Exhibit 10.31

                         COMMON STOCK PURCHASE AGREEMENT

     This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of July
26, 2001 by and between Data Race,  Inc., a  corporation  organized and existing
under the  corporate  law of the State of Texas (the  "Company")  and  Grenville
Finance Ltd. (the "Purchaser"), a British Virgin Islands corporation.

     WHEREAS,  the  parties  desire  that,  upon the  terms and  subject  to the
conditions  contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $30,000,000
of Common Stock and the Warrant; and

     WHEREAS,  such  investments  will  be made by the  Purchaser  as  statutory
underwriter of a registered  indirect  primary  offering of such Common Stock by
the Company.

     NOW,  THEREFORE,  in  consideration  of the  foregoing  premises,  and  the
promises and covenants  herein  contained,  the receipt and sufficiency of which
are hereby  acknowledged  by the parties  hereto,  the parties,  intending to be
legally bound, hereby agree as follows:

                                   ARTICLE 1

                        PURCHASE AND SALE OF COMMON STOCK

     Section  1.1.  Purchase  and  Sale  of  Stock.  Subject  to the  terms  and
conditions  of this  Agreement,  the Company may sell and issue to the Purchaser
and the  Purchaser  shall be  obligated to purchase  from the Company,  up to an
aggregate  of,  $30,000,000  of Common Stock (the  "Commitment  Amount") and the
Warrant, subject to the terms herein.

     Section 1.2.  Purchase  Price and Initial  Closing.  The Company  agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations,  warranties,  covenants,  terms and conditions of this
Agreement,  the  Purchaser  agrees to  purchase  that number of the Shares to be
issued in  connection  with each Draw Down.  The delivery of executed  documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement,  attached as Exhibit
B hereto,  (the  "Initial  Closing")  shall take place at the offices of Epstein
Becker & Green,  P.C.,  250 Park  Avenue,  New York,  New York  10177 (i) within
fifteen (15) days from the date hereof,  or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Initial  Closing
Date").  Each party  shall  deliver  all  documents,  instruments  and  writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Initial Closing.

     Section 1.3. Liquidated  Damages.  The parties hereto acknowledge and agree
that the sums payable  pursuant to this  Agreement for late delivery of the Draw
Down  Shares and the  Registration  Rights  Agreement  for a  suspension  of the
Registration  Statement or the Purchaser's  right to resell the Draw Down Shares
thereunder shall constitute  liquidated  damages and not penalties.  The parties
further acknowledge that (a) the amount of loss or damages likely

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to be incurred is  incapable or is  difficult  to  precisely  estimate,  (b) the
amount  specified in such  provisions  bear a reasonable  proportion and are not
plainly or grossly  disproportionate  to the probable loss likely to be incurred
by the  Purchaser in  connection  with the failure of the Company to deliver the
Draw Down Shares in a timely manner or the suspension of the Purchaser's  rights
to resell the Draw Down Shares  under the  Registration  Statement,  and (c) the
parties are sophisticated  businesses and have been represented by sophisticated
and able legal and  financial  counsel and  negotiated  this  Agreement at arm's
length.

                                   ARTICLE 2

                         REPRESENTATIONS AND WARRANTIES

     Section 2.1.  Representation  and Warranties of the Company.  Except as set
forth in the SEC Documents or on the Disclosure Schedule prepared by the Company
and attached  hereto,  or as contemplated by this Agreement,  the Company hereby
makes the following representations and warranties to the Purchaser:

          (a)   Organization,   Good  Standing  and  Power.  The  Company  is  a
     corporation duly  incorporated  validly existing and in good standing under
     the laws of the State of Texas and has all requisite corporate authority to
     own,  lease and  operate  its  properties  and  assets  and to carry on its
     business  as now being  conducted.  The  Company  does not have any  active
     subsidiaries  and does not own more than fifty  percent (50%) of or control
     any other  business  entity except as set forth in the SEC  Documents.  The
     Company is duly  qualified  to do  business  and is in good  standing  as a
     foreign  corporation  in every  jurisdiction  in which  the  nature  of the
     business  conducted  or  property  owned  by it  makes  such  qualification
     necessary,  other than those in which the  failure so to qualify  would not
     have a Material Adverse Effect.

