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                          SECURITIES PURCHASE AGREEMENT
                                      Among
                        IMAGING TECHNOLOGIES CORPORATION,
                               BALMORE FUNDS S.A.,
                             AUSTOST ANSTALT SCHAAN,
                                  NESHER, INC.
                                       and
                            GUARANTEE & FINANCE CORP.
                          Dated as of January 13, 1999







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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE I PURCHASE AND SALE OF UNITS...........................................1
   1.1 Purchase and Sale.......................................................1
   1.2 Purchase Price..........................................................2
   1.3 The Closings............................................................2

ARTICLE II REPRESENTATIONS AND WARRANTIES......................................5
   2.1 Representations, Warranties and Agreements of the Company...............5
   2.2 Representations and Warranties of the Purchasers.......................13

ARTICLE III     OTHER AGREEMENTS OF THE PARTIES...............................14
   3.1 Transfer Restrictions..................................................14
   3.2 Stop Transfer Instruction..............................................15
   3.3 Furnishing of Information..............................................15
   3.4 Blue Sky Laws..........................................................15
   3.5 Integration............................................................16
   3.6 Certain Agreements.....................................................16
   3.7 Listing and Reservation of Underlying Shares
       and Warrant Shares; Compliance with Law................................16
   3.8 Notice of Breaches.....................................................17
   3.9 Conversion Obligations of the Company..................................18
   3.10 Use of Proceeds.......................................................18
   3.11 Indemnification.......................................................18
   3.12 Sales of Preferred Stock..............................................19
   3.13 Subsequent Sales and Registrations....................................19
   3.14 Shareholder Approval..................................................20
   3.15 Interim Financing.....................................................20
   3.16 Incorporation of Certificate of Designation By Reference..............20
   3.17 Board of Directors....................................................20
   3.18 Conversion of Shares and Exercise of Warrants.........................20

ARTICLE IV CONDITIONS.........................................................21
   4.1 Conditions Precedent to Sale of the Initial Units......................21
   4.2 Conditions Precedent to the Obligation of the
       Purchasers to Purchase the Additional Units............................23

ARTICLE V MISCELLANEOUS.......................................................26
   5.1 Fees and Expenses......................................................26
   5.2 Entire Agreement; Amendments...........................................26
   5.3 Notices................................................................26
   5.4 Amendments; Waivers....................................................27
   5.5 Headings...............................................................27
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   5.6 Successors and Assigns.................................................27
   5.7 No Third Party Beneficiaries...........................................28
   5.8 Governing Law..........................................................28
   5.9 Survival...............................................................28
   5.10 Execution.............................................................28
   5.11 Publicity.............................................................28
   5.12 Consent to Jurisdiction; Attorneys' Fees..............................28
   5.13 Waiver of Jury Trial..................................................29
   5.14 Severability..........................................................30
   5.15 Remedies..............................................................30
   5.16 Independent Nature of Purchasers' Obligations and Rights..............30


Schedules and Exhibits
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Schedule 1            -    Purchasers of Units
Schedule 2.1(a)       -    Organization and Qualification; Subsidiaries
Schedule 2.1(c)       -    Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f)       -    Consents and Approvals
Schedule 2.1(g)       -    Litigation; Proceedings
Schedule 2.1(n)       -    Certain Fees
Schedule 2.1(r)       -    Listing and Maintenance Requirements Compliance
Schedule 2.1(u)       -    Registration Rights, Rights of Participation
Schedule 2.1(v)       -    Title
Schedule 2.1(aa)      -    Year 2000 Compliance
Schedule 3.13         -    Subsequent Sales and Registrations
Schedule 3.18         -    Conversion of Shares and Exercise of Warrants

Exhibit A             -    Certificate of Designation
Exhibit B             -    Warrants
Exhibit C             -    Registration Rights Agreement
Exhibit D             -    Legal Opinion of Parker Chapin Flattau & Klimpl, LLP
Exhibit E             -    Transfer Agent Instructions


                                       ii

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                          SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (this  "Agreement"),  dated as of January
13, 1999, among Imaging  Technologies  Corporation,  a Delaware corporation (the
"Company"), Balmore Funds S.A. ("Balmore"),  Austost Anstalt Schaan ("Austost"),
Nesher, Inc. ("Nesher") and Guarantee & Finance Corp. ("G&F"). Balmore, Austost,
Nesher and G&F are each referred to herein as a "Purchaser" and are collectively
referred to herein as the "Purchasers."


         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement,  the  Company  desires to issue and sell to the  Purchasers,  and the
Purchasers desire to acquire from the Company,  shares of the Company's Series D
Convertible  Preferred  Stock,  par value  $1,000 per share and stated  value of
$2,000 per share (the  "Preferred  Stock"),  and warrants  (the  "Warrants")  to
purchase shares of common stock,  par value $.005 per share, of the Company (the
"Common Stock").

         NOW,  THEREFORE,  in consideration of the mutual covenants contained in
this Agreement, the Company and each Purchaser agree as follows:

                                    ARTICLE I

                           PURCHASE AND SALE OF UNITS

         1.1      Purchase and Sale.

                  (a) Subject to the terms and conditions set forth herein,  the
                  Company  shall  issue  and  sell  to the  Purchasers,  and the
                  Purchasers, severally and not jointly, shall purchase from the
                  Company up to 1,200 units (the "Units"),  each Unit consisting
                  of (i) a  share  of  Preferred  Stock  and  (ii)  Warrants  to
                  purchase two thousand shares of Common Stock.  Notwithstanding
                  anything  to the  contrary  set forth in this  Agreement,  the
                  aggregate  number  of Units  to be sold  hereunder  shall  not
                  exceed 1,200.

                  (b) The  Preferred  Stock  shall have the  respective  rights,
                  preferences  and  privileges  set forth in the  Certificate of
                  Designation of the Company (the  "Certificate of Designation")
                  the form of which is annexed  hereto as Exhibit A, which shall
                  be  approved  by the  Purchasers  and the  Company's  Board of
                  Directors  (the "Board of  Directors")  and filed and accepted
                  for filing on or prior to the Initial Closing Date (as defined
                  below) by the Company with the Secretary of State of the State
                  of Delaware.  The  Warrants  shall be in the form of Exhibit B
                  annexed hereto.

         For  purposes  of this  Agreement,  "Trading  Day," "Per  Share  Market
Value," "Conversion Date," and "Original Issue Date" shall have the meanings set
forth in the Certificate of Designation.

<PAGE>


         1.2      Purchase Price. The purchase price per Unit shall be $2000.00.
                 
         1.3      The Closings.

                  (a)      The Initial Closing.

                           (i)  The  closing  of the  purchase  and  sale of the
                  Initial Units (as defined below) (the "Initial Closing") shall
                  take  place at the  offices  of Stroock & Stroock & Lavan LLP,
                  180 Maiden Lane,  New York, New York  10038-4982,  immediately
                  following the execution hereof or such later date or different
                  location as the parties shall agree in writing,  but not prior
                  to the date that the  conditions set forth in Section 4.1 have
                  been satisfied or waived by the appropriate party. The date of
                  the  Initial  Closing,  is  hereinafter  referred  to  as  the
                  "Initial  Closing Date." At the Initial  Closing,  the Company
                  shall  sell and issue to the  Purchasers,  and the  Purchasers
                  shall,  severally and not jointly,  purchase from the Company,
                  300 Units (the  "Initial  Units")  for an  aggregate  purchase
                  price of $600,000 (the "Initial Purchase Price").

                           (ii) At the Initial  Closing  (a) the  Company  shall
                  deliver to each Purchaser (1) stock certificates  representing
                  the shares of Preferred  Stock  included in the Initial  Units
                  (the  "Initial  Shares")  purchased  by such  Purchaser as set
                  forth  next to such  Purchaser's  name on  Schedule 1 attached
                  hereto, each registered in the name of such Purchaser, (2) the
                  Warrants   included  in  the  Initial   Units  (the   "Initial
                  Warrants")  purchased  by such  Purchaser as set forth next to
                  such   Purchaser's   name  on  Schedule  1  attached   hereto,
                  registered  in the name of such  Purchaser,  (3) and all other
                  documents,  instruments  and  writings  required  to have been
                  delivered  at or prior to the  Initial  Closing by the Company
                  pursuant  to  this  Agreement  and  the  Registration   Rights
                  Agreement, dated the date hereof, by and among the Company and
                  the  Purchasers,  in the form of Exhibit C annexed hereto (the
                  "Registration Rights Agreement"), and (b) each Purchaser shall
                  deliver to the Company  the  portion of the  Initial  Purchase
                  Price  set  forth  next to its name on  Schedule  1, in United
                  States dollars in immediately available funds by wire transfer
                  to an account  designated  in writing by the  Company for such
                  purpose  on or  prior to the  Initial  Closing  Date,  and all
                  documents,  instruments  and  writings  required  to have been
                  delivered at or prior to the Initial Closing by such Purchaser
                  pursuant  to  this  Agreement  and  the  Registration   Rights
                  Agreement.  

                  (b)      Subsequent Closings.

                           (i)  Second  Closing.  (A)  Subject  to the terms and
                  conditions  set forth in  Section  4.2 and  elsewhere  in this
                  Agreement,   beginning  on  the  date  on  which  the  initial
                  Registration  Statement (as defined in the Registration Rights
                  Agreement)  

                                        2

<PAGE>

                  is filed with the  Securities  and  Exchange  Commission  (the
                  "Commission")  with  respect to the Units,  the Company  shall
                  have the right to deliver a written  notice to the  Purchasers
                  (a  "Second  Closing  Notice")  requiring  the  Purchasers  to
                  purchase,  severally and not jointly,  up to an additional 300
                  Units (the  "Second  Tranche  Units")  for up to an  aggregate
                  purchase  price of  $600,000  (the  "Second  Tranche  Purchase
                  Price").  The Second Closing Notice shall set forth the number
                  of Second  Tranche Units that the Company  intends to sell the
                  Purchasers.  At the Second  Closing  each  Purchaser  shall be
                  obligated  (subject  to the terms and  conditions  herein)  to
                  purchase such portion of the Second  Tranche Units sold by the
                  Company as equals  such  Purchaser's  pro rata  portion of the
                  purchase  price for the Initial  Units  issued and sold at the
                  Initial  Closing.  The closing of the purchase and sale of the
                  Second Tranche Units (the "Second  Closing")  shall take place
                  in the  same  manner  as the  Initial  Closing  on  such  date
                  indicated in the Second Closing Notice (which may not be prior
                  to the 10th day after receipt by the  Purchasers of the Second
                  Closing  Notice or as  otherwise  agreed  to by the  parties);
                  provided,  however,  that in no case shall the Second  Closing
                  take place unless and until the  conditions  listed in Section
                  4.2 have been  satisfied or waived by the  appropriate  party.
                  The date of the Second Closing is  hereinafter  referred to as
                  the "Second Closing Date."

