ON STAGE ENTERTAINMENT, INC.
                           INVESTOR RIGHTS AGREEMENT

     THIS INVESTOR RIGHTS AGREEMENT (the  "Agreement") is entered into as of the
13th day of March,  2001,  by and among On Stage  Entertainment,  Inc., a Nevada
corporation  (the  "Company")  and the  investors  listed  on  Exhibit A hereto,
referred  to  hereinafter  as  the  "Investors"  and  each  individually  as  an
"Investor."

                                    Recitals

     WHEREAS,  the Investors  are  purchasing  shares of the Company's  Series A
Preferred  Stock  (the  "Series A Stock")  pursuant  to that  certain  Stock and
Warrant  Purchase  Agreement (the  "Purchase  Agreement") of even date herewith;
(the "Financing").

     WHEREAS, the obligations in the Purchase Agreement are conditioned upon the
execution and delivery of this Agreement; and

     WHEREAS, in connection with the consummation of the Financing,  the parties
desire to enter into this Agreement in order to grant registration,  information
rights and other rights to the Investors as set forth below.

     NOW,  THEREFORE,  in  consideration  of the premises and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties agree hereto as follows:

SECTION 1. GENERAL.

     1.1  Definitions.  As used in this Agreement the following terms shall have
the following respective meanings:

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Form S-3" means  such form  under the  Securities  Act as in effect on the
date hereof or any successor or similar  registration  form under the Securities
Act subsequently  adopted by the SEC which permits inclusion or incorporation of
substantial  information  by reference to other  documents  filed by the Company
with the SEC.

     "Holder" means any person owning of record Registrable Securities that have
not been sold to the  public  or any  assignee  of  record  of such  Registrable
Securities in accordance with Section 2.10 hereof.

     "Register,"  "registered,"  and  "registration"  refer  to  a  registration
effected by preparing and filing a registration statement in compliance with the
Securities  Act,  and the  declaration  or  ordering  of  effectiveness  of such
registration statement or document.

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     "Registrable  Securities"  means (a) Common Stock of the Company  issued or
issuable  upon  conversion of the Series A Stock and (b) any Common Stock of the
Company  issued as (or issuable upon the  conversion or exercise of any warrant,
right or other  security  which is issued as) a dividend  or other  distribution
with respect to, or in exchange for or in replacement  of, such  above-described
securities.  Notwithstanding  the foregoing,  Registrable  Securities  shall not
include  any  securities  sold by a person to the public  either  pursuant  to a
registration statement or Rule 144 or sold in a private transaction in which the
transferor's rights under Section 2 of this Agreement are not assigned.

     "Registrable  Securities  then  outstanding"  shall be the number of shares
determined by  calculating  the total number of shares of the  Company's  Common
Stock  that are  Registrable  Securities  and  either  (a) are then  issued  and
outstanding  or (b) are issuable  pursuant to then  exercisable  or  convertible
securities.

     "Registration  Expenses" shall mean all expenses incurred by the Company in
complying with Sections 2.2, 2.3 and 2.4 hereof, including,  without limitation,
all registration and filing fees,  printing expenses,  fees and disbursements of
counsel  for the  Company,  reasonable  fees  and  disbursements  not to  exceed
twenty-five  thousand  dollars  ($25,000)  of a single  special  counsel for the
Holders,  blue sky fees and  expenses  and the  expense  of any  special  audits
incident to or required by any such registration (but excluding the compensation
of regular  employees  of the  Company  which  shall be paid in any event by the
Company).

     "SEC" or "Commission" means the Securities and Exchange Commission.

     "Securities Act" shall mean the Securities Act of 1933, as amended.

     "Selling  Expenses"  shall  mean all  underwriting  discounts  and  selling
commissions applicable to the sale.

     "Shares"  shall mean the  Company's  Series A Stock issued  pursuant to the
Purchase  Agreement  and held by the  Investors  listed on  Exhibit A hereto and
their  permitted  assigns and the Series A Stock  issuable  upon exercise of the
Warrants.

     "Special  Registration  Statement" shall mean (i) a registration  statement
relating to any  employee  benefit  plan or (ii) with  respect to any  corporate
reorganization  or transaction  under Rule 145 of the Securities Act,  including
any registration statements related to the resale of securities issued in such a
transaction or (iii) a registration  related to stock issued upon  conversion of
debt securities.

     "Warrants"  shall mean those  certain  warrants to purchase  Series A Stock
held by the  Investors  dated as of the date set  forth in the  first  paragraph
hereof.

SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.

     2.1 Restrictions on Transfer.

     (a) Each Holder agrees not to make any disposition of all or any portion of
the Shares or Registrable Securities unless and until:

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          (i)  There  is then in  effect  a  registration  statement  under  the
     Securities Act covering such proposed  disposition and such  disposition is
     made in accordance with such registration statement; or

          (ii) (A) The transferee has agreed in writing to be bound by the terms
     of this  Agreement,  (B) such Holder shall have notified the Company of the
     proposed  disposition  and shall have furnished the Company with a detailed
     statement of the circumstances  surrounding the proposed  disposition,  and
     (C) if  reasonably  requested  by  the  Company,  such  Holder  shall  have
     furnished the Company with an opinion of counsel,  reasonably  satisfactory
     to the Company, that such disposition will not require registration of such
     shares  under the  Securities  Act. It is agreed that the Company  will not
     require  opinions of counsel for  transactions  made  pursuant to Rule 144,
     except in unusual circumstances.

          (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above,
     no such registration statement or opinion of counsel shall be necessary for
     a  transfer  by a  Holder  that is (A) a  partnership  transferring  to its
     partners or former partners in accordance with partnership interests, (B) a
     corporation   transferring  to  a  wholly-owned   subsidiary  or  a  parent
     corporation that owns all of the capital stock of the Holder, (C) a limited
     liability  company  transferring  to  its  members  or  former  members  in
     accordance  with their interest in the limited  liability  company,  (D) an
     individual  transferring  to the  Holder's  family  member or trust for the
     benefit of an  individual  Holder,  or (E) any  transferee  who acquires at
     least five hundred thousand  (500,000)  Registerable  Securities;  provided
     that in each  case the  transferee  will be  subject  to the  terms of this
     Agreement  to the same extent as if he, she or it were an  original  Holder
     hereunder.

     (b) Each certificate  representing  Shares or Registrable  Securities shall
(unless  otherwise  permitted by the  provisions of the Agreement) be stamped or
otherwise  imprinted  with a legend  substantially  similar to the following (in
addition to any legend required under applicable state securities laws):

                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
                  OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
                  HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
                  UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
                  SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
                  REGISTRATION IS NOT REQUIRED.

     (c)  The  Company  shall  be  obligated  to  reissue  promptly   unlegended
certificates  at the  request  of any Holder  thereof  if the Holder  shall have
obtained an opinion of counsel  (which  counsel  may be counsel to the  Company)
reasonably  acceptable to the Company to the effect that the securities proposed
to  be  disposed  of  may  lawfully  be so  disposed  of  without  registration,
qualification or legend.

