'  Compliance.  Nothing in this Article shall affect in any
way the Investor's  obligations to comply with all  applicable  securities  laws
upon resale of the Common Stock including  delivery of the resale  prospectus to
the purchaser of such securities.

Section  9.4.  Transfers  without  Registration.  If the  Investor  provides the
Company  with  an  opinion  of  counsel,  in  generally  acceptable  form,  that
registration of a resale by the Investor of any Securities is not required under
the  Securities  Act, the Company  shall permit the transfer and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Investor
and, if such  opinion  provides  that such  legends can be removed,  without any
restrictive legends.

Section 9.5. Injunctive Relief. The Company  acknowledges that a breach by it of
its  obligations  hereunder  will  cause  irreparable  harm to the  Investor  by
vitiating  the  intent  and  purpose  of the  transaction  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article XI will be inadequate and agrees, in the event of
a breach or threatened  breach by the Company of the  provisions of this Article
XI, that the  Investor  shall be  entitled,  in addition to all other  available
remedies,  to an  injunction  restraining  any  breach and  requiring  immediate
issuance  and  transfer,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.


                                    ARTICLE X

                           Choice of Law; Arbitration

Section 10.1.  Governing Law. This Agreement  shall be governed by and construed
in  accordance  with the laws of the State of Delaware  applicable  to contracts
made in the State of Delaware  without  regard to its principles of conflicts of
laws.

Section 10.2.  Arbitration.  Any dispute under this Agreement shall be submitted
to arbitration  under the American  Arbitration  Association  (the "AAA") in New
York, New York, and shall be finally and conclusively determined by the decision
of a board of arbitration  consisting of three (3) members (hereinafter referred
to as the "Board of Arbitration")  selected according to the rules governing the
AAA. The Board of  Arbitration  shall meet on  consecutive  business days in the
City of New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of  Arbitration)  with  respect to the
amount,  if any,  that the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions,  the Board
of Arbitration shall adopt and follow the laws of the State of Delaware.  To the
extent  practical,  decisions of the Board of  Arbitration  shall be rendered no
more than thirty (30) calendar days following  commencement of proceedings  with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of  Arbitration  (either  prior to or after the  expiration  of such thirty (30)
calendar day period)  shall be final,  binding and  conclusive on the parties to
the dispute,  and entitled to be enforced to the fullest extent permitted by law
and entered in any court of  competent  jurisdiction.  The Board of  Arbitration
shall be authorized and is hereby directed to enter a default  judgment  against
any party failing to  participate in any  proceeding  hereunder  within the time
periods set forth in the AAA rules. The non-prevailing  party to any arbitration

<PAGE>


(as  determined  by the  Board of  Arbitration)  shall pay the  expenses  of the
prevailing party,  including reasonable attorneys' fees, in connection with such
arbitration.  Any party  shall be entitled  to obtain  injunctive  relief from a
court in any case where such relief is available,  and the non-prevailing  party
to any such  injunctive  proceeding  shall pay the  expenses  of the  prevailing
party, including reasonable attorneys' fees, in connection with such proceeding.

                                   ARTICLE XI

                                   Assignment

Neither this  Agreement nor any rights of the Investor or the Company  hereunder
may be assigned by any party to any other person. Notwithstanding the foregoing,
(a) the  provisions  of this  Agreement  shall  inure to the  benefit of, and be
enforceable  by, any permitted  transferee of any  Securities,  and (b) upon the
prior written  consent of the Company,  which consent shall not  unreasonably be
withheld or delayed,  the Investor's  interest in this Agreement may be assigned
at any time, in whole or in part, to any other Person  (including  any affiliate
of the Investor) who agrees to make the representations and warranties contained
in Article III and who agrees to be bound by the terms of this Agreement.