                           (B) At the  Second  Closing  (a)  the  Company  shall
                  deliver to each Purchaser (1) stock certificates  representing
                  the shares of Preferred  Stock  included in the Second Tranche
                  Units  (the  "Second  Tranche   Shares")   purchased  by  such
                  Purchaser  as set  forth  next  to  such  Purchaser's  name on
                  Schedule 1 attached  hereto,  each  registered  in the name of
                  such  Purchaser,  (2)  the  Warrants  included  in the  Second
                  Tranche  Units (the "Second  Tranche  Warrants")  purchased by
                  such Purchaser as set forth next to such  Purchaser's  name on
                  Schedule 1  attached  hereto,  registered  in the name of such
                  Purchaser  and (3) and all other  documents,  instruments  and
                  writings  required to have been  delivered  at or prior to the
                  Second  Closing by the Company  pursuant to this Agreement and
                  the  Registration  Rights  Agreement,  and (b) each  Purchaser
                  shall deliver to the Company the portion of the Second Tranche
                  Purchase  Price set forth next to its name on  Schedule  1, in
                  United States dollars in immediately  available  funds by wire
                  transfer  to an account  designated  in writing by the Company
                  for such purpose on or prior to the Second  Closing Date,  and
                  all documents,  instruments and writings required to have been
                  delivered at or prior to the Second  Closing by such Purchaser
                  pursuant  to  this  Agreement  and  the  Registration   Rights
                  Agreement.

                           (ii)  Third  Closing.  (A)  Subject  to the terms and
                  conditions  set forth in  Section  4.2 and  elsewhere  in this
                  Agreement,  the  Company  shall  have the  right to  deliver a
                  written notice to the  Purchasers (a "Third  Closing  Notice")
                  requiring the  Purchasers to purchase up to an additional  600
                  Units (the "Third  Tranche Units" and together with the Second
                  Tranche  Units,  the  "Additional  Units")  for  an  aggregate
                  purchase  price of  $1,200,000  (the "Third  Tranche  Purchase
                  Price").
                                       3
<PAGE>


                  The Company may deliver a Third Closing Notice no earlier than
                  60 days  after  the date on  which  the  initial  Registration
                  Statement  filed with the Commission with respect to the Units
                  has been  declared  effective by the  Commission  and no later
                  than 90 days after such  effective  date.  Such Third  Closing
                  Notice shall set forth the number of Third  Tranche Units that
                  the Company  intends to sell to the  Purchasers.  At the Third
                  Closing  each  Purchaser  shall be  obligated  (subject to the
                  terms and  conditions  herein) to purchase such portion of the
                  Third  Tranche  Units  sold  by the  Company  as  equals  such
                  Purchaser's  pro rata  portion of the  purchase  price for the
                  Initial  Units  issued and sold at the  Initial  Closing.  The
                  closing of the  purchase and sale of the Third  Tranche  Units
                  (the "Third  Closing")  shall take place in the same manner as
                  the  Initial  Closing,  on such  date  indicated  in the Third
                  Closing  Notice  (which may not be prior to the 10th day after
                  receipt by the  Purchasers of the Third  Closing  Notice or as
                  otherwise agreed to by the parties);  provided,  however, that
                  in no case shall the Third Closing take place unless and until
                  the  conditions  listed in Section 4.2 have been  satisfied or
                  waived by the appropriate party. The date of the Third Closing
                  is hereinafter referred to as the "Third Closing Date.")

                           (B)  At the  Third  Closing  (a)  the  Company  shall
                  deliver to each Purchaser (1) stock certificates  representing
                  the shares of Preferred  Stock  included in the Third  Tranche
                  Units  (the  "Third  Tranche  Shares"  and  together  with the
                  Initial  Shares and the Second Tranche  Shares,  the "Shares")
                  purchased  by  such  Purchaser  as  set  forth  next  to  such
                  Purchaser's   name  on  Schedule  1  attached   hereto,   each
                  registered  in the name of such  Purchaser,  (2) the  Warrants
                  included  in the  Third  Tranche  Units  (the  "Third  Tranche
                  Warrants")  purchased  by such  Purchaser as set forth next to
                  such   Purchaser's   name  on  Schedule  1  attached   hereto,
                  registered in the name of such Purchaser and (3) and all other
                  documents,  instruments  and  writings  required  to have been
                  delivered  at or prior to the  Third  Closing  by the  Company
                  pursuant  to  this  Agreement  and  the  Registration   Rights
                  Agreement, and (b) each Purchaser shall deliver to the Company
                  the portion of the Third Tranche Purchase Price set forth next
                  to its  name  on  Schedule  1, in  United  States  dollars  in
                  immediately  available  funds by wire  transfer  to an account
                  designated  in writing by the Company  for such  purpose on or
                  prior  to  the  Third   Closing  Date,   and  all   documents,
                  instruments and writings required to have been delivered at or
                  prior to the Third Closing by such Purchaser  pursuant to this
                  Agreement and the Registration Rights Agreement.

                           The  Second   Closing  and  the  Third   Closing  are
                  hereinafter   collectively  referred  to  as  the  "Subsequent
                  Closings,"  and the Second  Closing Date and the Third Closing
                  Date are hereinafter  referred to as the  "Subsequent  Closing
                  Dates."
                                       4
<PAGE>


                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

         2.1  Representations,  Warranties  and  Agreements of the Company.  The
Company  hereby  makes  the  following  representations  and  warranties  to the
Purchasers:

                  (a) Organization and Qualification;  Subsidiaries. The Company
         is a corporation, duly organized, validly existing and in good standing
         under the laws of the State of Delaware,  with the requisite  corporate
         power and  authority  to own and use its  properties  and assets and to
         carry on its  business  as  currently  conducted.  The  Company  has no
         subsidiaries other than as set forth in Schedule 2.1(a)  (collectively,
         the  "Subsidiaries").  Each of the Subsidiaries is a corporation,  duly
         organized,  validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the full  corporate  power and authority to own and use its  properties
         and assets and to carry on its business as currently conducted. Each of
         the Company and the  Subsidiaries  is duly qualified to do business and
         is in good standing as a foreign  corporation in each  jurisdiction  in
         which the nature of the  business  conducted  or  property  owned by it
         makes such qualification  necessary,  except where the failure to be so
         qualified  or in  good  standing,  as  the  case  may  be,  would  not,
         individually  or in the aggregate,  (x) adversely  affect the legality,
         validity  or  enforceability  of  the  Preferred  Stock  or  any of the
         Transaction  Documents  (as  defined  below),  (y) have or  result in a
         material adverse effect on the results of operations, assets, prospects
         insofar as it may reasonably be foreseen, or financial condition of the
         Company and the Subsidiaries,  taken as a whole or (z) adversely impair
         the  Company's   ability  to  perform  fully  on  a  timely  basis  its
         obligations  under  any  Transaction   Document,   including,   without
         limitation,  the  Company's  covenant  under Section 3.7 hereof (any of
         (x), (y) or (z), being a "Material Adverse Effect").

                  (b) Authorization;  Enforcement. The Company has the requisite
         corporate  power and  authority  to enter  into and to  consummate  the
         transactions  contemplated by this Agreement and the other  Transaction
         Documents,  and  otherwise to carry out its  obligations  hereunder and
         thereunder.  This Agreement,  the Registration  Rights  Agreement,  the
         Certificate of Designation, the Warrants and the Funds Escrow Agreement
         are  collectively  referred  to as  the  "Transaction  Documents."  The
         execution  and  delivery of each of the  Transaction  Documents  by the
         Company and the  consummation  by it of the  transactions  contemplated
         hereby and thereby have been duly authorized by all necessary action on
         the part of the  Company  and no  further  action  is  required  by the
         Company.  Each of the  Transaction  Documents has been duly executed by
         the Company and when delivered in accordance with the terms hereof will
         constitute  the legal,  valid and binding  obligation  of the  Company,
         enforceable against the Company in accordance with its terms, except as
         such   enforceability   may  be  limited  by   applicable   bankruptcy,
         insolvency,  reorganization,  moratorium,  liquidation  or similar laws
         relating to, or affecting  generally  the  enforcement  of,  creditors'
         rights  and  remedies  or by  other  equitable  principles  of  general
         application.  Neither the Company nor any Subsidiary is in violation of
         any of the

                                       5
<PAGE>

         provisions of its respective  certificate of  incorporation,  bylaws or
         other organizational  documents.  Prior to the Initial Closing Date the
         Certificate of  Designation  has been filed with the Secretary of State
         of the  State  of  Delaware  and  will be in  full  force  and  effect,
         enforceable against the Company in accordance with the terms thereof.

                  (c)  Capitalization;  Rights to  Acquire  Capital  Stock.  The
         authorized,  issued and outstanding  capital stock of the Company as of
         January  13,  1999,  is set forth in  Schedule  2.1(c).  All issued and
         outstanding  shares of capital stock of the Company and each Subsidiary
         have been duly  authorized  and  validly  issued and are fully paid and
         non-assessable.  Except as disclosed in Schedule  2.1(c),  no shares of
         the capital  stock of the Company are entitled to preemptive or similar
         rights,  nor is any holder of the capital stock of the Company entitled
         to  preemptive  or  similar  rights  arising  out of any  agreement  or
         understanding  with the  Company  by virtue  of any of the  Transaction
         Documents.  Except as disclosed in Schedule  2.1(c),  as of January 13,
         1999,  there are no  outstanding  options,  warrants,  script rights to
         subscribe to, calls,  written  commitments  or, to the knowledge of the
         Company,  oral  commitments  relating to, or, except as a result of the
         purchase  and sale of the  Units,  securities,  rights  or  obligations
         convertible into or exchangeable for, or giving any Person any right to
         subscribe  for or acquire  any shares of Common  Stock,  or  contracts,
         commitments,  understandings, written arrangements or, to the knowledge
         of  the  Company,  oral  arrangements  by  which  the  Company  or  any
         Subsidiary is or may become bound to issue additional  shares of Common
         Stock, or securities or rights  convertible or exchangeable into shares
         of Common Stock.  Except as set forth on Schedule  2.1(c),  and, to the
         best  knowledge of the Company,  no Person or group of related  Persons
         beneficially  owns (as  determined  pursuant to Rule 13d-3  promulgated
         under the  Securities  Exchange Act of 1934, as amended (the  "Exchange
         Act")) or has the right to acquire by agreement  with or by  obligation
         binding upon the Company beneficial ownership of in excess of 5% of the
         Common  Stock.   A  "Person"   means  an  individual  or   corporation,
         partnership,  trust, incorporated or unincorporated association,  joint
         venture, limited liability company, joint stock company, government (or
         an agency or  subdivision  thereof)  or other  entity of any kind.  The
         Common  Stock  is  quoted  and is  listed  for  trading  on The  Nasdaq
         Small-Cap Market.  Except as set forth on Schedule 2.1(c),  the Company
         has  received no notice,  either oral or written,  with  respect to the
         continued  eligibility  of the Common Stock for such  listing,  and the
         Company has maintained all  requirements  for the  continuation of such
         listing.