     (d) Any legend  endorsed  on an  instrument  pursuant to  applicable  state
securities  laws  and  the  stop-transfer  instructions  with  respect  to  such


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securities  shall be  removed  upon  receipt  by the  Company of an order of the
appropriate blue sky authority authorizing such removal.

     2.2 Demand Registration.

     (a) Subject to the  conditions  of this  Section 2.2 and from and after six
months from the date hereof, if the Company shall receive a written request from
the  Holders  of a  majority  of the  Registrable  Securities  (the  "Initiating
Holders")  that the Company file a registration  statement  under the Securities
Act covering the registration of the Registrable Securities then outstanding and
if the anticipated  aggregate offering price, net of underwriting  discounts and
commissions,  would exceed $2,500,000 (a "Qualified Public Offering"),  then the
Company  shall,  within  thirty (30) days of the receipt  thereof,  give written
notice of such request to all Holders,  and subject to the  limitations  of this
Section 2.2, effect, as expeditiously as reasonably  possible,  the registration
under the Securities Act of all Registrable  Securities that the Holders request
to be registered.

     (b)  If  the  Initiating  Holders  intend  to  distribute  the  Registrable
Securities  covered by their request by means of an underwriting,  they shall so
advise the Company as a part of their  request made pursuant to this Section 2.2
or any  request  pursuant  to Section 2.4 and the  Company  shall  include  such
information  in the  written  notice  referred  to in Section  2.2(a) or Section
2.4(a),  as  applicable.  In such event,  the right of any Holder to include its
Registrable  Securities  in such  registration  shall be  conditioned  upon such
Holder's  participation in such  underwriting and the inclusion of such Holder's
Registrable  Securities in the underwriting to the extent provided  herein.  All
Holders proposing to distribute their securities through such underwriting shall
enter into an  underwriting  agreement in customary form with the underwriter or
underwriters  selected  for such  underwriting  by a majority in interest of the
Initiating  Holders  (which  underwriter  or  underwriters  shall be  reasonably
acceptable to the Company).  Notwithstanding any other provision of this Section
2.2 or Section  2.4,  if the  underwriter  advises the  Company  that  marketing
factors  require a limitation  of the number of  securities  to be  underwritten
(including Registrable  Securities) then the Company shall so advise all Holders
of Registrable Securities which would otherwise be underwritten pursuant hereto,
and the  number of shares  that may be  included  in the  underwriting  shall be
allocated  to the  Holders of such  Registrable  Securities  on a pro rata basis
based  on  the  number  of  Registrable  Securities  held  by all  such  Holders
(including the Initiating Holders); provided, however, that the number of shares
of Registrable  Securities to be included in such  underwriting and registration
shall not be  reduced  unless  all other  securities  of the  Company  are first
entirely  excluded  from the  underwriting  and  registration.  Any  Registrable
Securities  excluded or withdrawn from such underwriting shall be withdrawn from
the registration.

     (c) The Company shall not be required to effect a registration  pursuant to
this Section 2.2:

          (i) after the Company has effected three (3) registrations pursuant to
     this  Section  2.2, and such  registrations  have been  declared or ordered
     effective;

          (ii) during the period starting with the date of filing of, and ending
     on the date one hundred  eighty (180) days  following the effective date of


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     the  registration  statement  pertaining to a public  offering,  other than
     pursuant to a Special  Registration  Statement;  provided  that the Company
     makes reasonable good faith efforts to cause such registration statement to
     become effective;

          (iii) if within fifteen (15) days of receipt of a written request from
     Initiating  Holders pursuant to Section 2.2(a), the Company gives notice to
     the Holders of the Company's intention to file a registration statement for
     a public offering,  other than pursuant to a Special Registration Statement
     within forty-five (45) days;

          (iv) if the Company shall furnish to Holders requesting a registration
     statement  pursuant  to this  Section  2.2,  a  certificate  signed  by the
     Chairman of the Board stating that in the good faith  judgment of the Board
     of  Directors  of the Company,  it would be  seriously  detrimental  to the
     Company and its shareholders for such registration statement to be effected
     at such time, in which event the Company shall have the right to defer such
     filing for a period of not more than ninety (90) days after  receipt of the
     request  of the  Initiating  Holders;  provided  that such right to delay a
     request  shall be exercised by the Company not more than once in any twelve
     (12) month period;

          (v)  if the  Initiating  Holders  propose  to  dispose  of  shares  of
     Registrable  Securities  that  may be  immediately  registered  on Form S-3
     pursuant to a request made pursuant to Section 2.4 below; or

          (vi) in any  particular  jurisdiction  in which the  Company  would be
     required  to qualify  to do  business  or to  execute a general  consent to
     service  of  process  in  effecting  such  registration,  qualification  or
     compliance.

     2.3  Piggyback  Registrations.  The  Company  shall  notify all  Holders of
Registrable Securities in writing at least fifteen (15) days prior to the filing
of any registration  statement under the Securities Act for purposes of a public
offering  of  securities  of  the  Company  (including,   but  not  limited  to,
registration  statements  relating to secondary  offerings of  securities of the
Company,  but excluding  Special  Registration  Statements) and will afford each
such Holder an opportunity to include in such registration statement all or part
of such  Registrable  Securities  held by such Holder.  Each Holder  desiring to
include in any such  registration  statement all or any part of the  Registrable
Securities held by it shall,  within fifteen (15) days after the above-described
notice from the  Company,  so notify the Company in writing.  Such notice  shall
state the intended method of disposition of the  Registrable  Securities by such
Holder. If a Holder decides not to include all of its Registrable  Securities in
any registration  statement  thereafter filed by the Company,  such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its  securities,  all upon the terms
and conditions set forth herein.

     (a)  Underwriting.  If the  registration  statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the Company
shall so advise the Holders of Registrable Securities.  In such event, the right
of any such Holder to be included in a registration pursuant to this Section 2.3
shall be conditioned upon such Holder's  participation in such  underwriting and


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<PAGE>
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein.  All Holders  proposing to distribute their  Registrable
Securities through such underwriting shall enter into an underwriting  agreement
in  customary  form  with the  underwriter  or  underwriters  selected  for such
underwriting  by the  Company.  Notwithstanding  any  other  provision  of  this
Agreement,  if the underwriter  determines in good faith that marketing  factors
require a limitation of the number of shares to be  underwritten,  the number of
shares that may be included in the  underwriting  shall be allocated,  first, to
the  Company;  second,  to the  Holders on a pro rata  basis  based on the total
number  of  Registrable  Securities  held  by the  Holders;  and  third,  to any
shareholder  of the  Company  (other  than  a  Holder)  requesting  registration
pursuant to Section 2.2 on a pro rata basis.  No such reduction shall reduce the
amount of securities of the selling Holders included in the  registration  below
twenty-five  percent  (25%) of the total amount of  securities  included in such
registration.  In no event  will  shares of any  other  selling  shareholder  be
included in such  registration  that would reduce the number of shares which may
be included by Holders  without the written  consent of Holders of not less than
sixty-six  and  two-thirds  percent  (66  2/3%)  of the  Registrable  Securities
proposed to be sold in the offering.  If any Holder  disapproves of the terms of
any such  underwriting,  such Holder may elect to withdraw  therefrom by written
notice to the Company and the underwriter,  delivered at least ten (10) business
days prior to the effective date of the registration statement.  Any Registrable
Securities  excluded or withdrawn from such  underwriting  shall be excluded and
withdrawn  from the  registration.  For any  Holder  which is a  partnership  or
corporation,  the partners, retired partners and shareholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the  foregoing  person  shall be deemed to be a
single  "Holder," and any pro rata reduction with respect to such "Holder" shall
be based upon the aggregate amount of shares carrying  registration rights owned
by all entities and  individuals  included in such  "Holder," as defined in this
sentence.