          (b)  Authorization,  Enforcement.  (i) The Company  has the  requisite
     corporate  power and  corporate  authority  to enter into and  perform  its
     obligations  under  the  Transaction  Documents  and to issue the Draw Down
     Shares pursuant to their respective  terms, (ii) the execution and delivery
     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  corporate  action and no further consent or authorization
     of the Company or its Board of Directors or stockholders  is required,  and
     (iii) the  Transaction  Documents  have been duly executed and delivered by
     the Company and at the Initial Closing shall  constitute  valid and binding
     obligations  of the Company  enforceable  against the Company in accordance
     with  their  terms,  except  as  such  enforceability  may  be  limited  by
     applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
     conservatorship,  receivership  or similar  laws  relating to, or affecting
     generally the  enforcement of,  creditors'  rights and remedies or by other
     equitable principles of general application.

          (c)  Capitalization.  The  authorized  capital  stock  of the  Company
     consists of 70,000,000  shares of Common Stock of which  29,986,153  shares
     are issued

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     and  outstanding,  and no shares of preferred stock. All of the outstanding
     shares of the Company's Common Stock have been duly and validly  authorized
     and are  fully  paid  and  non-assessable  except  as set  forth in the SEC
     Documents.  No shares of Common Stock are entitled to preemptive  rights or
     registration rights and there are no outstanding options,  warrants, scrip,
     rights to subscribe to, calls or  commitments  of any character  whatsoever
     relating  to, or  securities  or rights  convertible  into,  any  shares of
     capital  stock  of  the  Company.  There  are  no  contracts,  commitments,
     understandings, or arrangements by which the Company is or may become bound
     to issue additional  shares of the capital stock of the Company or options,
     securities  or  rights  convertible  into  shares of  capital  stock of the
     Company. The Company is not a party to any agreement granting  registration
     rights to any person with respect to any of its equity or debt  securities.
     The Company is not a party to, and it has no  knowledge  of, any  agreement
     restricting  the voting or transfer  of any shares of the capital  stock of
     the  Company.  The Company has made  available  to the  Purchaser  true and
     correct copies of the Company's articles or certificate of incorporation as
     in effect on the date hereof (the  "Charter"),  and the Company's bylaws as
     in effect on the date hereof (the  "Bylaws").  The Company has not received
     any  notice  from the  Principal  Market  questioning  or  threatening  the
     continued inclusion of the Common Stock on such market.

          (d)  Issuance of Shares.  The Warrant  Shares to be issued  under this
     Agreement have been duly authorized by all necessary  corporate action and,
     when  paid for and  issued in  accordance  with the  terms  hereof  and the
     Warrant, the Warrant Shares shall be validly issued and outstanding,  fully
     paid and non-assessable,  and the Purchaser shall be entitled to all rights
     accorded to a holder of Common Stock.

          (e) No Conflicts.  The  execution,  delivery and  performance  of this
     Agreement  by the  Company  and  the  consummation  by the  Company  of the
     transactions  contemplated  herein  do not and  will  not (i)  violate  any
     provision  of the  Company's  Charter or Bylaws,  (ii)  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,
     mortgage, deed of trust,  indenture,  note, bond, license, lease agreement,
     instrument or  obligation to which the Company is a party,  (iii) create or
     impose a lien,  charge or  encumbrance on any property of the Company under
     any agreement or any commitment to which the Company is a party or by which
     the Company is bound or by which any of its respective properties or assets
     are bound,  or (iv) result in a violation of any federal,  state,  local or
     other  foreign  statute,  rule,  regulation,   order,  judgment  or  decree
     (including any federal or state securities laws and regulations) applicable
     to the Company or any of its subsidiaries or by which any property or asset
     of the Company or any of its subsidiaries are bound or affected, except, in
     all  cases,  for  such  conflicts,   defaults,   termination,   amendments,
     accelerations,  cancellations and violations as would not,  individually or
     in the  aggregate,  have a Material  Adverse  Effect.  The  business of the
     Company and its  subsidiaries  is not being  conducted  in violation of any
     laws,  ordinances or regulations  of any  governmental  entity,  except for
     violations  which singularly or in the aggregate do not and will not have a
     Material  Adverse  Effect.  The Company is not required  under any federal,
     state or local law, rule or regulation to obtain any consent, authorization
     or  order  of,  or make any  filing

<PAGE>

     or registration  with, any court or governmental  agency in order for it to
     execute, deliver or perform any of its obligations under this Agreement, or
     issue and sell the Shares in  accordance  with the terms hereof (other than
     any filings which may be required to be made by the Company with the SEC or
     state securities administrators and any registration statement which may be
     filed  pursuant  hereto);  provided,  however,  that  for  purpose  of  the
     representations made in this sentence,  the Company is assuming and relying
     upon the accuracy of the relevant  representations  and  agreements  of the
     Purchaser herein.