                  (d) Issuance of Units. The Units are duly authorized, and when
         issued  and paid for in  accordance  with the  terms  hereof,  shall be
         validly  issued,  fully paid and  nonassessable,  free and clear of all
         liens,   encumbrances,   and  rights  of  first  refusal  of  any  kind
         (collectively,  "Liens").  The Units upon issuance will not subject the
         holders thereof to personal  liability by reason of being such holders.
         The  Company  has  and,  at the  Initial  Closing  Date  and  the  each
         Subsequent  Closing Date (each, a "Closing Date"),  as the case may be,
         will  have and at all times  while  the  Shares  and the  Warrants  are
         outstanding will maintain an adequate reserve of duly authorized shares
         of Common  Stock to enable it to  perform  its  obligations  under this
         Agreement, the Warrants and the Certificate of

                                       6

<PAGE>

         Designation  with respect to the number of Shares and  Warrants  issued
         and outstanding at such Closing Date and in no circumstances shall such
         reserved and available  shares of Common Stock be less than 175% of the
         maximum  number of shares of Common Stock which would be issuable  upon
         conversion  of the  Shares and upon  exercise  of the  Warrants  issued
         pursuant to the terms  hereof with  respect to the number of Shares and
         Warrants  issued  and  outstanding  at  such  Closing  Date  were  such
         conversion  or  exercise,  as the case may be,  effected on the Initial
         Closing Date.  The shares of Common Stock  issuable upon  conversion of
         the Shares are  referred  to herein as the  "Underlying  Shares."  When
         issued  in  accordance  with  the   Certificate  of  Designation,   the
         Underlying Shares will be duly authorized,  validly issued,  fully paid
         and  nonassessable,  free and clear of all Liens.  The shares of Common
         Stock  issuable upon exercise of the Warrants are referred to herein as
         the "Warrant  Shares." When issued and paid for in accordance  with the
         Warrant,  the Warrant Shares will be duly  authorized,  validly issued,
         fully paid and nonassessable,  free and clear of all Liens. The Shares,
         the Warrants, the Underlying Shares and the Warrant Shares are referred
         to herein as the "Securities."

                  (e) No Conflicts.  The execution,  delivery and performance of
         this Agreement and the other  Transaction  Documents by the Company and
         the consummation by the Company of the transactions contemplated hereby
         and  thereby  do not and  will not (i)  conflict  with or  violate  any
         provision  of  its  certificate  of  incorporation,   bylaws  or  other
         organizational  documents  (each as amended through the date hereof) or
         (ii) subject to obtaining the consents  referred to in Section  2.1(f),
         conflict  with,  or constitute a default (or an event which 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 agreement,  indenture or instrument  (evidencing a
         Company debt or  otherwise) to which the Company is a party or by which
         any property or asset of the Company is bound or affected, (iii) result
         in  a  violation  of  any  law,  rule,  regulation,   order,  judgment,
         injunction,  decree or other  restriction of any court or  governmental
         authority to which the Company is subject  (including Federal and state
         securities laws and regulations),  or by which any material property or
         asset of the  Company  is  bound or  affected,  or (iv)  result  in the
         creation of imposition  of a Lien upon any of the  Securities or any of
         the assets of the Company,  or any of its  Affiliates  (as such term is
         defined under Rule 405 promulgated under the Securities Act), except in
         the case of each of clauses (ii) and (iii),  such conflicts,  defaults,
         terminations,  amendments, accelerations,  cancellations and violations
         as would not,  individually  or in the  aggregate,  have or result in a
         Material  Adverse  Effect.  The  business  of the  Company is not being
         conducted  in  violation of any law,  ordinance  or  regulation  of any
         governmental  authority  except  for any such  violation  as would not,
         individually or in the aggregate,  have or result in a Material Adverse
         Effect.

                  (f) Consents and Approvals.  Except as specifically  set forth
         in Schedule 2.1(f),  neither the Company nor any Subsidiary is required
         to obtain any  consent,  waiver,  authorization  or order of,  give any
         notice to, or make any filing or registration  with, any court or other
         federal,  state, local or other governmental  authority or other Person
         in  connection  with the  execution,  delivery and  performance  by the
         Company of

                                      7
<PAGE>

         the Transaction Documents,  other than (i) the approval of the Board of
         Directors and the filing of the Certificate of Designation with respect
         to the  Preferred  Stock  with the  Secretary  of State of the State of
         Delaware,  which filing and  approvals  with  respect to the  Preferred
         Stock shall be effected  prior to the Initial  Closing  Date,  (ii) the
         filing of the Registration  Statement with the Commission,  which shall
         be filed in  accordance  with and in the time  periods set forth in the
         Registration   Rights  Agreement,   (iii)  the  application(s)  or  any
         letter(s)  acceptable to The Nasdaq Small-Cap Market for the listing of
         the Underlying  Shares and the Warrant Shares with The Nasdaq Small-Cap
         Market (and with any other  national  securities  exchange or market on
         which the Common Stock is then listed),  and (iv) any filings,  notices
         or  registrations  under  applicable  federal and state securities laws
         (together with the consents, waivers,  authorizations,  orders, notices
         and filings referred to in Schedule 2.1(f), the "Required Approvals").

                  (g) Litigation;  Proceedings. Except as specifically set forth
         in  Schedule  2.1(g)  there is no action,  suit,  notice of  violation,
         proceeding  or  investigation  pending  or,  to  the  knowledge  of the
         Company,  threatened  against or  affecting  the  Company or any of the
         Subsidiaries  or any of their  respective  properties  before or by any
         court,  governmental or administrative  agency or regulatory  authority
         (federal,  state, county, local or foreign) which (i) adversely affects
         or challenges the legality,  validity or  enforceability  of any of the
         Transaction  Documents or the  Securities  or (ii) would  reasonably be
         expected to, individually or in the aggregate,  have a Material Adverse
         Effect.

                  (h) No Default  or  Violation.  Neither  the  Company  nor any
         Subsidiary  (i) is in default  under or in violation of any  indenture,
         loan or credit  agreement or any other agreement or instrument to which
         it is a party or by which it or any of its  properties  is bound  which
         would reasonably be expected to, individually or in the aggregate, have
         a Material  Adverse  Effect,  (ii) is in  violation of any order of any
         court, arbitrator or governmental body applicable to it, or (iii) is in
         violation  of any  statute,  rule  or  regulation  of any  governmental
         authority to which it is subject,  which violation would  reasonably be
         expected to, individually or in the aggregate,  have a Material Adverse
         Effect.

                  (i) Schedules. The Schedules to this Agreement furnished by or
         on behalf of the  Company  do not  contain  any untrue  statement  of a
         material fact or omit to state any material fact  necessary in order to
         make the statements made therein not misleading.

                  (j) Private  Offering.  The Company and all Persons  acting on
         its  behalf  have not made,  and will not make,  offers or sales of the
         Preferred  Stock,  and any  securities  that might be  integrated  with
         offers  and  sales  of  the  Preferred  Stock,  except  to  "accredited
         investors"  (as  defined in  Regulation  D  ("Regulation  D") under the
         Securities Act of 1933, as amended (the "Securities  Act")) without any
         general  solicitation  or advertising  and otherwise in compliance with
         the  conditions  of  Regulation D. The offer and sale by the Company to
         the Purchasers of the Shares and the Warrants and the Underlying Shares
         and the  Warrant  Shares  into which the Shares  and the  Warrants  are
         convertible  or  exercisable,  as the case may be, is  exempt  from the
         registration requirements of the Securities Act.

                                        8
<PAGE>


                  (k) SEC Documents;  Financial  Statements;  No Adverse Change.
         The Company has filed all reports  required to be filed by it under the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the three years  preceding  the date hereof  (the  foregoing  materials
         being  collectively  referred  to herein as the "SEC  Documents")  on a
         timely basis or has  received a valid  extension of such time of filing
         and has filed any such SEC  Documents  prior to the  expiration  of any
         such  extension.  As of  their  respective  dates,  the  SEC  Documents
         complied in all material respects with the requirements of the Exchange
         Act  and  the  rules  and  regulations  of the  Commission  promulgated
         thereunder,  and none of the SEC Documents,  when filed,  contained any
         untrue statement of a material fact or omitted to state a material fact
         required  to be  stated  therein  or  necessary  in  order  to make the
         statements therein not misleading. All material agreements to which the
         Company is a party or to which the  property  or assets of the  Company
         are  subject  have  been  filed as  exhibits  to the SEC  Documents  as
         required;  neither the Company nor any of the Subsidiaries is in breach
         of any  agreement  where such breach would  reasonably  be expected to,
         individually or in the aggregate,  have a Material Adverse Effect.  The
         financial  statements  of the  Company  included  in the SEC  Documents
         comply in all material respects with applicable accounting requirements
         and the rules and regulations of the Commission with respect thereto as
         in effect at the time of filing.  Such financial  statements  have been
         prepared in accordance with United States generally accepted accounting
         principles  applied on a consistent basis during the periods  involved,
         except as may be otherwise  specified in such  financial  statements or
         the notes  thereto,  and fairly  present in all  material  respects the
         financial  position of the Company as of and for the dates  thereof and
         the results of  operations  and cash flows for the periods  then ended,
         subject, in the case of unaudited statements,  to normal year-end audit
         adjustments. Since the date of the financial statements included in the
         Company's last filed Quarterly Report on Form 10-Q for the period ended
         September 30, 1998, there has been no event,  occurrence or development
         that has had,  or would  reasonably  be  expected  to have,  a Material
         Adverse  Effect  which  has  not  been  specifically  disclosed  to the
         Purchasers  by the Company.  The Company last filed  audited  financial
         statements  with  the  Commission  on  October  13,  1998,  and has not
         received any comments from the Commission in respect thereof.

                  (l) Seniority. No class of equity securities of the Company is
         senior  to the  Preferred  Stock  in  right of  payment,  whether  upon
         liquidation, dissolution or otherwise.

                  (m)  Investment  Company.  The  Company  is  not,  and  is not
         controlled  by or  under  common  control  with  an  affiliate  of,  an
         "investment  company" within the meaning of the Investment  Company Act
         of 1940, as amended.

                  (n) Certain Fees. Except as specifically set forth in Schedule
         2.1(n),  no fees or  commissions  will be payable by the Company to any
         broker,  financial  advisor,  finder,  investment  banker, or bank with
         respect  to  the  transactions  contemplated  by  this  Agreement.  The
         Purchasers  shall have no  obligation  with respect to any fees or with

                                       9
<PAGE>

         respect to any claims made by or on behalf of other Persons for fees of
         a  type  contemplated  in  this  Section  2.1(n)  that  may  be  due in
         connection with the  transactions  contemplated by this Agreement.  The
         Company shall indemnify and hold harmless each of the  Purchasers,  its
         employees,   officers,  directors,  agents,  and  partners,  and  their
         respective Affiliates,  from and against all claims,  losses,  damages,
         costs  (including  the costs of preparation  and  attorney's  fees) and
         expenses suffered in respect of any such claimed or existing fees.