     (b) Right to Terminate  Registration.  The Company  shall have the right to
terminate  or withdraw any  registration  initiated by it under this Section 2.3
prior to the  effectiveness of such  registration  whether or not any Holder has
elected to include securities in such registration. The Registration Expenses of
such  withdrawn  registration  shall be borne by the Company in accordance  with
Section 2.5 hereof.

     2.4 Form S-3  Registration.  In case the  Company  shall  receive  from any
Holder or Holders of Registrable  Securities a written  request or requests that
the Company effect a registration  on Form S-3 (or any successor to Form S-3) or
any similar short-form  registration  statement and any related qualification or
compliance with respect to all or a part of the Registrable  Securities owned by
such Holder or Holders, the Company will:

     (a) promptly  give written  notice of the  proposed  registration,  and any
related  qualification  or  compliance,  to all  other  Holders  of  Registrable
Securities; and

     (b)  as  soon  as  practicable,  effect  such  registration  and  all  such
qualifications  and  compliances  as may be so requested  and as would permit or
facilitate the sale and  distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request,  together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such  request as are  specified  in a written  request  given  within
fifteen  (15) days  after  receipt  of such  written  notice  from the  Company;


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provided,  however,  that the Company  shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:

          (i) if Form S-3 is not available for such offering by the Holders, or

          (ii) if the Holders, together with the holders of any other securities
     of the Company entitled to inclusion in such registration,  propose to sell
     Registrable  Securities and such other  securities (if any) at an aggregate
     price to the public of less than five hundred thousand dollars  ($500,000),
     or

          (iii) if within thirty (30) days of receipt of a written  request from
     any Holder or Holders  pursuant to this  Section  2.4,  the  Company  gives
     notice to such  Holder or  Holders  of the  Company's  intention  to make a
     public offering  within ninety (90) days,  other than pursuant to a Special
     Registration Statement;

          (iv) if the Company shall furnish to the Holders a certificate  signed
     by the Chairman of the Board of  Directors  of the Company  stating that in
     the good faith judgment of the Board of Directors of the Company,  it would
     be seriously  detrimental to the Company and its shareholders for such Form
     S-3  registration  to be effected at such time,  in which event the Company
     shall  have the  right to defer  the  filing  of the Form S-3  registration
     statement  for a period of not more than ninety (90) days after  receipt of
     the request of the Holder or Holders under this Section 2.4; provided, that
     such right to delay a request  shall be  exercised  by the Company not more
     than once in any twelve (12) month period, or

          (v) in any  particular  jurisdiction  in which  the  Company  would be
     required  to qualify  to do  business  or to  execute a general  consent to
     service  of  process  in  effecting  such  registration,  qualification  or
     compliance.

     (c)  Subject  to  the  foregoing,   the  Company  shall  file  a  Form  S-3
registration  statement covering the Registrable Securities and other securities
so  requested  to be  registered  as soon as  practicable  after  receipt of the
requests of the  Holders.  Registrations  effected  pursuant to this Section 2.4
shall not be counted as  demands  for  registration  or  registrations  effected
pursuant to Sections 2.2 or 2.3, respectively.

     2.5 Expenses of Registration.  Except as specifically  provided herein, all
Registration   Expenses   incurred   in   connection   with  any   registration,
qualification or compliance  pursuant to Section 2.2 or any  registration  under
Section 2.3 or Section 2.4 herein shall be borne by the Company,  including  the
expense  of one  special  counsel  of the  selling  shareholders  not to  exceed
twenty-five  thousand  dollars  ($25,000).  All  Selling  Expenses  incurred  in
connection with any  registrations  hereunder,  shall be borne by the holders of
the  securities so  registered  pro rata on the basis of the number of shares so
registered.  The Company shall not, however,  be required to pay for expenses of
any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of
which has been subsequently  withdrawn by the Initiating  Holders unless (a) the
withdrawal is based upon material adverse information  concerning the Company of
which the  Initiating  Holders were not aware at the time of such request or (b)
the Holders of a majority of Registrable Securities agree to forfeit their right
to one  requested  registration  pursuant  to  Section  2.2 or Section  2.4,  as
applicable, in which event such right shall be forfeited by all Holders). If the
Holders are required to pay the  Registration  Expenses,  such expenses shall be


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borne by the holders of securities (including Registrable Securities) requesting
such  registration in proportion to the number of shares for which  registration
was requested.  If the Company is required to pay the Registration Expenses of a
withdrawn  offering  pursuant to clause (a) above,  then the  Holders  shall not
forfeit  their  rights  pursuant  to  Section  2.2 or  Section  2.4 to a  demand
registration.

     2.6   Obligations  of  the  Company.   Whenever   required  to  effect  the
registration of any Registrable Securities,  the Company shall, as expeditiously
as reasonably possible:

     (a) Prepare and file with the SEC a registration  statement with respect to
such  Registrable  Securities  and use all  reasonable  efforts  to  cause  such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable  Securities  registered  thereunder,  keep such
registration  statement  effective  for up to thirty  (30) days or, if  earlier,
until the Holder or Holders have completed the distribution related thereto. The
Company shall not be required to file, cause to become effective or maintain the
effectiveness of any registration  statement that contemplates a distribution of
securities  on a delayed  or  continuous  basis  pursuant  to Rule 415 under the
Securities Act.

     (b) Prepare and file with the SEC such  amendments and  supplements to such
registration   statement  and  the  prospectus  used  in  connection  with  such
registration  statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for the period set forth in paragraph (a) above.

     (c) Furnish to the Holders such number of copies of a prospectus, including
a preliminary prospectus,  in conformity with the requirements of the Securities
Act,  and such  other  documents  as they  may  reasonably  request  in order to
facilitate the disposition of Registrable Securities owned by them.

     (d) Use its  reasonable  efforts to register  and  qualify  the  securities
covered by such  registration  statement under such other securities or Blue Sky
laws of such  jurisdictions  as shall be  reasonably  requested  by the Holders;
provided that the Company shall not be required in connection  therewith or as a
condition  thereto  to qualify to do  business  or to file a general  consent to
service of process in any such states or jurisdictions.