          (f) SEC  Documents,  Financial  Statements.  The  Common  Stock of the
     Company is  registered  pursuant to Section 12(g) of the Exchange Act, and,
     the Company is current with all reports,  schedules,  forms, statements and
     other  documents  required  to be filed by it with the SEC  pursuant to the
     reporting  requirements  of the  Exchange  Act,  including  material  filed
     pursuant to Section  13(a) or 15(d) of the  Exchange  Act.  The Company has
     delivered or made available to the  Purchaser,  through the EDGAR system or
     otherwise, true and complete copies of the SEC Documents filed with the SEC
     since  December 31, 1998. The Company has not provided to the Purchaser any
     information which, according to applicable law, rule or regulation,  should
     have  been  disclosed  publicly  by the  Company  but which has not been so
     disclosed, other than with respect to the transactions contemplated by this
     Agreement.  As of their respective filing dates, the SEC Documents complied
     in all material  respects with the  requirements of the Exchange Act or the
     Securities  Act, as  applicable,  and the rules and  regulations of the SEC
     promulgated  thereunder  applicable  to such  documents,  and,  as of their
     respective  filing dates,  none of the SEC  Documents  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,
     in light of the  circumstances  under which they were made, not misleading.
     The  financial  statements  of the Company  included  in the SEC  Documents
     comply  as to form in all  material  respects  with  applicable  accounting
     requirements  under GAAP and the published rules and regulations of the SEC
     or other  applicable  rules and  regulations  with  respect  thereto.  Such
     financial  statements have been prepared in accordance with GAAP applied on
     a  consistent  basis  during the  periods  involved  (except  (i) as may be
     otherwise  indicated in such  financial  statements or the notes thereto or
     (ii) in the case of unaudited  interim  statements,  to the extent they may
     not include  footnotes  or may be  condensed  or summary  statements),  and
     fairly  present in all  material  respects  the  financial  position of the
     Company  and its  subsidiaries  as of 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).

          (g)  Subsidiaries.  The  SEC  Documents  or  the  Disclosure  Schedule
     attached  hereto sets forth each  subsidiary  of the  Company,  showing the
     jurisdiction  of  its   incorporation   or  organization  and  showing  the
     percentage of the  Company's  ownership of the  outstanding  stock or other
     interests  of  such  subsidiary.   For  the  purposes  of  this  Agreement,
     "subsidiary" shall mean any corporation or other entity of which at least a
     majority of the securities or other  ownership  interests  having  ordinary
     voting power  (absolutely or contingently) for the election of directors or
     other persons  performing  similar functions are at the time owned directly
     or indirectly by the Company and/or any of its other  subsidiaries.  All of
     the issued and outstanding  shares of capital stock of each

<PAGE>

     subsidiary have been duly authorized and validly issued, and are fully paid
     and  non-assessable.  There are no  outstanding  preemptive,  conversion or
     other  rights,  options,  warrants  or  agreements  granted or issued by or
     binding upon any  subsidiary  for the purchase or acquisition of any shares
     of capital  stock of any  subsidiary  or any other  securities  convertible
     into, exchangeable for or evidencing the rights to subscribe for any shares
     of such capital stock. Neither the Company nor any subsidiary is subject to
     any obligation (contingent or otherwise) to repurchase or otherwise acquire
     or  retire  any  shares  of the  capital  stock  of any  subsidiary  or any
     convertible  securities,  rights, warrants or options of the type described
     in the  preceding  sentence.  Neither the Company nor any  subsidiary  is a
     party to, nor has any knowledge of, any agreement restricting the voting or
     transfer of any shares of the capital stock of any subsidiary.

          (h) No  Material  Adverse  Effect.  Since  the  date of the  financial
     statement  contained  in the most  recently  filed Form 10-Q (or 10-QSB) or
     Form 10-K (or  10-KSB),  whichever  is most  current,  no Material  Adverse
     Effect  has  occurred  or exists  with  respect to the  Company,  except as
     disclosed  in the SEC  Documents  or on the  Disclosure  Schedule  attached
     hereto.