                  (o)  Solicitation  Materials.  The Company has not distributed
         any offering  materials in connection with the offering and sale of the
         Securities.   The  Company  confirms  that  it  has  not  provided  the
         Purchasers  or  their  agents  or  counsel  with any  information  that
         constitutes or might constitute  material non-public  information.  The
         Company  understands and confirms that the Purchasers  shall be relying
         on  the  foregoing   representations   in  effecting   transactions  in
         securities of the Company.

                  (p) Form S-3 Eligibility.  The Company is, and at each Closing
         Date will be, eligible to register securities (including the Underlying
         Shares and the Warrant  Shares) for resale  with the  Commission  under
         Form S-3 promulgated under the Securities Act.

                  (q)  Exclusivity.  The  Company  shall  not issue and sell the
         Preferred  Stock to any Person  other than the  Purchasers  pursuant to
         this Agreement  other than with the specific  prior written  consent of
         each of the Purchasers.

                  (r) Listing and Maintenance Requirements Compliance. Except as
         set forth on  Schedule  2.1(r),  the Company has not in the three years
         preceding the date hereof  received  notice  (written or oral) from any
         stock exchange, market or trading facility on which the Common Stock is
         or has been listed (or on which it has been  quoted) to the effect that
         the  Company  is not in  compliance  with the  listing  or  maintenance
         requirements  of such exchange or market.  Except as  specifically  set
         forth on  Schedule  2.1(r),  after  giving  effect to the  transactions
         contemplated  in this  Agreement,  the Company  believes  that it is in
         compliance with all such maintenance requirements.

                  (s) Patents and Trademarks.  The Company has, or has rights to
         use,   all  patents,   patent   applications,   trademarks,   trademark
         applications,  service  marks,  trade names,  copyrights,  licenses and
         rights  (collectively,  the  "Intellectual  Property Rights") which are
         necessary  for  use in  connection  with  its  business,  as  currently
         conducted and as described in the SEC Documents,  and which the failure
         to so have would have a Material Adverse Effect.

                  (t) Acknowledgment of Dilution.  The Company acknowledges that
         the issuance of (i) the Underlying Shares upon conversion of the Shares
         in accordance  with the Certificate of Designation and (ii) the Warrant
         Shares  upon  exercise  of the  Warrants  may result in dilution of the
         outstanding  shares of Common Stock,  which dilution may be substantial
         under certain market conditions.  The Company further acknowledges that
         its  

                                       10
<PAGE>

         obligation to issue (i) the  Underlying  Shares upon  conversion of the
         Shares in accordance  with the  Certificate of Designation and (ii) the
         Warrant  Shares upon  exercise of the  Warrants  is  unconditional  and
         absolute regardless of the effect of any such dilution.

                  (u) Registration  Rights;  Rights of Participation.  Except as
         described on Schedule 2.1(u) hereto, (A) the Company has not granted or
         agreed  to grant  to any  Person  any  rights  (including  "piggy-back"
         registration  rights) to have any securities of the Company  registered
         with the Commission or any other  governmental  authority which has not
         been  satisfied and (B) except as set forth on Schedule  2.1(c) hereto,
         no  Person,   including,   but  not  limited  to,   current  or  former
         shareholders of the Company,  underwriters,  brokers or agents, has any
         right of first refusal,  preemptive right,  right of participation,  or
         any similar right to participate in the  transactions  contemplated  by
         this Agreement or any other Transaction Document.

                  (v) Title. Except as disclosed in Schedule 2.1(v), the Company
         and the Subsidiaries have good and marketable title to, or the right to
         use,  all  personal  property  owned by them which is  material  to the
         business  of the Company  and the  Subsidiaries,  in each case free and
         clear of all Liens,  except for liens, claims or encumbrances as do not
         materially  affect the value of such property and do not interfere with
         the use made and  proposed  to be made of such  property by the Company
         and the  Subsidiaries.  Neither the Company nor any of its Subsidiaries
         owns any real  property.  Any real property and  facilities  held under
         lease by the Company and the Subsidiaries are held by them under valid,
         subsisting  and  enforceable  leases  with such  exceptions  as are not
         material and do not interfere with the use made and proposed to be made
         of such property and buildings by the Company and the Subsidiaries.

                  (w)  Regulatory  Permits.  The  Company  and the  Subsidiaries
         possess all  franchises,  certificates,  licenses,  authorizations  and
         permits or similar authority issued by the appropriate  federal,  state
         or foreign regulatory authorities necessary to conduct their respective
         businesses as described in the SEC  Documents  except where the failure
         to possess such permits would not,  individually  or in the  aggregate,
         have a Material Adverse Effect  ("Material  Permits"),  and neither the
         Company nor any such  Subsidiary has received any notice of proceedings
         relating to the revocation or modification of any Material Permit.

                  (x)  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,  consistent with industry standards.  Neither the Company nor
         any Subsidiary  has received  notice from, and has any knowledge of any
         threat by, any  insurer  (that has issued any  insurance  policy to the
         Company or any  Subsidiary)  that such insurer intends to deny coverage
         under  or  cancel,  discontinue  or  not  renew  any  insurance  policy
         presently in force.

                                       11
<PAGE>

                  (y) Taxes.  All applicable tax returns required to be filed by
         the Company and each of the Subsidiaries have been filed, or if not yet
         filed have been granted extensions of the filing dates which extensions
         have  not  expired,  and  all  taxes,   assessments,   fees  and  other
         governmental charges upon the Company, the Subsidiaries, or upon any of
         their  respective  properties,  income  or  franchises,  shown  in such
         returns and on assessments  received by the Company or the Subsidiaries
         to be due and payable  have been paid,  or adequate  reserves  therefor
         have  been set up if any of such  taxes  are  being  contested  in good
         faith; or if any of such tax returns have not been filed or if any such
         taxes have not been paid or so reserved  for, the failure to so file or
         to pay would  not in the  aggregate  or  individually  have a  Material
         Adverse Effect.

                  (z) No Integrated  Offering.  Neither the Company,  nor any of
         its  Affiliates,  nor any  Person  acting on its or their  behalf,  has
         directly  or  indirectly  made any offers or sales in any  security  or
         solicited any offers to buy any  securities  under  circumstances  that
         would require  registration of any such securities under the Securities
         Act or cause the offering of the Securities  pursuant to this Agreement
         to be  integrated  with prior  offerings by the Company for purposes of
         the Securities Act or any applicable  shareholder  approval provisions,
         including,  without limitation,  under the rules and regulations of The
         Nasdaq Stock Market,  as applicable.  The Company has not conducted any
         offering  that will be integrated  with the issuance of the  Securities
         solely for purpose of Rule 4460(i) of The Nasdaq Stock  Market,  Inc.'s
         Marketplace Rules.

                  (aa) Year 2000 Compliance.  The Company has initiated a review
         and assessment of all areas within its and each Subsidiaries'  business
         and  operations  that  could be  adversely  affected  by the "Year 2000
         Problem"  (that is,  the risk that  computer  applications  used by the
         Company  or any of the  Subsidiaries  may be  unable to  recognize  and
         perform properly date-sensitive functions involving certain dates prior
         to and any date  after  December  31,  1999).  Based on the  foregoing,
         except as set forth on Schedule 2.1(aa),  the Company believes that the
         computer  applications  that  are  currently  material  to  its  or any
         Subsidiaries'  business and operations  are  reasonably  expected to be
         able to perform properly date-sensitive  functions for all dates before
         and after January 1, 2000, except to the extent that a failure to do so
         would not reasonably be expected to have a Material Adverse Effect.

         2.2  Representations  and  Warranties  of the  Purchasers.  Each of the
Purchasers,  severally and not jointly,  hereby  represents  and warrants to the
Company as follows:

                  (a)  Investment  Intent.   Such  Purchaser  is  acquiring  the
         Securities  for its own account for  investment  purposes  only and not
         with a view to or for  distributing or reselling such Securities or any
         part thereof or interest therein,  without prejudice,  however, to such
         Purchaser's right,  subject to the provisions of this Agreement and the
         Registration  Rights  Agreement,  at all  times  to sell  or  otherwise
         dispose of all or any part of such Securities  pursuant to an effective
         registration  statement under the Securities Act and in compliance with
         applicable  State  securities  laws or under  an  exemption  from  such
         registration.
                                       12
<PAGE>


                  (b) Purchaser  Status.  At the time such Purchaser was offered
         the  Securities,  and at each Closing Date,  (i) it was and will be, an
         "accredited  investor"  (as  defined  in  Regulation  D),  or (ii) such
         Purchaser  either alone or together with its  representatives,  had and
         will have such knowledge, sophistication and experience in business and
         financial  matters  so as to be capable  of  evaluating  the merits and
         risks of the prospective investment in the Securities, and had and will
         have so  evaluated  the  merits  and  risks  of such  investment.  Such
         Purchaser  has the  authority  and is duly  and  legally  qualified  to
         purchase and own the Securities.

                  (c)  Ability of  Purchaser  to Bear Risk of  Investment.  Such
         Purchaser is able to bear the  economic  risk of an  investment  in the
         Securities  and, at the present time, is able to afford a complete loss
         of such investment.

                  (d) Reliance. Each Purchaser understands and acknowledges that
         (i) the Securities are being offered and sold to the Purchaser  without
         registration  under the Securities  Act in a private  placement that is
         exempt from the  registration  provisions of the  Securities  Act under
         Section  4(2)  of  the  Securities  Act  or  Regulation  D  promulgated
         thereunder and (ii) the availability of such exemption, depends in part
         on, and the Company will rely upon the accuracy  and  truthfulness  of,
         the foregoing  representations  and such Purchaser  hereby  consents to
         such reliance.


                                       13
<PAGE>



                                   ARTICLE III

                         OTHER AGREEMENTS OF THE PARTIES

         3.1      Transfer Restrictions.

                  (a) If any  Purchaser  should  decide to dispose of any Shares
         (and upon conversion  thereof any of the Underlying Shares) or Warrants
         (and upon exercise  thereof any of the Warrant Shares) held by it, each
         Purchaser  understands and agrees that it may do so only pursuant to an
         effective  registration  statement  under the  Securities  Act,  to the
         Company or pursuant to an  available  exemption  from the  registration
         requirements  of the Securities Act. In connection with any transfer of
         any  Securities  other  than  pursuant  to  an  effective  registration
         statement  or to the  Company,  the Company may require the  transferor
         thereof to provide to the  Company a written  opinion of  counsel,  the
         form and substance of which opinion shall be reasonably satisfactory to
         the  Company,  to the  effect  that  such  transfer  does  not  require
         registration of such  transferred  securities under the Securities Act.
         Notwithstanding  the  foregoing,  the  Company  hereby  consents to and
         agrees to register (i) any transfer of  Securities  by one Purchaser to
         another Purchaser, and agrees that no documentation other than executed
         transfer  documents  shall be required for any such transfer,  and (ii)
         any transfer by any  Purchaser to an Affiliate of such  Purchaser or to
         an  Affiliate  of another  Purchaser,  or any  transfer  among any such
         Affiliates,  provided  that  transferee  certifies  in  writing  to the
         Company that it is an  "accredited  investor" (as defined in Regulation
         D). Any such transferee shall agree in writing to be bound by the terms
         of this  Agreement and shall have the rights of a Purchaser  under this
         Agreement and the Registration Rights Agreement.