     (e) In the  event  of any  underwritten  public  offering,  enter  into and
perform its obligations under an underwriting  agreement, in usual and customary
form,  with  the  managing   underwriter(s)   of  such  offering.   Each  Holder
participating  in such  underwriting  shall  also  enter  into and  perform  its
obligations under such an agreement.

     (f)  Notify  each  Holder  of  Registrable   Securities   covered  by  such
registration  statement  at any  time  when a  prospectus  relating  thereto  is
required to be delivered  under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration  statement, as
then in effect,  includes  an untrue  statement  of a material  fact or omits to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein  not  misleading  in the  light  of the  circumstances  then
existing.  The Company will use reasonable  efforts to amend or supplement  such


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<PAGE>

prospectus in order to cause such prospectus not to include any untrue statement
of a  material  fact or omit to state a  material  fact  required  to be  stated
therein or necessary to make the statements  therein not misleading in the light
of the circumstances then existing.

     (g)  Use  its  reasonable  efforts  to  furnish,  on  the  date  that  such
Registrable  Securities  are  delivered to the  underwriters  for sale,  if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date,  of the  counsel  representing  the  Company  for  the  purposes  of  such
registration,  in form and substance as is customarily  given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and (ii)
a  letter,  dated  as of  such  date,  from  the  independent  certified  public
accountants  of the Company,  in form and substance as is  customarily  given by
independent  certified  public  accountants to  underwriters  in an underwritten
public offering addressed to the underwriters.

     2.7  Termination of Registration  Rights.  A Holder's  registration  rights
shall expire if (a) such Holder  (together with its affiliates)  holds less than
1% of the Company's outstanding Common Stock (treating all shares of convertible
Preferred  Stock on an as converted  basis) and (b) all  Registrable  Securities
held by and issuable to such Holder (and its  affiliates) may be sold under Rule
144 during any ninety (90) day period.

     2.8 Delay of Registration; Furnishing Information.

     (a) No  Holder  shall  have  any  right  to  obtain  or seek an  injunction
restraining  or otherwise  delaying any such  registration  as the result of any
controversy   that  might   arise  with   respect  to  the   interpretation   or
implementation of this Section 2.

     (b) It shall be a condition  precedent to the obligations of the Company to
take any action  pursuant to Section  2.2,  2.3 or 2.4 that the selling  Holders
shall  furnish  to  the  Company  such  information  regarding  themselves,  the
Registrable  Securities  held by them and the intended  method of disposition of
such  securities  as shall be  required  to  effect  the  registration  of their
Registrable Securities.

     (c) The Company shall have no obligation  with respect to any  registration
requested  pursuant to Section 2.2 or Section  2.4 if, due to the  operation  of
subsection  2.2(b),  the number of shares or the anticipated  aggregate offering
price of the Registrable  Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated aggregate offering price
required  to  originally  trigger the  Company's  obligation  to  initiate  such
registration  as  specified  in  Section  2.2  or  Section  2.4,   whichever  is
applicable.

     2.9 Indemnification.  In the event any Registrable  Securities are included
in a registration statement under Sections 2.2, 2.3 or 2.4:

     (a) To the extent  permitted by law, the Company  will  indemnify  and hold
harmless each Holder,  the partners,  officers and directors of each Holder, any
underwriter  (as defined in the Securities Act) for such Holder and each person,
if any,  who  controls  such  Holder or  underwriter  within the  meaning of the
Securities  Act or the Exchange Act,  against any losses,  claims,  damages,  or


                                       9
<PAGE>

liabilities  (joint or  several)  to which  they may  become  subject  under the
Securities Act, the Exchange Act or other federal or state law,  insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the  following  statements,  omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or alleged
untrue  statement of a material fact contained in such  registration  statement,
including any preliminary  prospectus or final prospectus  contained  therein or
any amendments or supplements thereto,  (ii) the omission or alleged omission to
state  therein a material fact  required to be stated  therein,  or necessary to
make the statements  therein not  misleading,  or (iii) any violation or alleged
violation by the Company of the  Securities  Act,  the  Exchange  Act, any state
securities law or any rule or regulation  promulgated  under the Securities Act,
the Exchange Act or any state  securities  law in  connection  with the offering
covered by such registration statement;  and the Company will pay as incurred to
each such Holder, partner, officer, director,  underwriter or controlling person
for any legal or other expenses  reasonably  incurred by them in connection with
investigating or defending any such loss,  claim,  damage,  liability or action;
provided however,  that the indemnity agreement contained in this Section 2.9(a)
shall not apply to amounts paid in settlement of any such loss,  claim,  damage,
liability or action if such  settlement  is effected  without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in  connection  with such  registration  by such Holder,  partner,  officer,
director, underwriter or controlling person of such Holder.

     (b) To the extent  permitted  by law,  each  Holder  will,  if  Registrable
Securities  held by such Holder are included in the  securities as to which such
registration qualifications or compliance is being effected,  indemnify and hold
harmless the Company,  each of its directors,  its officers and each person,  if
any,  who  controls the Company  within the meaning of the  Securities  Act, any
underwriter  and any other Holder  selling  securities  under such  registration
statement or any of such other Holder's  partners,  directors or officers or any
person  who  controls  such  Holder,  against  any  losses,  claims,  damages or
liabilities  (joint or  several)  to which  the  Company  or any such  director,
officer,  controlling  person,  underwriter  or other such  Holder,  or partner,
director,  officer or controlling person of such other Holder may become subject
under the  Securities  Act,  the  Exchange  Act or other  federal  or state law,
insofar as such losses,  claims,  damages or liabilities  (or actions in respect
thereto)  arise  out of or are  based  upon any  Violation,  in each case to the
extent (and only to the extent) that such Violation  occurs in reliance upon and
in  conformity  with  written  information  furnished  by such  Holder  under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer,  controlling person,  underwriter or other Holder, or partner, officer,
director  or  controlling  person  of  such  other  Holder  in  connection  with
investigating or defending any such loss, claim, damage,  liability or action if
it is judicially determined that there was such a Violation;  provided, however,
that the indemnity agreement contained in this Section 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage,  liability or action
if such settlement is effected without the consent of the Holder,  which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity  under this  Section  2.9 exceed the net  proceeds  from the  offering
received by such Holder.

                                       10
<PAGE>

     (c) Promptly after receipt by an  indemnified  party under this Section 2.9
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 2.9, deliver to the indemnifying party
a written notice of the commencement  thereof and the  indemnifying  party shall
have the right to participate in, and, to the extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however,  that an  indemnified  party  shall  have the right to  retain  its own
counsel,  with the fees and expenses to be paid by the  indemnifying  party,  if
representation  of  such  indemnified  party  by  the  counsel  retained  by the
indemnifying  party would be inappropriate due to actual or potential  differing
interests between such indemnified party and any other party represented by such
counsel  in such  proceeding.  The  failure  to  deliver  written  notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action,  if materially  prejudicial to its ability to defend such action,  shall
relieve such indemnifying  party of any liability to the indemnified party under
this  Section  2.9,  but  the  omission  so to  deliver  written  notice  to the
indemnifying  party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.9.