          (i) No  Undisclosed  Liabilities.  Except  as  disclosed  in  the  SEC
     Documents  or on the  Disclosure  Schedule  attached  hereto,  neither  the
     Company  nor  any of its  subsidiaries  has any  liabilities,  obligations,
     claims or losses (whether liquidated or unliquidated, secured or unsecured,
     absolute,  accrued,  contingent or otherwise)  that would be required to be
     disclosed on a balance  sheet of the Company or any  subsidiary  (including
     the notes  thereto) in conformity  with GAAP which are not disclosed in the
     SEC  Documents,  other than those  incurred in the  ordinary  course of the
     Company's or its  subsidiaries'  respective  businesses since such date and
     which,  individually  or in  the  aggregate,  do not or  would  not  have a
     Material Adverse Effect on the Company or its subsidiaries.

          (j) No  Undisclosed  Events  or  Circumstances.  Since the date of the
     financial  statement  contained in the most  recently  filed Form 10- Q (or
     10-QSB) or Form 10-K (or 10-KSB),  whichever is most  current,  no event or
     circumstance  has  occurred  or exists  with  respect to the Company or its
     businesses, properties, prospects, operations or financial condition, that,
     under  applicable law, rule or regulation,  requires  public  disclosure or
     announcement prior to the date hereof by the Company but which has not been
     so publicly announced or disclosed in the SEC Documents.

          (k)  Indebtedness.  The  SEC  Documents  or  the  Disclosure  Schedule
     attached  hereto sets forth as of the date hereof all  outstanding  secured
     and unsecured  Indebtedness of the Company or any subsidiary,  or for which
     the Company or any  subsidiary  has  commitments.  For the purposes of this
     Agreement, "Indebtedness" shall mean (A) any liabilities for borrowed money
     or amounts owed in excess of $500,000  (other than trade  accounts  payable
     incurred  in  the  ordinary  course  of  business),   (B)  all  guaranties,
     endorsements  and  contingent  obligations  in respect of  Indebtedness  of
     others, whether or not the same are or should be reflected in the Company's
     balance sheet (or the notes thereto),  except  guaranties by endorsement of
     negotiable instruments for deposit or

<PAGE>

     collection or similar transactions in the ordinary course of business;  and
     (C) the present value of any lease payments in excess of $500,000 due under
     leases  required to be  capitalized  in accordance  with GAAP.  Neither the
     Company nor any subsidiary is in default with respect to any Indebtedness.

          (l) Title to Assets. Each of the Company and the subsidiaries has good
     and marketable title to all of its real and personal property  reflected in
     the SEC Documents, free of any mortgages, pledges, charges, liens, security
     interests  or other  encumbrances,  except for those  indicated  in the SEC
     Documents  or such that do not cause a Material  Adverse  Effect.  All said
     real property leases of the Company and each of its  subsidiaries are valid
     and subsisting and in full force and effect.

          (m) Actions Pending. There is no action, suit, claim, investigation or
     proceeding pending or, to the knowledge of the Company,  threatened against
     the  Company  or any  subsidiary  which  questions  the  validity  of  this
     Agreement or the transactions contemplated hereby or any action taken or to
     be taken  pursuant  hereto or  thereto.  There is no action,  suit,  claim,
     investigation  or  proceeding  pending or, to the knowledge of the Company,
     threatened,  against or involving  the Company,  any  subsidiary  or any of
     their  respective   properties  or  assets,   which  action,  suit,  claim,
     investigation or proceeding would have a Material Adverse Effect. There are
     no outstanding  orders,  judgments,  injunctions,  awards or decrees of any
     court, arbitrator or governmental or regulatory body against the Company or
     any  subsidiary  except those  orders,  judgments,  injunctions,  awards or
     decrees which would not have a Material Adverse Effect.

          (n) Compliance with Law. The Company and each of its subsidiaries have
     all  franchises,  permits,  licenses,  consents and other  governmental  or
     regulatory  authorizations and approvals necessary for the conduct of their
     respective  businesses as now being conducted by them unless the failure to
     possess such franchises, permits, licenses, consents and other governmental
     or  regulatory  authorizations  and  approvals,   individually  or  in  the
     aggregate,  could not  reasonably  be expected  to have a Material  Adverse
     Effect.