                  (b) Each  Purchaser  agrees to the  imprinting,  so long as is
         required  by  this  Section  3.1(b),  of the  following  legend  on the
         Securities:

                  THE  SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN  REGISTERED
         WITH  THE  SECURITIES  AND  EXCHANGE  COMMISSION  IN  RELIANCE  UPON AN
         EXEMPTION  FROM  REGISTRATION  UNDER  THE  SECURITIES  ACT OF 1933,  AS
         AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
         SOLD EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE
         SECURITIES  ACT OR PURSUANT TO AN  AVAILABLE  EXEMPTION  FROM,  OR IN A
         TRANSACTION  NOT  SUBJECT  TO,  THE  REGISTRATION  REQUIREMENTS  OF THE
         SECURITIES ACT.

                  The Underlying  Shares  issuable upon conversion of the Shares
         and the Warrant Shares issuable upon exercise of the Warrants shall not
         contain  the  legend set forth  above if such  conversion  or  exercise
         occurs at any time while the Registration  Statement is effective under
         the Securities  Act and upon the sale of the  Underlying  Shares or the

                                       14
<PAGE>

         Warrant  Shares  by the  Purchasers  or in the  event  there  is not an
         effective  Registration  Statement  at  such  time,  if in the  written
         opinion of counsel to the Company  (such opinion to be furnished at the
         sole expense of the Company at the request of a Purchaser)  such legend
         is not required  under  applicable  requirements  of the Securities Act
         (including judicial  interpretations  and pronouncements  issued by the
         staff of the Commission).  The Company agrees that it will provide each
         Purchaser,   upon   request,   with  a  certificate   or   certificates
         representing  Underlying  Shares and/or Warrant Shares,  free from such
         legend at such time as such legend is no longer required hereunder.

         3.2 Stop Transfer Orders; Suspension of Qualification.  The Company may
not make any notation on its records or give  instructions to any transfer agent
of the Company which enlarge the  restrictions  of transfer set forth in Section
3.1. The Company will advise the  Purchasers,  promptly after it receives notice
of issuance by the  Commission,  any state  securities  commission  or any other
regulatory  authority of any stop order or of any order preventing or suspending
the use of any offering of any  securities of the Company,  or of the suspension
of  the  qualification  of  the  Common  Stock  for  offering  or  sale  in  any
jurisdiction, or the initiation of any proceeding for any such purpose.

         3.3  Furnishing  of   Information.   As  long  as  any  Purchaser  owns
Securities,  the  Company  covenants  to timely  file (or obtain  extensions  in
respect  thereof  and file  within the  applicable  grace  period)  all  reports
required  to be filed by the Company  after the date hereof  pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly  furnish the Purchasers  with
true and complete  copies of all such  filings.  As long as any  Purchaser  owns
Securities,  if the Company is not required to file reports  pursuant to Section
13(a)  or  15(d)  of the  Exchange  Act,  it will  prepare  and  furnish  to the
Purchasers  and  make  publicly   available  in  accordance   with  Rule  144(c)
promulgated under the Securities Act annual and quarterly financial  statements,
together with a discussion and analysis of such financial statements in form and
substance  substantially similar to those that would otherwise be required to be
included in reports  required by Section  13(a) or 15(d) of the Exchange Act, as
well as any other  information  required  thereby,  in the time period that such
filings  would have been  required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
Units may reasonably  request,  all to the extent  required from time to time to
enable such Person to sell  Underlying  Shares  and/or  Warrant  Shares  without
registration  under the  Securities  Act within the limitation of the exemptions
provided by Rule 144 promulgated  under the Securities Act,  including the legal
opinion  referenced  above in Section 3.1.  Upon the request of any such Person,
the  Company  shall  deliver to such  Person a written  certification  of a duly
authorized officer as to whether it has complied with such requirements.

         3.4  Blue  Sky  Laws.  In  accordance  with  the  Registration   Rights
Agreement,  the Company shall qualify the Underlying Shares under the securities
or Blue Sky laws of such  jurisdictions  as the Purchasers may request and shall
continue such  qualification  at all times through the third  anniversary of the
last Closing Date.

                                       15
<PAGE>


         3.5 Integration.  Except for the sale of Series E Convertible Preferred
Stock,  the Company shall not sell,  offer for sale or solicit  offers to buy or
otherwise  negotiate  in respect of any security (as defined in Section 2 of the
Securities  Act)  that  would  be  integrated  with  the  offer  or  sale of the
Securities in a manner that would require the registration  under the Securities
Act of the sale of any or all of such securities to any Purchaser.

         3.6 Certain Agreements.  As long as any Purchaser owns Securities,  the
Company shall not and shall cause the  Subsidiaries  not to, without the consent
of the holders of all of the Shares then outstanding,  (i) amend its certificate
of  incorporation,  bylaws or other charter  documents so as to adversely affect
any  rights of any  Purchaser;  (ii)  declare,  authorize,  set aside or pay any
dividend  or other  distribution  with  respect  to the Common  Stock  except as
permitted under the Certificate of Designation and as would not adversely affect
the rights of any Purchaser  hereunder or under the  Certificate of Designation;
(iii) repay,  repurchase  or offer to repay,  repurchase  or  otherwise  acquire
shares of its Common  Stock in any  manner;  (iv) issue any series of  preferred
stock or other  securities  with  rights  senior (in  respect  of  liquidations,
dividends,  preferences and similar rights) to those of the Shares; or (v) enter
into any agreement with respect to any of the foregoing.

         3.7    Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law..

                  (a) The  Company  shall (i) not later than the tenth  Business
         Day  following  the  applicable  Closing Date prepare and file with The
         Nasdaq  Small-Cap  Market  (as well as any  other  national  securities
         exchange  or  market  on which  the  Common  Stock is then  listed)  an
         additional  shares listing  application  or a letter  acceptable to The
         Nasdaq  Small-Cap  Market  covering  and  listing a number of shares of
         Common  Stock which is at least equal to 175% of the maximum  number of
         Underlying Shares and Warrant Shares then issuable, (ii) take all steps
         necessary to cause the  Underlying  Shares and the Warrant Shares to be
         approved for listing in The Nasdaq  Small-Cap Market (as well as on any
         other national  securities exchange or market on which the Common Stock
         is then listed) as soon as possible  thereafter,  and (iii)  provide to
         the Purchasers evidence of such listing, and the Company shall maintain
         the  listing  of its  Common  Stock  on such  market.  As used  herein,
         "Business Day" means any day except Saturday,  Sunday and any day which
         shall be a legal holiday or a day on which banking  institutions in the
         State of New York  generally are authorized or required by law or other
         government actions to close.

                  (b)  The  Company  shall  at all  times  have  authorized  and
         reserved for issuance  upon  conversion  of the Shares  pursuant to the
         terms  of the  Certificate  of  Designation  and upon  exercise  of the
         Warrants  pursuant to the Warrant the number of shares of Common  Stock
         required to provide for the  conversion  of the Shares and the exercise
         of the Warrants.

                  (c) Until at least two (2) years  after the last of the Shares
         has been converted into  Underlying  Shares or the last of the Warrants
         has been exercised for the Warrant


                                       16

<PAGE>

         Shares,  (i) the Company  will cause its Common Stock to continue to be
         registered  under  Sections  12(b) or 12(g) of the Exchange  Act,  will
         comply in all respects with its reporting and filing  obligations under
         such  Exchange Act,  will comply with all  requirements  related to any
         registration   statement  filed  pursuant  to  this  Agreement  or  the
         Registration  Rights Agreement and will not take any action or file any
         document  (whether  or  not  permitted  by  the  Securities  Act or the
         Exchange Act or the rules and  regulations  thereunder) to terminate or
         suspend such  registration or to terminate or suspend its reporting and
         filing obligations under the Securities Act and Exchange Act, except as
         permitted  herein and (ii) the Company will take all action  within its
         power to  continue  the  listing or trading of its Common  Stock on The
         Nasdaq  Small-Cap  Market  and will  comply  in all  respects  with the
         Company's  reporting,  filing and other obligations under the bylaws or
         rules of the NASD and The Nasdaq Stock Market.

         3.8      Notice of Breaches.

                  (a) Each of the Company and each  Purchaser  shall give prompt
         written  notice  to the  other  of any  breach  of any  representation,
         warranty  or  other  agreement   contained  in  this   Agreement,   the
         Certificate of  Designation,  the Warrants or the  Registration  Rights
         Agreement,  as well as any events or occurrences arising after the date
         hereof and prior to any Closing Date,  which would reasonably be likely
         to cause any  representation  or  warranty or other  agreement  of such
         party, as the case may be, contained herein to be incorrect or breached
         as of such Closing Date.  However,  no disclosure by any party pursuant
         to this  Section  3.8  shall  be  deemed  to  cure  any  breach  of any
         representation,  warranty or other agreement contained herein or in the
         Registration Rights Agreement.

                  (b)  Notwithstanding  the  generality of Section  3.8(a),  the
         Company  shall  promptly  notify each  Purchaser of any notice or claim
         (written  or oral) that it  receives  from any lender of the Company to
         the  effect  that the  consummation  of the  transactions  contemplated
         hereby,  by the Certificate of Designation,  by the Warrants and by the
         Registration  Rights  Agreement  violates or would  violate any written
         agreement or understanding between such lender and the Company, and the
         Company shall promptly furnish by facsimile to each Purchaser a copy of
         any  written  statement  in  support  of or  relating  to such claim or
         notice.

                  (c) The default by any  Purchaser  of any of its  obligations,
         representations or warranties under any Transaction  Document shall not
         be imputed to, and shall have no effect  upon,  any other  Purchaser or
         affect the Company's obligations under the Transaction Documents to any
         non-defaulting Purchaser or to the defaulting Purchaser with respect to
         any outstanding Shares, Warrants, Underlying Shares or Warrant Shares.

         3.9  Conversion  Obligations of the Company.  The Company  covenants to
convert Shares and to deliver the Underlying Shares in accordance with the terms
and  conditions  and within  the time  period  set forth in the  Certificate  of
Designation.

                                       17
<PAGE>


         3.10 Use of Proceeds.  The Company  shall use all of the proceeds  from
the sale of the Units for working capital and general corporate purposes and not
for the  satisfaction  of any portion of Company  borrowings  outside the normal
course of business,  including,  without limitation, any obligation or liability
of any kind owed to a  shareholder,  officer or director of the  Company,  or to
redeem Company equity or  equity-equivalent  securities.  Pending application of
the proceeds of this placement in the manner permitted hereby,  the Company will
invest such proceeds in interest bearing accounts and/or short-term,  investment
grade interest bearing securities.