                                   ARTICLE XII

                                     Notices

All notices, demands,  requests,  consents,  approvals, and other communications
required  or  permitted  hereunder  shall be in writing  and,  unless  otherwise
specified  herein,  shall be (i) hand  delivered,  (ii)  deposited  in the mail,
registered  or certified,  return  receipt  requested,  postage  prepaid,  (iii)
delivered  by  reputable  air courier  service  with  charges  prepaid,  or (iv)
transmitted by facsimile,  addressed as set forth below or to such other address
as such party shall have specified most recently by written  notice.  Any notice
or other  communication  required or  permitted to be given  hereunder  shall be
deemed effective (a) upon hand delivery or delivery by facsimile,  with accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours  where such notice is to be  received)  or (b) on the first  business  day
following  the date of sending by  reputable  courier  service,  fully  prepaid,
addressed  to such  address,  or (c) upon  actual  receipt of such  mailing,  if
mailed. The addresses for such communications shall be:

If to the Company:                     DBS Industries, Inc.
                                       100 Shoreline Highway, Suite 190A
                                       Mill Valley, CA 94941
                                       Attn:  Randy Stratt
                                       Tel:  (415) 380-8055
                                       Fax:  (415) 380.8199

<PAGE>


with a copy to:                        Bartel, Eng & Schroder
(which shall not constitute notice)    300 Capitol Mall, Suite 1100
                                       Sacramento, CA  95814
                                       Attention: Dan Eng, Esq.
                                       Telephone:  (916) 442-0400
                                       Facsimile:  (916) 442-3442

If to the Investor:                    As set forth on the signature page hereto

with a copy to:                        Herbert H. Sommer, Esq.
(shall not constitute notice)          Sommer & Schneider LLP
                                       595 Stewart Avenue, Suite 710
                                       Garden City, NY 11530
                                       Telephone:  (516) 228-8181
                                       Facsimile:  (516) 228-8211


Either party hereto may from time to time change its address or facsimile number
for notices  under this  Article XII by giving  written  notice of such  changed
address  or  facsimile  number to the other  party  hereto as  provided  in this
Article XII.

                                  ARTICLE XIII

                                  Miscellaneous

Section  13.1.  Counterparts/  Facsimile/  Amendments.  This  Agreement  may  be
executed in multiple  counterparts,  each of which may be executed by fewer than
all of the parties,  and shall be deemed to be an original instrument that shall
be enforceable  against the parties actually executing such counterparts and all
of which  together  shall  constitute  one and the same  instrument.  Except  as
otherwise  stated  herein,  in  lieu  of the  original  documents,  a  facsimile
transmission  or  copy of the  original  documents  shall  be as  effective  and
enforceable  as the  original.  This  Agreement may be amended only by a writing
executed by all parties.

Section 13.2. Entire Agreement. This Agreement, the other Transaction Documents,
which include, but are not limited to, the Convertible Debentures, the Warrants,
the Escrow  Agreement,  the  Registration  Rights  Agreement and the Irrevocable
Transfer Agent Instructions, set forth the entire agreement and understanding of
the parties  relating to the subject  matter  hereof and supersede all prior and
contemporaneous  agreements,  negotiations and understandings  between and among
the parties,  both oral and written,  relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are  incorporated  herein
by this  reference and shall  constitute  part of this Agreement as is fully set
forth herein.

<PAGE>

Section 13.3.  Severability.  In the event that any provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without such provision;  provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.

Section  13.4.  Headings.  The  headings  used in this  Agreement  are  used for
convenience only and are not to be considered in construing or interpreting this
Agreement.

Section  13.5.  Number and Gender.  One or more  Investor may be parties to this
Agreement,  which Investor may be natural persons or entities. All references to
plural  Investor  shall apply equally to a single  Investor if there is only one
Investor,  and all  references  to the Investor as "it" shall apply equally to a
natural person.

Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the  determination of the trading price or trading volume of the Common
Stock on any given  Trading  Day for the  purposes  of this  Agreement  shall be
Bloomberg,  L.P. or any successor thereto. The written agreement of the Investor
and the Company shall be required to employ any other reporting entity.