          (o) Taxes.  The Company and each  subsidiary has filed all Tax Returns
     which it is required to file under  applicable  laws;  all such Tax Returns
     are true and accurate in all material  respects,  and have been prepared in
     compliance  with  all  applicable  laws;  except  as set  forth  in the SEC
     Documents  the  Company  has  paid  all  Taxes  due and  owing by it or any
     subsidiary  (whether  or not such Taxes are  required  to be shown on a Tax
     Return)  and  has  withheld  and  paid  over  to  the  appropriate   taxing
     authorities all Taxes which it is required to withhold from amounts paid or
     owing to any employee,  stockholder,  creditor or other third parties;  and
     since December 31, 1999, the charges,  accruals and reserves for Taxes with
     respect to the Company (including any provisions for deferred income taxes)
     reflected  on the books of the  Company  are to its  knowledge  adequate to
     cover any Tax  liabilities  of the  Company  if its  current  tax year were
     treated as ending on the date hereof.

<PAGE>

          No claim has been made by a taxing  authority in a jurisdiction  where
     the Company does not file tax returns that the Company or any subsidiary is
     or may be subject to taxation by that jurisdiction.  Except as set forth in
     the SEC Documents, there are no foreign, federal, state or local tax audits
     or administrative or judicial  proceedings  pending or being conducted with
     respect to the Company or any  subsidiary;  no  information  related to Tax
     matters has been requested by any foreign,  federal,  state or local taxing
     authority;  and, except as disclosed above, no written notice indicating an
     intent to open an audit or other review has been received by the Company or
     any subsidiary from any foreign,  federal, state or local taxing authority.
     Except as set forth in the SEC Documents,  there are no material unresolved
     questions or claims concerning the Company's Tax liability. The Company (A)
     has not executed or entered into a closing  agreement  pursuant to ss. 7121
     of the Internal  Revenue Code or any predecessor  provision  thereof or any
     similar provision of state, local or foreign law; and (B) has not agreed to
     or is  required  to make any  adjustments  pursuant  to ss.  481 (a) of the
     Internal Revenue Code or any similar  provision of state,  local or foreign
     law by reason of a change in accounting  method initiated by the Company or
     any of its  subsidiaries or has any knowledge that the IRS has proposed any
     such  adjustment or change in  accounting  method,  or has any  application
     pending with any taxing authority requesting  permission for any changes in
     accounting  methods  that  relate  to the  business  or  operations  of the
     Company.  The Company has not been a United  States real  property  holding
     corporation  within the meaning of ss.  897(c)(2) of the  Internal  Revenue
     Code during the applicable period specified in ss.  897(c)(1)(A)(ii) of the
     Internal Revenue Code.

          The Company has not made an election  under ss.341 (f) of the Internal
     Revenue  Code.  The  Company is not liable for the Taxes of another  person
     that is not a subsidiary of the Company under (A) Treas.  Reg. ss. 1.1502-6
     (or  comparable  provisions  of  state,  local or  foreign  law),  (B) as a
     transferee or successor, (C) by contract or indemnity or (D) otherwise. The
     Company is not a party to any tax  sharing  agreement.  The Company has not
     made any  payments,  is not obligated to make payments nor is it a party to
     an agreement  that could obligate it to make any payments that would not be
     deductible under ss. 280G of the Internal Revenue Code.

          For purposes of this Section 2.1(o):

          "IRS" means the United States Internal Revenue Service.

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

<PAGE>

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

          (p)  Certain  Fees.  Except for the fees paid to  Hadrian  Investments
     Limited pursuant to the Escrow Agreement, no brokers,  finders or financial
     advisory  fees  or  commissions  will  be  payable  by the  Company  or any
     subsidiary with respect to the transactions contemplated by this Agreement.

          (q)  Operation of Business.  The Company and each of the  subsidiaries
     owns or possesses  all patents,  trademarks,  service  marks,  trade names,
     copyrights,  licenses and  authorizations as set forth in the SEC Documents
     or the Disclosure  Schedule attached hereto, and all rights with respect to
     the foregoing, which to its knowledge would be reasonably necessary for the
     conduct of its  business as now  conducted  without any  conflict  with the
     rights of others.

          (r) Books and  Records.  The records and  documents of the Company and
     its  subsidiaries   accurately   reflect  in  all  material   respects  the
     information  relating to the business of the Company and the  subsidiaries,
     the  location  and  collection  of  their  assets,  and the  nature  of all
     transactions  giving rise to the obligations or accounts  receivable of the
     Company or any subsidiary.