         3.11  Indemnification.  The Company  also will  indemnify  and hold the
Purchasers harmless against any and all losses,  claims,  damages or liabilities
to any such  Person  (including,  without  limitation,  in  connection  with any
action,  proceeding  or  investigation  brought by or against  any such  Person,
including by  shareholders  of the Company) in connection with or as a result of
any  matter  referred  to  in  the  Transaction  Documents,  including,  without
limitation,   for  any   misrepresentation  by  the  Company,  for  breaches  of
representations  and warranties  contained in any of the Transaction  Documents,
and for any  breach,  non-compliance  or  nonfulfillment  by the  Company of any
covenant,  agreement  or  undertaking  to be complied  with or  performed  by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is  finally  judicially  determined  that such  losses,  claims,  damages  or
liabilities  resulted  solely  from the  gross  negligence  or bad  faith of the
Purchasers.  If for any reason the foregoing  indemnification  is unavailable to
such Purchaser or is insufficient to hold such Person harmless, then the Company
shall  contribute to the amount paid or payable by such Purchaser as a result of
such loss,  claim,  damage or liability in such  proportion as is appropriate to
reflect the relative  economic  interests of the Company and its shareholders on
the one hand and the Purchasers on the other hand in the matters contemplated by
the  Transaction  Documents as well as the relative fault of the Company and the
Purchasers with respect to such loss,  claim,  damage or liability and any other
relevant equitable considerations. The reimbursement, indemnity and contribution
obligations  of the  Company  under this  paragraph  shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any affiliate of the  Purchasers and the partners,  directors,
agents,  employees and controlling  persons (if any), as the case may be, of the
Purchasers  and any such  affiliate,  and shall be binding upon and inure to the
benefit of any successors,  assigns,  heirs and personal  representatives of the
Company,  the  Purchasers,  any such affiliate and any such Person.  The Company
also agrees that neither the  Purchasers nor any of such  Affiliates,  partners,
directors,  agents, employees or controlling persons shall have any liability to
the  Company  or any  Person  asserting  claims  on behalf of or in right of the
Company  in  connection  with or as a result of any matter  referred  to in this
Agreement except to the extent that it is finally judicially determined that any
losses, claims, damages,  liabilities or expenses incurred by the Company result
solely  from the gross  negligence  or bad faith of, or  knowing  breach of this
Agreement by, the  Purchasers.  Promptly  after receipt by the Purchasers or any
affiliate,  partners,  directors,  agents, employees and controlling persons, as
the case may be, of notice of any claim or other  commencement  of any action in
respect of which indemnity may be sought,  such party will notify the Company in
writing of the receipt or  commencement  thereof and the Company  shall have the
right to assume the defense of such claim or action (including the employment of
counsel  reasonably  satisfactory to the indemnified  parties and the payment of
fees and expenses of such


                                       18
<PAGE>

counsel).  The  indemnified  party  shall  cooperate  with the  Company  and the
Company's  counsel  in the  defense  of such  claim or  action.  The  Purchasers
understand  that the Company shall not in connection  with any one such claim or
action or separate but  substantially  similar  related claims or actions in the
same jurisdiction  arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys  for  all  of  the  indemnified  parties  unless  the  defense  of one
indemnified  party is unique or separate from that of another  indemnified party
or one or more legal defenses are available to an  indemnified  party but not to
other indemnified  parties subject to the same claim or action. In the event the
Company  does  not  promptly  assume  the  defense  of a claim  or  action,  the
indemnified   parties  shall  have  the  right  to  employ  counsel   reasonably
satisfactory to the Company,  at the Company's expense,  to defend such claim or
action.  The indemnified party shall not admit any liability with respect to the
claim or action or settle,  compromise,  pay or  discharge  the same without the
prior  written  consent  of the  Company so long as the  Company  is  reasonably
contesting  or  defending  the  same  in  good  faith.  The  Company  shall  not
compromise,  settle or  discharge  any claim or action  without the  Purchasers'
consent, as applicable,  which consent will not be unreasonably withheld, unless
there is no  finding  or  admission  of any  violation  of any law  against  the
indemnified  party and the sole relief is monetary  damages  paid in full by the
Company.  Any right to trial by jury with  respect to any  action or  proceeding
arising in connection with or as a result of either our engagement or any matter
referred  to in this  Agreement  is hereby  waived by the  parties  hereto.  The
provisions of this Section 3.11 shall survive any  termination  or completion of
the Transaction Documents.

         3.12 Sales of Preferred Stock. The Company shall not sell any shares of
Preferred  Stock other than (i) the Shares and (ii) up to an  aggregate of 1,250
shares of Series E Preferred  Stock, par value $1,000 per share and stated value
$5,000 per share, other than as permitted in Section 3.13.

          3.13 Subsequent  Sales and  Registrations.  (a) Until the later of (i)
 180 days after the Third  Closing  Date and (ii) 60 days  after all  Underlying
 Shares  and  Warrant  Shares  have been  registered  under the  Securities  Act
 pursuant  to an  effective  registration  statement,  the  Company  shall  not,
 directly or indirectly,  without the prior written  consent of the  Purchasers,
 offer, sell, grant any option to purchase, or otherwise dispose of (or announce
 any offer,  sale, grant of any option to purchase or other  disposition) any of
 its or its Affiliates' equity or equity-equivalent securities or any instrument
 that  permits  the  holder  thereof  to acquire  Common  Stock,  except (i) the
 granting of options or warrants to employees,  officers and directors,  and the
 issuance of shares upon  exercise of options  granted,  under any stock  option
 plan heretofore or hereinafter duly adopted by the Company,  (ii) shares issued
 upon exercise of any currently  outstanding warrants and upon conversion of any
 currently  outstanding  convertible  preferred  stock in each case disclosed in
 Schedule 2.1(c),  (iii) shares of Common Stock issued upon conversion of Shares
 or upon  exercise of the  Warrants,  and (iv) shares of Common  Stock issued in
 connection with the transactions described on Schedule 3.13.

          (b)  Other  than   Underlying   Shares,   Warrant   Shares  and  other
 "Registrable  Securities" (as defined in the Registration  Rights Agreement) to
 be registered in accordance with 

                                       19
<PAGE>

the Registration  Rights  Agreement,  the Company shall not, for a period of not
less  than 90  Trading  Days  after the dates  that any  registration  statement
relating to the Securities is declared effective by the Commission,  without the
prior written consent of the Purchasers,  (i) register for resale any securities
of the  Company,  or (ii)  issue  or sell  any of its or any of its  Affiliates'
equity or equity-equivalent securities except for (A) securities issued upon the
exercise or conversion  of the  securities  set forth on Schedule  2.1(c) or (B)
securities sold pursuant to the Company's  employee benefit plans. Any days that
any Purchaser is unable to sell  Underlying  Shares or Warrant  Shares under the
Registration  Statement  shall be added to such 90  Trading  Day  period for the
purposes of (i) and (ii) above.

         3.14 Shareholder Approval.  The Company shall, as promptly as possible,
but in no event later than 65 days after the  Initial  Closing  Date,  convene a
shareholders'  meeting,  held in accordance  with the Company's  Certificate  of
Incorporation  and  bylaws,  and use its best  efforts  to obtain  the  approval
("Shareholder  Approval")  by a majority of the total votes cast on the proposal
at such shareholders' meeting, in person or by proxy, of (i) the issuance of the
Underlying  Shares as a consequence of the conversion of the Shares and (ii) the
issuance of the Warrant Shares as a consequence of the exercise of the Warrants,
in each case in a number  exceeding the maximum number of shares of Common Stock
issuable  without  shareholder  approval at a price less than the greater of the
book or market  value on the Original  Issue Date as and to the extent  required
pursuant to Rule 4460(i) of The Nasdaq Stock Market,  Inc.'s  Marketplace  Rules
(or any successor or replacement provision thereof).

         3.15 Interim  Financing  The Company  shall use  reasonable  efforts to
obtain from its  Affiliates an investment  of additional  working  capital in an
aggregate  amount not less than $1,000,000 and not more than $2,000,000 on terms
no more  favorable  to  such  Affiliates  than  the  terms  of the  Units  (such
investment being the "Interim Financing").

         3.16  Incorporation  of Certificate  of  Designation By Reference.  The
Certificate of Designation is hereby incorporated herein by reference and made a
part hereof.

         3.17 Board of  Directors.  If more than ten percent (10%) of the Shares
remain  outstanding,  the  Purchasers  shall  have  the  right  to  approve  the
appointment  of any new or  replacement  member to the Board of Directors,  such
approval not to be unreasonably withheld.

         3.18  Conversion of Shares and Exercise of Warrants.  Until the Company
has received Shareholder Approval, none of the Purchasers shall be issued shares
of Common Stock upon (i) the  conversion  of the Shares and/or (ii) the exercise
of the  Warrants,  at a price per share of Common  Stock less than the Per Share
Market  Value in  excess of the  number  of  shares  of  Common  Stock set forth
opposite each of the Purchasers' name on Schedule 3.18 hereto.

                                       20
<PAGE>



                                   ARTICLE IV

                                   CONDITIONS

         4.1      Conditions Precedent to Sale of the Initial Units.

                  (a)  Conditions  Precedent to the Obligation of the Company to
         Sell the  Initial  Units.  The  obligation  of the  Company to sell the
         Initial Units hereunder is subject to the satisfaction or waiver by the
         Company,  at or before the Initial  Closing,  of each of the  following
         conditions:

                           (i) Accuracy of the Purchasers'  Representations  and
                  Warranties.   The   representations  and  warranties  of  each
                  Purchaser  shall be true and correct in all material  respects
                  as of the date when made and as of the Initial  Closing  Date,
                  as though made on and as of such date;

                           (ii)  Performance by the  Purchasers.  Each Purchaser
                  shall have  performed,  satisfied and complied in all material
                  respects  with  all   covenants,   agreements  and  conditions
                  required  by this  Agreement  to be  performed,  satisfied  or
                  complied  with by such  Purchaser  at or prior to the  Initial
                  Closing; and

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

                  (b)  Conditions  Precedent to the Obligation of the Purchasers
         to  Purchase  the  Initial  Units.  The  obligation  of each  Purchaser
         hereunder  to acquire and pay for the  Initial  Units is subject to the
         satisfaction  or waiver by such  Purchaser,  at or before  the  Initial
         Closing, of each of the following conditions:

                           (i)  Accuracy of the  Company's  Representations  and
                  Warranties.  The representations and warranties of the Company
                  set forth in this  Agreement  and in the  Registration  Rights
                  Agreement  shall be true and correct in all material  respects
                  as of the date when made and as of the Initial Closing Date as
                  though made on and as of such date;

                           (ii)  Performance  by the Company.  The Company shall
                  have  performed,  satisfied  and complied with in all material
                  respects all covenants,  agreements and conditions required by
                  this Agreement to be performed,  satisfied or complied with by
                  the Company at or prior to the Initial Closing;

                                       21
<PAGE>


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

                           (iv) Adverse Changes. Since the date of the financial
                  statements  included in the Company's Quarterly Report on Form
                  10-Q or Annual Report on Form 10-K,  whichever is more recent,
                  last filed prior to the date of this Agreement, no event which
                  had a Material  Adverse Effect and no material  adverse change
                  in the financial  condition of the Company shall have occurred
                  (for purposes hereof changes in the market price of the Common
                  Stock may be  considered  as a factor in  determining  whether
                  there has  occurred an event which has had a Material  Adverse
                  Effect or whether a material adverse change has occurred);