Section  13.7.  Replacement  of  Certificates.  Upon  (i)  receipt  of  evidence
reasonably  satisfactory  to the  Company  of the loss,  theft,  destruction  or
mutilation of a certificate  representing any Securities and (ii) in the case of
any such loss,  theft or  destruction of such  certificate,  upon delivery of an
indemnity agreement or security  reasonably  satisfactory in form to the Company
(which  shall not  include  the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate,  the Company
at its expense will execute and deliver,  in lieu thereof,  a new certificate of
like tenor.

Section 13.8. Fees and Expenses.  Each of the Company and the Investor agrees to
pay its own expenses  incident to the performance of its obligations  hereunder,
except that the Company shall pay to the Person directed by Investor a fee of 6%
of the total  purchase  price of the  Convertible  Debentures  purchased  at the
Closing.

Section 13.9.  Brokerage.  Each of the parties hereto represents that it has had
no dealings in connection  with this  transaction  with any finder or broker who
will demand  payment of any fee or  commission  from the other party  except for
Madison and Wall, whose fee shall be paid by the Company. The Company on the one
hand,  and the  Investor,  on the other hand,  each agree to indemnify the other
against and hold the other  harmless from any and all  liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the  indemnifying  party in  connection  with
this Agreement or the transactions contemplated hereby.

Section  13.10.  Publicity.  The Company agrees that it will not issue any press
release or other public  announcement of the  transactions  contemplated by this
Agreement  without  the  prior  consent  of the  Investor,  which  shall  not be
unreasonably  withheld  nor delayed by more than two (2) Trading Days from their
receipt of such proposed  release.  No release  shall name the Investor  without
their express consent.

<PAGE>

Section 13.11. 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.

Section 13.12. Termination. If the initial Closing shall not have occurred on or
before  fifteen (15)  business days from the date hereof due to the Company's or
the  Investor's  failure to satisfy the conditions set forth in Article II above
(and the nonbreaching  party's failure to waive such unsatisfied  condition(s)),
the  nonbreaching  party shall have the option to terminate  this Agreement with
respect to such  breaching  party at the close of business on such date  without
liability  of any  party to any other  party;  provided,  however,  that if this
Agreement is terminated pursuant to this Section 13.12, the Company shall remain
obligated to reimburse the non-breaching  Investor for the expenses described in
Section 13.8 above.

Section 13.13. 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.

Section 13.14.  Remedies.  The Investor and each Holder of Securities shall have
all  rights  and  remedies  set  forth  in this  Agreement  and the  Convertible
Debentures  and all rights and  remedies  that such Holders have been granted at
any time under any other  agreement  or contract and all of the rights that such
Holders  have under any law.  Any person or entity  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 breach of any  provision  of this  Agreement  and to exercise  all
other rights granted by law.

Section 13.15. Payment Set Aside. To the extent that the Company makes a payment
or payments to the Investor hereunder or pursuant to the Convertible  Debentures
or the Investor  enforce or exercise their 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, by a trustee, receiver or
any other person or entity 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.


                  [THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]



<PAGE>


     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

                                    DBS INDUSTRIES, INC.



                                    By:
                                        ------------------------------------
                                        Name:  Stanton C. Lawson
                                        Title: Chief Financial Officer


                                    Investor: AZURE CAPITAL HOLDINGS LLC


                                    By:
                                        ------------------------------------
                                        Name: George Sandhu
                                        Authorized Signatory



Jurisdiction of Incorporation: Bermuda
Principal Amount of Convertible Debentures
Purchased:   $ 500,000
Number of Warrants:  250,000
Purchase Price (principal amount of
Convertible Debentures
Purchased): $500,000
Closing Date: August 31, 2001

Azure Capital Holdings LLC
400 Garden City Plaza, Suite 201
Garden City, NY  11530
Telephone:  (212) 785-4000
Facsimile:  (212) 785-0026