     (d) If the  indemnification  provided  for in this Section 2.9 is held by a
court of competent  jurisdiction to be unavailable to an indemnified  party with
respect to any losses,  claims,  damages or liabilities  referred to herein, the
indemnifying  party, in lieu of indemnifying  such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such  indemnified  party as a result of such loss,  claim,  damage or
liability in such  proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations.  The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by  reference  to, among other  things,  whether the untrue or
alleged untrue  statement of a material fact or the omission to state a material
fact  relates  to  information  supplied  by the  indemnifying  party  or by the
indemnified  party  and the  parties'  relative  intent,  knowledge,  access  to
information  and  opportunity  to correct or prevent such statement or omission;
provided,  that in no event shall any  contribution by a Holder hereunder exceed
the net proceeds from the offering received by such Holder.

     (e) The obligations of the Company and Holders under this Section 2.9 shall
survive  completion of any offering of Registrable  Securities in a registration
statement and the termination of this Agreement.  No indemnifying  party, in the
defense of any such claim or litigation,  shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which  does not  include  as an  unconditional  term  thereof  the giving by the
claimant or plaintiff to such Indemnified  Party of a release from all liability
in respect to such claim or litigation.

     2.10 Assignment of Registration  Rights. The rights to cause the Company to
register Registrable  Securities pursuant to this Section 2 may be assigned by a
Holder to a  transferee  or assignee  of  Registrable  Securities  that (a) is a
subsidiary, parent, general partner, limited partner, retired partner, member or
retired member, stockholder or shareholder of a Holder, (b) is a Holder's family
member or trust for the  benefit of an  individual  Holder,  or (c)  acquires at


                                       11
<PAGE>

least five hundred  thousand  (500,000)  shares of  Registrable  Securities  (as
adjusted for stock splits and  combinations);  or (d) is an entity affiliated by
common control (or other related entity) with such Holder provided, however, (i)
the transferor shall,  within ten (10) days after such transfer,  furnish to the
Company  written  notice of the name and address of such  transferee or assignee
and the  securities  with  respect to which such  registration  rights are being
assigned and (ii) such transferee  shall agree to be subject to all restrictions
set forth in this Agreement.

     2.11 Amendment of Registration  Rights. Any provision of this Section 2 may
be amended and the observance  thereof may be waived  (either  generally or in a
particular  instance and either  retroactively or prospectively),  only with the
written  consent  of the  Company  and the  Holders  of at least  sixty-six  and
two-thirds percent (66-2/3%) of the Registrable Securities then outstanding. Any
amendment  or waiver  effected in  accordance  with this  Section  2.11 shall be
binding upon each Holder and the Company.  By acceptance  of any benefits  under
this Section 2, Holders of  Registrable  Securities  hereby agree to be bound by
the provisions hereunder.

     2.12 Limitation on Subsequent  Registration  Rights. Other than as provided
in  Section  5.11,  after the date of this  Agreement,  the  Company  shall not,
without  the prior  written  consent of the  Holders of at least  sixty-six  and
two-thirds  percent (66- 2/3%) of the Registrable  Securities then  outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder  registration rights senior to those
granted to the Holders hereunder, other than the right to a Special Registration
Statement.

     2.13 "Market  Stand-Off"  Agreement . Each Holder  hereby  agrees that such
Holder  shall not sell,  transfer,  make any short sale of, grant any option for
the purchase of, or enter into any hedging or similar  transaction with the same
economic effect as a sale, any Common Stock (or other securities) of the Company
held by such Holder (other than those included in the registration) for a period
specified by the  representative  of the  underwriters of Common Stock (or other
securities) of the Company not to exceed one hundred eighty (180) days following
the effective  date of a  registration  statement of the Company filed under the
Securities  Act;  provided  that all officers  and  directors of the Company and
holders of at least one percent (1%) of the Company's  voting  securities  enter
into similar agreements.

     2.14  Agreement to Furnish  Information.  Each Holder agrees to execute and
deliver such other  agreements as may be reasonably  requested by the Company or
the underwriter that are consistent with the Holder's  obligations under Section
2.13 or that are  necessary  to give further  effect  thereto.  In addition,  if
requested by the Company or the  representative  of the  underwriters  of Common
Stock (or other  securities) of the Company,  each Holder shall provide,  within
ten (10)  days of such  request,  such  information  as may be  required  by the
Company or such  representative  in connection with the completion of any public
offering of the Company's securities pursuant to a registration  statement filed
under the  Securities  Act. The  obligations  described in Section 2.13 and this
Section 2.14 shall not apply to a Special  Registration.  The Company may impose
stop-transfer  instructions with respect to the shares of Common Stock (or other
securities)  subject  to the  foregoing  restriction  until  the end of said one
hundred  eighty (180) day period.  Each Holder agrees that any transferee of any
shares of Registrable  Securities  shall be bound by Sections 2.13 and 2.14. The
underwriters  of the Company's stock are intended third party  beneficiaries  of
Sections 2.13 and 2.14 and shall have the right,  power and authority to enforce
the provisions hereof as though they were a party hereto.

                                       12
<PAGE>

     2.15 Rule 144 Reporting. With a view to making available to the Holders the
benefits of certain rules and  regulations  of the SEC which may permit the sale
of the Registrable  Securities to the public without  registration,  the Company
agrees to use its best efforts to:

     (a)  Make  and keep  public  information  available,  as  those  terms  are
understood  and  defined  in SEC  Rule  144 or any  similar  or  analogous  rule
promulgated  under the Securities  Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;

     (b) File with the SEC, in a timely manner,  all reports and other documents
required of the Company under the Exchange Act; and

     (c) So long as a Holder owns any  Registrable  Securities,  furnish to such
Holder  forthwith  upon  request:  a written  statement by the Company as to its
compliance  with the reporting  requirements  of said Rule 144 of the Securities
Act, and of the  Exchange  Act (at any time after it has become  subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company;  and such other  reports and  documents as a Holder may  reasonably
request in availing  itself of any rule or  regulation of the SEC allowing it to
sell any such securities without registration.

SECTION 3. COVENANTS OF THE COMPANY.

     3.1 Basic Financial Information and Reporting.

     (a) The Company  will  maintain  true books and records of account in which
full and correct entries will be made of all its business  transactions pursuant
to a system of accounting established and administered in accordance with United
States generally accepted accounting  principles  consistently applied, and will
set  aside on its  books  all such  proper  accruals  and  reserves  as shall be
required  under  United  States   generally   accepted   accounting   principles
consistently applied.

     (b) As soon  as  practicable  after  the  end of  each  fiscal  year of the
Company,  and in any event within ninety (90) days thereafter,  the Company will
furnish  each  Investor a balance  sheet of the  Company,  as at the end of such
fiscal year,  and a statement of operations and a statement of cash flows of the
Company,  for such year, all prepared in accordance with United States generally
accepted  accounting  principles  and  the  Rules  and  Regulations  of the  SEC
consistently  applied and  setting  forth in each case in  comparative  form the
figures for the previous fiscal year, all in reasonable  detail.  Such financial
statements  shall be  accompanied  by a report  thereon  by  independent  public
accountants of national standing selected by the Company's Board of Directors.