                           (v) No  Suspensions  of Trading in Common Stock.  The
                  trading in the Common  Stock shall not have been  suspended by
                  the  Commission  or  on  The  Nasdaq  Small-Cap  Market  which
                  suspension shall remain in effect;

                           (vi) Legal Opinion.  The Company shall have delivered
                  to the  Purchasers  the  opinion  of Parker  Chapin  Flattau &
                  Klimpl,  LLP, outside counsel to the Company, in substantially
                  the forms annexed hereto as Exhibit D;

                           (vii)  Required  Approvals.  All  approvals  required
                  pursuant  to  clauses  (i)  and  (iv)  of  the  definition  of
                  "Required Approvals" shall have been obtained;

                           (viii)  Shares  of Common  Stock.  On or prior to the
                  Initial Closing Date, the Company shall have duly reserved the
                  number of Underlying Shares and Warrant Shares required by the
                  Transaction   Documents  to  be  reserved  for  issuance  upon
                  conversion of the Shares and upon exercise of the Warrants;

                           (ix)  Delivery  of  Stock  Certificates  and  Warrant
                  Certificates.   The  Company  shall  have  delivered  to  each
                  Purchaser  or  such  Purchaser's   designee,   (i)  the  stock
                  certificate(s)  representing the Initial Shares, registered in
                  the name of such Purchaser,  each in form  satisfactory to the
                  Purchaser  and (ii) warrant  certificate(s)  representing  the
                  Initial Warrants, registered in the name of such Purchaser, in
                  form satisfactory to the Purchaser;

                           (x)   Registration   Rights  Agreement.  The  Company
                  shall have  executed  and  delivered the  Registration  Rights
                  Agreement;

                           (xi)  Certificate of Designation.  The Certificate of
                  Designation  shall  have  been duly  approved  by the Board of
                  Directors  and filed with and  accepted  by 

                                       22

<PAGE>

                  the  Secretary  of State of the  State  of  Delaware,  and the
                  Company shall have  delivered a copy thereof to each Purchaser
                  certified as filed by the office of the  Secretary of State of
                  the State of Delaware;

                           (xii) Transfer Agent  Instructions.  The  Irrevocable
                  Transfer Agent Instructions,  in the form of Exhibit E annexed
                  hereto,  shall  have been  delivered  to and  acknowledged  in
                  writing by the Company's transfer agent; and

                           (xiii) Officer's Certificate.  On the Initial Closing
                  Date the Company shall deliver to the  Purchasers an Officer's
                  Certificate  dated the Initial  Closing  Date and signed by an
                  executive  officer of the Company  confirming  the accuracy of
                  the Company's representations,  warranties and covenants as of
                  such Closing Date and confirming the compliance by the Company
                  with the conditions precedent set forth in this Section 4.1 as
                  of the Initial Closing Date.

         4.2  Conditions  Precedent  to  the  Obligation  of the  Purchasers  to
Purchase the Additional  Units.  The  obligation of each Purchaser  hereunder to
acquire  and pay for the  Additional  Units is  subject to the  satisfaction  or
waiver by each Purchaser,  at or before the Subsequent  Closing,  of each of the
following conditions:

                  (a)  Initial  Closing;   Subsequent   Closings.   The  Initial
         Closing  shall have  occurred,  and with  respect to the Third  Tranche
         Units, the Second Closing shall have occurred;

                  (b) Accuracy of the Company's  Representations and Warranties.
         The  representations and warranties of the Company contained herein and
         in the  Registration  Rights  Agreement shall be true and correct as of
         the date when made and as of any  Subsequent  Closing  Date,  as though
         made on and as of such  date,  except  where  the  event  causing  such
         representation  or warranty to be untrue or incorrect  would not result
         in a Material Adverse Effect;

                  (c)  Performance  by  the  Company.  The  Company  shall  have
         performed,  satisfied  and complied in all material  respects  with all
         covenants,  agreements and conditions  required by this Agreement,  the
         Certificate of Designation,  the Warrants and the  Registration  Rights
         Agreement to be performed, satisfied or complied with by the Company at
         or prior to any Subsequent Closing Date;

                  (d)  Registration  Statements.   With  respect  to  the  Third
         Closing,  the  Registration  Statement  with respect to the  Underlying
         Shares  issuable on  conversion  of all Shares and with  respect to the
         Warrant  Shares  issuable upon exercise of all Warrants shall have been
         declared  effective under the Securities Act by the Commission;  and on
         the Third Closing Date such Registration  Statement shall be effective,
         not  subject to any stop  order and not be  subject  to any  suspension
         pursuant to Section  3(n) of the  Registration  Rights  Agreement,  and
         shall have been  effective  and shall not have been subject to any stop
         order


                                       23
<PAGE>

         for the 30  Trading  Days prior to the Third  Closing  Date and no stop
         order shall be pending or threatened as of the Third Closing Date;

                  (e) No Injunction.  No statute,  rule,  regulation,  executive
         order, decree,  ruling or injunction shall have been enacted,  entered,
         promulgated  or  endorsed  by any court of  governmental  authority  of
         competent  jurisdiction  which prohibits the consummation of any of the
         transactions   contemplated  by  this  Agreement,  the  Certificate  of
         Designation, the Warrants or the Registration Rights Agreement relating
         to the issuance, conversion or exercise of any of the Securities;

                  (f) No Suspensions of Trading in Common Stock.  The trading in
         the Common Stock shall not have been  suspended by the Commission or on
         The Nasdaq  Small-Cap  Market  (except for any suspension of trading of
         limited duration solely to permit dissemination of material information
         regarding the Company);

                  (g) Listing of Common Stock.  The Common Stock shall have been
         at all times since the Initial  Closing  Date listed for trading on The
         Nasdaq Small-Cap Market, and the Company shall have no knowledge of any
         action or  proceeding,  pending or  threatened,  that may result in the
         delisting of the Common Stock from the Nasdaq Small-Cap Market;

                  (h)  Change  of  Control.  No  Change of  Control  shall  have
         occurred since the Initial Closing Date.  "Change of Control" means the
         occurrence  of any of (i) an  acquisition  after the date  hereof by an
         individual or legal entity or "group" (as described in Rule  13d5(b)(1)
         promulgated  under the Exchange  Act) of in excess of 50% of the voting
         securities of the Company,  (ii) a replacement of more than one-half of
         the members of the Board of  Directors  which is not  approved by those
         individuals  who are  members  of the  Board of  Directors  on the date
         hereof in one or a series of related transactions,  (iii) the merger of
         the Company with or into another entity,  consolidation  or sale of all
         or substantially all of the assets of the Company in one or a series of
         related  transactions  or  (iv)  the  execution  by the  Company  of an
         agreement  to which  the  Company  is a party or by which it is  bound,
         providing for any of the events set forth above in (i), (ii) or (iii);

                  (i) Legal  Opinion.  The Company  shall have  delivered to the
         Purchasers the opinion of the Company's legal counsel, in substantially
         the form  annexed  hereto as Exhibit D,  dated the  Subsequent  Closing
         Date;

                  (j) Required Approvals. All Required Approvals shall have been
         obtained;

                  (k) Shares of Common Stock. On any Subsequent Closing Date the
         Company shall have duly  reserved the number of  Underlying  Shares and
         Warrant  Shares  required by this Agreement to be reserved for issuance
         upon conversion of the Shares and the exercise of the Warrants;

                                       24
<PAGE>


                  (l)  Delivery of Stock  Certificates.  The Company  shall have
         delivered to each Purchaser or such Purchaser's  designee (i) the stock
         certificate(s)  representing the Second Tranche Shares,  in the case of
         the Second Closing,  and representing the Third Tranche Shares,  in the
         case of the Third  Closing,  registered in the name of such  Purchaser,
         each in form  satisfactory  to such  Purchaser,  and (ii)  the  warrant
         certificate(s) representing the Second Tranche Warrants, in the case of
         the Second  Closing,  and the Third  Tranche  Warrants,  in the case of
         Third Closing,  registered in the name of such Purchaser,  each in form
         satisfactory to such Purchaser;

                  (m)  Performance  of  Conversion/Exercise   Obligations.   The
         Company  shall have  delivered  Underlying  Shares upon  conversion  of
         Shares and otherwise  performed its  obligations in accordance with the
         terms,  conditions  and  timing  requirements  of each  Certificate  of
         Designation;

                  (n)  Common  Stock  Price;   Trading   Volume.   For  the  ten
         consecutive  Trading Days immediately  preceding any Subsequent Closing
         Date (i) the  average Per Share  Market  Value shall not have been less
         than $.75 and (ii) the average trading volume of the Common Stock shall
         have been at least 100,000 shares per day;

                  (o)  Adverse   Changes.   During  the  period   which  is  ten
         consecutive  Trading Days prior to any Subsequent Closing Date, the Per
         Share Market Value of the Common Stock shall not have decreased by more
         than 50% from the highest Per Share  Market  Value  during such period;
         provided,  however,  that if the Per Share  Market  Value shall have so
         decreased  by more than 50%, but shall have  subsequently  increased so
         that  on  such  Subsequent  Closing  Date it has  been,  for the  three
         consecutive  Trading Days immediately prior to such Subsequent  Closing
         Date,  no more than 25% below the highest Per Share Market Value during
         such period, then this condition shall be satisfied;

                  (p) Transfer  Agent  Instructions.  The  Irrevocable  Transfer
         Agent Instructions, in the form of Exhibit E annexed hereto, shall have
         been delivered to and acknowledged in writing by the Company's transfer
         agent;

                  (q) Officer's Certificate. On each Subsequent Closing Date the
         Company shall deliver to the Purchasers an Officer's  Certificate dated
         such Subsequent  Closing Date and signed by an executive officer of the
         Company  confirming  the  accuracy  of the  Company's  representations,
         warranties  and  covenants  as of  such  Subsequent  Closing  Date  and
         confirming the compliance by the Company with the conditions  precedent
         set forth in this Section 4.2 as of such Subsequent Closing Date;

                  (r) Shareholder  Approval.   The Company  shall have  obtained
         Shareholder Approval; and

                  (s) Interim  Financing.  The Company  shall have  obtained the
         Interim Financing.
                                       25
<PAGE>




                                    ARTICLE V

                                  MISCELLANEOUS

         5.1 Fees and Expenses.  The Company shall pay the reasonable legal fees
and  expenses  of Stroock & Stroock & Lavan  LLP,  counsel  for the  Purchasers,
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement and the other Transaction  Documents,  which legal fees shall not
exceed $30,000 in connection with the  negotiation,  preparation,  execution and
delivery of this  Agreement  and the other  Transaction  Documents.  The Company
shall pay the fees and expenses of its advisers, counsel,  accountants and other
experts,  if any, and all other expenses incurred by the Company incident to the
negotiation,  preparation, execution, delivery and performance of this Agreement
and the other Transaction  Documents.  The Company shall pay all stamp and other
taxes and  duties  levied in  connection  with the  issuance  of the  Securities
pursuant to the Transaction Documents.

         5.2 Entire  Agreement;  Amendments.  This Agreement,  together with the
Exhibits and Schedules hereto and the other Transaction  Documents,  contain the
entire  understanding  of the parties with respect to the subject  matter hereof
and supersede all prior  agreements and  understandings,  oral or written,  with
respect to such matters.

         5.3 Notices.  Any and all notices or other communications or deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and  effective on the earlier of (i) the date of  transmission,  if
such  notice or  communication  is  delivered  via  facsimile  at the  facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business  Day, (ii) the Business Day after the date of  transmission,  if such
notice or  communication  is delivered via facsimile at the facsimile  telephone
number  specified  for notice later than 5:00 p.m.,  New York City time,  on any
date and earlier than 11:59 p.m.,  New York City time,  on such date,  (iii) the
Business Day  following the date of mailing,  if sent by  nationally  recognized
overnight  courier  service  or (iv)  actual  receipt  by the party to whom such
notice is required to be given. The addresses for such  communications  shall be
with  respect  to each  Purchaser  at its  address  set forth  under its name on
Schedule 1 attached hereto, or with respect to the Company, addressed to:

                  Imaging Technologies Corporation
                  11031 Via Frontera
                  San Diego, California  92127
                  Attention:  Brian Bonar
                  Facsimile No.:  (619) 613-1311

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have  designated in writing to the other parties  hereto
by such notice.  Copies of notices 


                                       26
<PAGE>

to any  Purchaser  shall be sent to  Stroock & Stroock & Lavan  LLP,  180 Maiden
Lane,  New York New  York  10038-4982,  Attention:  James  R.  Tanenbaum,  Esq.,
Facsimile No.: (212) 806-6006. Copies of notices to the Company shall be sent to
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas,  New York, New
York 10036,  Attention:  Christopher  S. Auguste,  Esq.,  Facsimile  No.:  (212)
704-6288.

         5.4 Amendments;  Waivers.  No provision of this Agreement may be waived
or amended except in a written  instrument  signed, in the case of an amendment,
by both the  Company  and the  Purchasers;  or, in the case of a waiver,  by the
party against whom  enforcement  of any such waiver is sought.  No waiver of any
default  with  respect  to any  provision,  condition  or  requirement  of  this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other  provision,  condition or requirement  hereof,  nor shall any delay or
omission of either  party to exercise any right  hereunder in any manner  impair
the exercise of any such right  accruing to it thereafter.  Notwithstanding  the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the Units  outstanding.  The  Company  shall not
offer  or pay  any  consideration  to a  Purchaser  for  consenting  to  such an
amendment or waiver unless the same  consideration  is offered to each Purchaser
and the same  consideration  is paid to each  Purchaser  which  consents to such
amendment or waiver.

         5.5  Headings.  The headings  herein are for  convenience  only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

         5.6  Successors and Assigns.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their successors and permitted  assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers.  Each Purchaser may
assign  this  Agreement  or  any  rights  or  obligations  hereunder  (i) to its
affiliates  or to another  Purchaser  without the prior  written  consent of the
Company  and (ii) to any other  Person  with the prior  written  consent  of the
Company, such consent not to be unreasonably withheld,  except that any assignee
must  make the  representations  and  warranties  set forth in  Section  2.2 and
otherwise  comply with the terms of this Agreement  otherwise  applicable to its
assignor.  This  provision  shall  not  limit a  Purchaser's  right to  transfer
securities or transfer or assign rights under the Registration Rights Agreement.

         5.7 No Third Party  Beneficiaries.  This  Agreement is intended for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person.

         5.8 Governing  Law. This  Agreement  shall be governed by and construed
and  enforced  in  accordance  with the laws of the State of New  York,  without
regard to the principles of conflicts of law thereof.

         5.9 Survival. The agreements,  covenants,  representations,  warranties
and  provisions  contained in this  Agreement  shall survive the delivery of the
Units pursuant to this  Agreement and each Closing  hereunder and any conversion
of the Shares or exercise of the Warrants.

                                       27
<PAGE>


         5.10  Execution.  This  Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together shall be considered one and the
same agreement and shall become effective when  counterparts have been signed by
each  party and  delivered  to the other  party,  it being  understood  that all
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

         5.11 Publicity.  The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise  making public  statements with
respect to the  transactions  contemplated  hereby and neither party shall issue
any such press release or otherwise make any such public  statement  without the
prior written  consent of the other,  which  consent  shall not be  unreasonably
withheld or  delayed,  except  that no prior  consent  shall be required if such
disclosure  is required by law,  in which such case the  disclosing  party shall
provide the other Party with prior notice of such public statement.  The Company
shall not  publicly or  otherwise  disclose  the names of any of the  Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.

         5.12  Consent  to   Jurisdiction;   Attorneys'  Fees  (a)  The  Company
(including,  but  not  limited  to,  its  affiliates,   subsidiaries,  officers,
directors and  controlling  persons) and each Purchaser  hereby (i)  irrevocably
submits to the  exclusive  jurisdiction  of any New York State  court or Federal
court  sitting in the Borough of  Manhattan,  The City of New York in any action
related  to,  connected  with or  arising  out of,  in  whole  or in  part,  the
Transaction  Documents,  including,  but not  limited  to,  transactions  in the
securities  of the  Company  subsequent  to the  purchase by such  Purchaser  or
Persons  claimed to be  affiliated  with such  Purchaser,  (ii)  agrees that all
claims in such  action  shall be decided in such  court,  (iii)  waives,  to the
fullest extent it may effectively do so, the defense of  inconvenient  forum and
(iv)  consents  to the  service of process by  certified  mail,  return  receipt
requested.  Nothing  herein  shall  affect the right of any party to serve legal
process in any manner  permitted  by law or affect its right to bring any action
in any other court.

         (b) In  connection  with  any  dispute  between  the  Company  and  any
Purchaser,  related to,  connected  with or arising out of, in whole or in part,
the Transaction  Documents  including,  but not limited to,  transactions in the
securities of the Company subsequent to the purchase,  by a Purchaser or Persons
claimed to be affiliated to a Purchaser,  the prevailing  party shall be awarded
all reasonable  attorneys' fees and expenses  incurred by it. In that connection
fees and expenses  actually paid by a party in connection with the litigation of
any dispute shall be deemed presumably reasonable.

         (c) In the  event  that  any  Purchaser  or any  Person  claimed  to be
affiliated or associated with such Purchaser becomes involved in any capacity in
any  action,  proceeding  or  investigation  brought by or against  any  Person,
including  shareholders of the Company, in connection with or as a result of any
matter referred to in the Transaction Documents, the Company will reimburse

                                       28
<PAGE>

such  Purchaser  and/or those claimed to be  affiliated or associated  with such
Purchaser for its legal fees and expenses and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as those
fees and expenses are incurred;  provided, however, that if at the conclusion of
such  action,  proceeding  or  investigation  it  shall  be  finally  judicially
determined by a court of competent jurisdiction that indemnity for such fees and
expenses is contrary to law, or that such Purchaser is not the prevailing  party
then in that event,  such Purchaser and/or any other Person having received such
advances of fees and expenses  shall  reimburse the Company in full for the sums
advanced.

         (d)  The provisions of this Section 5.12  shall survive any termination
or completion of the Transaction Documents.

         5.13  Waiver of Jury Trial (a) The  parties  hereto  each  waive  their
respective  rights to a trial by jury of any claim or cause of action based upon
or arising out of or related to the Transaction  Documents,  or the transactions
contemplated by the Transaction  Documents,  in any action,  proceeding or other
litigation of any type brought by any of the parties  against any other party or
parties, whether with respect to contract claims, tort claims, or otherwise. The
parties  hereto each agree that any such claim or cause of action shall be tried
by a court trial without a jury.  Without  limiting the  foregoing,  the parties
further  agree  that  their  respective  right to a trial by jury is  waived  by
operation  of  this  Section  5.13  as to  any  action,  counterclaim  or  other
proceeding  which  seeks,  in whole or in part,  to  challenge  the  validity or
enforceability  of any of the Transaction  Documents or any provision  hereof or
thereof.  The  waiver  shall  apply  to  any  subsequent  amendments,  renewals,
supplements or modifications to any of the Transaction Documents.

         (b)   The provisions of this Section 5.13 shall survive any termination
or completion of the Transaction Documents.

         5.14 Severability.  If any term, provision,  covenant or restriction of
this  Agreement is held to be invalid,  illegal,  void or  unenforceable  in any
respect, the remainder of the terms, provisions,  covenants and restrictions set
forth  herein  shall  remain  in full  force and  effect  and shall in no way be
affected,  impaired  or  invalidated,  and the  parties  hereto  shall use their
reasonable  efforts to find and employ an alternative  means to achieve the same
or substantially the same result as that  contemplated by such term,  provision,
covenant  or  restriction.  It is  hereby  stipulated  and  declared  to be  the
intention of the parties  that they would have  executed  the  remaining  terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

         5.15  Remedies.  In addition to being  entitled to exercise  all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the  Transaction  Documents and injunctive  relief.  Each of the Company and the
Purchasers  (severally and not jointly) agree that monetary damages would not be
adequate  compensation  for any loss  incurred  by reason  of any  breach of its
obligations  described in the  foregoing  sentence and hereby agrees to waive in
any action for

                                       29
<PAGE>

specific  performance  of any such  obligation or injunctive  relief the defense
that a remedy at law would be adequate.

         5.16  Independent  Nature of Purchasers'  Obligations  and Rights.  The
obligations  of each  Purchaser  hereunder  is  several  and not joint  with the
obligations  of the  other  Purchasers  hereunder,  and no  Purchaser  shall  be
responsible  in any way for the  performance  of the  obligations  of any  other
Purchaser  hereunder.  Nothing  contained  herein or in any other  agreement  or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto  or  thereto,   shall  be  deemed  to  constitute  the  Purchasers  as  a
partnership,  an  association,  a joint venture or any other kind of entity,  or
create a presumption  that the  Purchasers are in any way acting in concert with
respect to such obligations or the transactions  contemplated by this Agreement.
Each  Purchaser  shall be entitled to protect and enforce its rights,  including
without  limitation the rights arising out of this Agreement or out of the other
Transaction Documents,  and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.


                  [Remainder of Page Intentionally Left Blank]

                                       30
<PAGE>


         IN WITNESS  WHEREOF,  the parties  hereto  have caused this  Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.

                                       IMAGING TECHNOLOGIES CORPORATION


                                        By:_____________________________________
                                             Brian Bonar
                                             President


                                        BALMORE FUNDS S.A.


                                        By:_____________________________________
                                              Name:
                                              Title:


                                        AUSTOST ANSTALT SCHAAN


                                        By:_____________________________________
                                             Name:
                                             Title:


                                        NESHER, INC.


                                        By:_____________________________________
                                              Name:
                                              Title:


                                        GUARANTEE & FINANCE CORP.


                                        By:_____________________________________
                                              Name:
                                              Title:


                                       31