     (c) The Company will furnish each Investor,  as soon as  practicable  after
the end of the first,  second  and third  quarterly  accounting  periods in each
fiscal  year of the  Company,  and in any  event  within  forty-five  (45)  days
thereafter,  a balance sheet of the Company as of the end of each such quarterly
period,  and a statement  of  operations  and a  statement  of cash flows of the
Company  for such period and for the  current  fiscal year to date,  prepared in
accordance with United States generally accepted  accounting  principles and the
Rules and  Regulations  of the SEC,  with the  exception  that no notes  need be
attached,  except as required by the Rules and  Regulations  of the SEC) to such


                                       13
<PAGE>

statements  and  year-end  audit  adjustments  may  not  have  been  made.  Such
adjustments would not be material to the financial statements individually or in
the aggregate.

     (d) So long as an Investor  (with its  affiliates)  shall own not less than
two  percent  of  the  Company's  outstanding  Common  Stock  (calculated  on an
as-converted  basis and as adjusted for stock splits and combinations) (a "Major
Investor"),  the Company  will furnish  each such Major  Investor:  (i) at least
thirty (30) days prior to the beginning of each fiscal year an annual budget and
operating  plans for such fiscal year (and as soon as available,  any subsequent
revisions thereto); and (ii) as soon as practicable after the end of each month,
and in any event  within  twenty (20) days  thereafter,  a balance  sheet of the
Company as of the end of each such month,  and a statement of  operations  and a
statement of cash flows of the Company for such month and for the current fiscal
year to date,  including a comparison to plan figures for such period,  prepared
in  accordance  with United  States  generally  accepted  accounting  principles
consistently  applied, with the exception that no notes need be attached to such
statements  and  year-end  audit  adjustments  may  not  have  been  made.  Such
adjustments would not be material to the financial statements individually or in
the aggregate.

     3.2  Inspection  Rights.  Each Major Investor shall have the right to visit
and inspect any of the properties of the Company or any of its subsidiaries, and
to discuss  the  affairs,  finances  and  accounts  of the Company or any of its
subsidiaries with its officers,  and to review such information as is reasonably
requested  all at  such  reasonable  times  and as  often  as may be  reasonably
requested; provided, however, that the Company shall not be obligated under this
Section  3.2 with  respect to a  competitor  of the  Company or with  respect to
information   which  the  Board  of  Directors   determines  in  good  faith  is
confidential and should not, therefore, be disclosed.

     3.3 Confidentiality of Records. Each Investor agrees to use, and to use its
best efforts to insure that its authorized  representatives use, the same degree
of care as such Investor  uses to protect its own  confidential  information  to
keep confidential any information  furnished to it which the Company  identifies
as being  confidential or proprietary (so long as such information is not in the
public  domain),  except that such  Investor may disclose  such  proprietary  or
confidential  information to any partner,  subsidiary or parent of such Investor
for the  purpose of  evaluating  its  investment  in the Company as long as such
partner,  subsidiary or parent is advised of the  confidentiality  provisions of
this Section 3.3.

     3.4 Reservation of Common Stock.  The Company will at all times reserve and
keep  available,  solely for issuance and delivery  upon the  conversion  of the
Preferred  Stock,  all  Common  Stock  issuable  from  time  to time  upon  such
conversion.

     3.5  Proprietary  Information and Inventions  Agreement.  The Company shall
require  persons  classified  by a majority vote of the Board of Directors to be
key employees to execute and deliver a Proprietary  Information  and  Inventions
Agreement substantially in the form attached to the Purchase Agreement.

     3.6 Assignment of Right of First  Refusal.  In the event the Company elects
not to exercise  any right of first  refusal or right of first offer the Company


                                       14
<PAGE>

may have on a proposed  transfer  of any of the  Company's  outstanding  capital
stock pursuant to the Company's charter documents, by contract or otherwise, the
Company shall, to the extent it may do so, assign such right of first refusal or
right of first offer to each Major  Investor.  In the event of such  assignment,
each Major  Investor  shall have a right to  purchase  its pro rata  portion (as
defined in Section 4.1) of the capital stock proposed to be transferred.

     3.7  Approval.  The Company shall not without the approval of a majority of
the  Board  of  Directors,  with all  non-interested  Directors  voting  and the
approval  at least one of the  Directors  designated  by holders of the Series A
Stock,  authorize or enter into any transactions with any director or management
employee, or such director's or employee's immediate family.

     3.8 Indemnification and Advancement.

     (a) The Company hereby agrees to hold harmless and indemnify the Investors,
the  Investors'  direct  and  indirect  subsidiaries,  affiliated  entities  and
corporations,  and  each of  their  partners,  officers,  directors,  employees,
stockholders,  agents,  and  representatives  (collectively,  referred to as the
"Investor  Indemnitees")  against  any and all  expenses  (including  attorneys'
fees),  damages,  judgments,  fines,  amounts paid in settlements,  or any other
amounts  that an Investor  Indemnitee  incurs as a result of any claim or claims
made against it in connection with any threatened,  pending or completed action,
suit, arbitration, investigation or other proceeding arising out of, or relating
to the  Investors'  actions in connection  with the purchase by the Investors of
the  Series  A  Stock  and  Warrants  pursuant  to  the  Purchase  Agreement  (a
"Financing-Based Claim");  provided,  however, that no Investor Indemnitee shall
be entitled to be held harmless or indemnified by the Company for acts,  conduct
or omissions as to which there has been a final  adjudication that such Investor
Indemnitee  engaged  in  intentional  misconduct  or  in  knowing  and  culpable
violation of the law.

     (b) The Company shall reimburse,  promptly following request therefor,  all
reasonable  expenses  incurred by an Investor  Indemnitee in connection with any
threatened,  pending or completed action,  suit,  arbitration,  investigation or
other  proceeding  arising  out of, or  relating  to, a  Financing-Based  Claim,
provided,   however,   that  no  Investor   Indemnitee   shall  be  entitled  to
reimbursement  in connection  with acts,  conduct or omissions as to which there
has  been  a  final  adjudication  that  such  Investor  Indemnitee  engaged  in
intentional misconduct, in knowing and culpable violation of the law.

     (c) The Company's indemnity  obligations set forth above are subject to the
Investors  providing prompt written notice of a claim. The Company shall control
the  defense  of any such  action  and,  at its  discretion,  may  enter  into a
stipulation of discontinuance or settlement  thereof;  provided that the Company
may not  discontinue  any action or settle  any claim in a manner  that does not
unconditionally  release the  Investors  without the  Investors'  prior  written
approval.  The Investors shall, at the Company's expense and reasonable request,
cooperate  with the Company in any such defense and shall make  available to the
Company  at the  Company's  expense  all  those  persons,  documents  (excluding
attorney/client or attorney work product materials)  reasonably  required by the
Company in the defense of any such action.  The Investors may, at their expense,
assist in such defense.

                                       15
<PAGE>

     (d) The Company's aggregate  cumulative  liability under this Section shall
be limited to the amount  received  by the Company  pursuant to the  transaction
contemplated by this Agreement.

     3.9  Termination  of Covenants.  All covenants of the Company  contained in
Section 3 of this  Agreement  (other than the provisions of Section 3.8 and this
Section 3.9 shall expire and  terminate as to each  Investor upon the earlier of
upon (i) the sale, lease or other disposition of all or substantially all of the
assets  of the  Company  or  (ii)  an  acquisition  of the  Company  by  another
corporation or entity by consolidation,  merger or other reorganization in which
the holders of the Company's  outstanding voting stock immediately prior to such
transaction own,  immediately  after such transaction,  securities  representing
less than fifty  percent (50%) of the voting power of the  corporation  or other
entity surviving such transaction,  provided that this Section 3.10(ii)(b) shall
not apply to a merger  effected  exclusively  for the  purpose of  changing  the
domicile of the Company (a "Change in Control").

SECTION 4. RIGHTS OF FIRST REFUSAL.

     4.1 Subsequent Offerings. Each Investor shall have a right of first refusal
to purchase its pro rata share of all Equity Securities,  as defined below, that
the Company may, from time to time,  propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6 hereof.
Each Investor's pro rata share is equal to the ratio of (a) the number of shares
of the Company's  Common Stock  (including  all shares of Common Stock issued or
issuable  upon  conversion  of the Shares) which such Investor is deemed to be a
holder  immediately  prior to the issuance of such Equity  Securities to (b) the
total number of shares of the Company's  outstanding Common Stock (including all
shares of Common Stock issued or issuable upon  conversion of the Shares or upon
the exercise of any outstanding  warrants or options)  immediately  prior to the
issuance of the Equity Securities.  The term "Equity  Securities" shall mean (i)
any Common Stock,  Preferred  Stock or other  security of the Company,  (ii) any
security  convertible,  with or without  consideration,  into any Common  Stock,
Preferred  Stock or other  security  (including  any option to  purchase  such a
convertible  security),  (iii) any  security  carrying  any  warrant or right to
subscribe to or purchase any Common Stock,  Preferred Stock or other security or
(iv) any such warrant or right.

     4.2  Exercise  of  Rights.  If the  Company  proposes  to issue any  Equity
Securities,  it shall  give  each  Investor  written  notice  of its  intention,
describing the Equity  Securities,  the price and the terms and conditions  upon
which the Company  proposes to issue the same.  Each Investor shall have fifteen
(15) days from the giving of such notice to agree to purchase its pro rata share
of the  Equity  Securities  for the  price  and upon the  terms  and  conditions
specified  in the notice by giving  written  notice to the  Company  and stating
therein the quantity of Equity Securities to be purchased.  Notwithstanding  the
foregoing,  the  Company  shall not be  required  to offer or sell  such  Equity
Securities  to any  Investor  who would cause the Company to be in  violation of
applicable federal securities laws by virtue of such offer or sale.

     4.3  Issuance  of Equity  Securities  to Other  Persons.  If not all of the
Investors elect to purchase their pro rata share of the Equity Securities,  then
the Company shall  promptly  notify in writing the Investors who do so elect and


                                       16
<PAGE>

shall offer such Investors the right to acquire such  unsubscribed  shares.  The
Investors  shall have five (5) days after  receipt of such  notice to notify the
Company of its election to purchase all or a portion thereof of the unsubscribed
shares.  If the Investors  fail to exercise in full the rights of first refusal,
the Company shall have ninety (90) days thereafter to sell the Equity Securities
in respect of which the  Investor's  rights were not  exercised,  at a price and
upon general terms and conditions materially no more favorable to the purchasers
thereof than  specified in the  Company's  notice to the  Investors  pursuant to
Section 4.2 hereof.  If the Company has not sold such Equity  Securities  within
ninety (90) days of the notice  provided  pursuant to Section  4.2,  the Company
shall not thereafter issue or sell any Equity Securities, without first offering
such securities to the Investors in the manner provided above.

     4.4 Termination and Waiver of Rights of First Refusal.  The rights of first
refusal  established  by this Section 4 shall not apply to, and shall  terminate
upon  the  earlier  of (i)  the  effective  date of the  registration  statement
pertaining  to the  Series A Stock or (ii) a Change in  Control.  The  rights of
first  refusal  established  by this Section 4 may be amended,  or any provision
waived with the  written  consent of Major  Investors  holding a majority of the
Registrable  Securities held by all Major Investors,  or as permitted by Section
5.6.

     4.5  Transfer of Rights of First  Refusal.  The rights of first  refusal of
each  Investor  under this  Section 4 may be  transferred  to the same  parties,
subject to the same restrictions as any transfer of registration rights pursuant
to Section 2.10.

     4.6 Excluded  Securities.  The rights of first refusal  established by this
Section 4 shall have no application to any of the following Equity Securities:

     (a) up to an aggregate amount of seventeen  million one hundred  twenty-two
thousand nine hundred thirty-five  (17,122,935) shares (provided,  however, that
such amount  shall be  increased  to reflect any shares of Common  Stock (i) not
issued pursuant to the rights, agreements, options or warrants outstanding as of
the Original Issue Date  ("Outstanding  Options") as a result of the termination
of such  Outstanding  Options or (ii)  reacquired by the Company from employees,
directors or consultants at cost pursuant to agreements which permit the Company
to repurchase such shares upon termination of services to the Company) of Common
Stock and/or  options,  warrants or other Common Stock  purchase  rights and the
Common  Stock  issued  pursuant to such  options,  warrants or other  rights (as
adjusted for any stock dividends,  combinations,  splits,  recapitalizations and
the like after the filing of the Company's Articles of Incorporation)  issued or
to be issued after the Original Issue Date (as defined in the Company's Articles
of  Incorporation)  to employees,  officers or directors of, or  consultants  or
advisors to the Company or any  subsidiary,  pursuant to stock purchase or stock
option plans or other  arrangements  that are approved by the Board of Directors
including the affirmative vote of the  representative  designated by the holders
of the Shares;

     (b)  stock  issued  or  issuable  pursuant  to  any  rights  or  agreements
outstanding as of the date of this Agreement,  options and warrants  outstanding
as of the date of this  Agreement;  and stock issued pursuant to any such rights
or  agreements  granted  after the date of this  Agreement  (including,  without
limitation,  any equity  securities that are issued by the Company pursuant to a
$1,200,000 private placement offering dated December 2000 and a $750,000 private
placement  offering  dated  January  2001);  provided  that the  rights of first


                                       17
<PAGE>

refusal  established  by this Section 4 applied with respect to the initial sale
or grant by the Company of such rights or agreements;

     (c) any Equity Securities issued for consideration other than cash pursuant
to a merger, consolidation,  strategic alliance, acquisition or similar business
combination approved by the Board of Directors;

     (d) shares of Common Stock issued in connection with any stock split, stock
dividend or recapitalization by the Company;

     (e)  shares  of  Common  Stock  issued  upon  conversion  of  shares of the
Company's Preferred Stock;

     (f) any Equity  Securities issued pursuant to any equipment  leasing,  real
property leasing or loan  arrangement,  or debt financing from a bank or similar
financial or lending institution approved by the Board of Directors; and

     (g) any Equity  Securities  that are issued by the  Company  pursuant  to a
registration statement filed under the Securities Act.

SECTION 5. MISCELLANEOUS.

     5.1 Governing Law. This Agreement  shall be governed by and construed under
the laws of the State of California as applied to  agreements  among  California
residents entered into and to be performed entirely within California.

     5.2 Survival. The representations,  warranties,  covenants,  and agreements
made herein shall survive any  investigation  made by any Holder and the closing
of the transactions  contemplated  hereby.  All statements as to factual matters
contained in any  certificate or other  instrument  delivered by or on behalf of
the Company  pursuant  hereto in connection with the  transactions  contemplated
hereby  shall be deemed to be  representations  and  warranties  by the  Company
hereunder solely as of the date of such certificate or instrument.

     5.3 Successors and Assigns.  Except as otherwise expressly provided herein,
the  provisions  hereof shall inure to the benefit of, and be binding upon,  the
successors,  assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of Registrable  Securities from time to time; provided,  however,  that
prior to the receipt by the Company of adequate  written  notice of the transfer
of any  Registrable  Securities  specifying  the full  name and  address  of the
transferee,  the Company  may deem and treat the person  listed as the holder of
such shares in its records as the  absolute  owner and holder of such shares for
all purposes, including the payment of dividends or any redemption price.

     5.4 Entire  Agreement.  This Agreement,  the Exhibits and Schedules hereto,
the  Purchase  Agreement  and the other  documents  delivered  pursuant  thereto
constitute the full and entire  understanding  and agreement between the parties
with regard to the subjects  hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.

                                       18
<PAGE>

     5.5  Severability.  In the  event  one or  more of the  provisions  of this
Agreement  should,   for  any  reason,  be  held  to  be  invalid,   illegal  or
unenforceable in any respect, such invalidity,  illegality,  or unenforceability
shall not affect any other  provisions  of this  Agreement,  and this  Agreement
shall be construed as if such invalid,  illegal or  unenforceable  provision had
never been contained herein.

     5.6 Amendment and Waiver.

     (a) Except as otherwise expressly  provided,  this Agreement may be amended
or modified  only upon the written  consent of the Company and the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities.

     (b) Except as otherwise expressly provided,  the obligations of the Company
and the rights of the Holders  under this  Agreement may be waived only with the
written consent of the holders of at least sixty-six and two-thirds  percent (66
2/3%) of the Registrable Securities.

     (c) For the  purposes  of  determining  the  number of Holder or  Investors
entitled to vote or exercise any rights hereunder, the Company shall be entitled
to rely solely on the list of record holders of its stock as maintained by or on
behalf of the Company.

     5.7 Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power, or remedy accruing to any Holder, upon any breach,  default or
noncompliance  of the Company under this Agreement  shall impair any such right,
power,  or remedy,  nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of any similar breach,
default or  noncompliance  thereafter  occurring.  It is further agreed that any
waiver,  permit,  consent,  or approval of any kind or character on any Holder's
part of any breach,  default or noncompliance  under the Agreement or any waiver
on such Holder's part of any  provisions or conditions of this Agreement must be
in writing and shall be effective only to the extent  specifically  set forth in
such writing.  All remedies,  either under this Agreement,  by law, or otherwise
afforded to Holders, shall be cumulative and not alternative.

     5.8  Notices.  All notices  required  or  permitted  hereunder  shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed electronic mail or facsimile if
sent during normal  business  hours of the  recipient;  if not, then on the next
business  day,  (c)  five (5) days  after  having  been  sent by  registered  or
certified mail, return receipt  requested,  postage prepaid,  or (d) one (1) day
after deposit with a nationally  recognized  overnight courier,  specifying next
day delivery,  with written verification of receipt. All communications shall be
sent to the party to be notified  at the  address as set forth on the  signature
pages  hereof or  Exhibit A hereto or at such  other  address  as such party may
designate by ten (10) days advance written notice to the other parties hereto.

     5.9 Attorneys'  Fees. In the event that any suit or action is instituted to
enforce any provision in this  Agreement,  the prevailing  party in such dispute
shall be entitled to recover from the losing party all fees,  costs and expenses
of enforcing  any right of such  prevailing  party under or with respect to this
Agreement,  including without  limitation,  such reasonable fees and expenses of
attorneys and accountants,  which shall include,  without limitation,  all fees,
costs and expenses of appeals.

                                       19
<PAGE>

     5.10 Titles and  Subtitles.  The titles of the sections and  subsections of
this  Agreement  are  for  convenience  of  reference  only  and  are  not to be
considered in construing this Agreement.

     5.11  Additional  Investors.   Notwithstanding  anything  to  the  contrary
contained  herein, if the Company shall issue additional shares of its Preferred
Stock  pursuant  to the  Purchase  Agreement,  any  purchaser  of such shares of
Preferred Stock may become a party to this Agreement by executing and delivering
an additional  counterpart  signature page to this Agreement and shall be deemed
an "Investor," a "Holder" and a party hereunder. Notwithstanding anything to the
contrary  contained  herein,  if the Company  shall issue Equity  Securities  in
accordance with Section 4.6 (c), or (f) of this Agreement, any purchaser of such
Equity  Securities  may  become  a party  to this  Agreement  by  executing  and
delivering an additional  counterpart signature page to this Agreement and shall
be deemed an "Investor," a "Holder" and a party hereunder.

     5.12  Counterparts.  This  Agreement  may  be  executed  in any  number  of
counterparts,  each of which  shall be an  original,  but all of which  together
shall constitute one instrument.

     5.13  Aggregation of Stock.  All shares of Registrable  Securities  held or
acquired by affiliated  entities or persons or persons or entities  under common
management  or  control  shall  be  aggregated   together  for  the  purpose  of
determining the availability of any rights under this Agreement.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]




                                       20
<PAGE>

                              SCHEDULE OF INVESTORS

                            INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE

         IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.


INVESTORS:                              COMPANY:

MCCOWN DE LEEUW AND COMPANY IV, LP      ON STAGE ENTERTAINMENT, INC.

By:______________________________       By:______________________________
Name:____________________________       Name:____________________________
Title:___________________________       Title:___________________________


MCCOWN DE LEEUW AND COMPANY IV
ASSOCIATES, LP


By:________________________________
Name:______________________________
Title:_____________________________


DELTA FUND, LP

By:________________________________
Name:______________________________
Title:_____________________________


BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY

By: ____________________________
Name:___________________________
Title:__________________________




<PAGE>


                              SCHEDULE OF INVESTORS


1.       McCown De Leeuw and Company IV, LP

2.       McCown De Leeuw and Company IV Associates, LP

3.       Delta Fund, LP

4.       Board of Trustees of the Leland Stanford University