          (s) Material Agreements.  The Company and each of its subsidiaries has
     in all  material  respects  performed  all the  obligations  required to be
     performed by them to date under the foregoing agreements,  have received no
     notice of default and, to the best of the  Company's  knowledge  are not in
     default  under any Material  Agreement  now in effect,  the result of which
     would  cause a  Material  Adverse  Effect.  Except  as set forth in the SEC
     Documents, no written or oral contract, instrument,  agreement, commitment,
     obligation,  plan or arrangement of the Company or of any subsidiary limits
     or shall limit the payment of dividends on the Company's Common Stock.

          (t)  Transactions  with  Affiliates.   There  are  no  loans,  leases,
     agreements,   contracts,   royalty  agreements,   management  contracts  or
     arrangements or other continuing  transactions  exceeding  $100,000 between
     (A) the Company,  any  subsidiary or any of their  respective  customers or
     suppliers  on the  one  hand,  and  (B) on the  other  hand,  any  officer,
     employee,   consultant   or  director  of  the  Company,   or  any  of  its
     subsidiaries,  or any person  owning 5% or more of the capital stock of the
     Company or any  subsidiary  or any member of the  immediate  family of such
     officer, employee,  consultant,  director or stockholder or any corporation
     or other entity controlled by such officer, employee, consultant,  director
     or  stockholder,  or a member  of the  immediate  family  of such  officer,
     employee, consultant, director or stockholder.

          (u) Securities Laws. The Company has complied and will comply with all
     applicable  federal and state securities laws in connection with the offer,
     issuance and sale of the Shares  hereunder.  Neither the Company nor anyone
     acting on its behalf,  directly or indirectly,  has or will sell,  offer to
     sell or  solicit  offers to buy the  Shares or

<PAGE>


     similar  securities  to, or solicit  offers with respect  thereto  from, or
     enter into any preliminary  conversations or negotiations  relating thereto
     with,  any person (other than the  Purchaser),  so as to bring the issuance
     and sale of the Shares under the registration  provisions of the Securities
     Act and applicable state  securities  laws.  Neither the Company nor any of
     its affiliates,  nor any person acting on its or their behalf,  has engaged
     in any form of general  solicitation  or general  advertising  (within  the
     meaning of Regulation D under the  Securities  Act) in connection  with the
     offer or sale of the Shares.

          (v)  Employees.  Neither  the  Company  nor  any  subsidiary  has  any
     collective  bargaining  arrangements  or  agreements  covering  any  of its
     employees.  Neither  the  Company  nor any  subsidiary  is in breach of any
     employment   contract,   agreement   regarding   proprietary   information,
     noncompetition  agreement,   nonsolicitation   agreement,   confidentiality
     agreement, or any other similar contract or restrictive covenant,  relating
     to the right of any  officer,  to be  employed or engaged by the Company or
     such  subsidiary.  Since the date of the  December  31,  2000 Form 10-K (or
     10-KSB),  no  officer,  consultant  or key  employee  of the Company or any
     subsidiary  whose  termination,  either  individually  or in the aggregate,
     could have a Material  Adverse Effect,  has terminated or, to the knowledge
     of the  Company,  has  any  present  intention  of  terminating  his or her
     employment or engagement with the Company or any subsidiary.

          (w) Absence of Certain  Developments.  Since the date of the financial
     statement  contained  in the most  recently  filed Form 10-Q (or 10-QSB) or
     Form 10-K (or 10KSB),  whichever is most  current,  neither the Company nor
     any subsidiary has:

               (i)    issued any stock,  bonds or other corporate  securities or
           any rights, options or warrants with respect thereto;

               (ii)   borrowed  any amount or incurred or become  subject to any
           liabilities  (absolute  or  contingent)  except  current  liabilities
           incurred in the ordinary  course of business  which are comparable in
           nature and amount to the current liabilities incurred in the ordinary
           course of business during the comparable  portion of its prior fiscal
           year,  as adjusted  to reflect  the current  nature and volume of the
           Company's or such subsidiary's business;

               (iii)  discharged  or satisfied any lien or  encumbrance  or paid
           any  obligation  or liability  (absolute or  contingent),  other than
           current liabilities paid in the ordinary course of business;

               (iv)   declared  or made any payment or  distribution  of cash or
           other  property  to  stockholders  with  respect  to  its  stock,  or
           purchased  or  redeemed,  or made any  agreements  so to  purchase or
           redeem, any shares of its capital stock;

               (v)    sold,  assigned or transferred any other tangible  assets,
           or canceled  any debts or claims,  except in the  ordinary  course of
           business;

<PAGE>

               (vi)   sold,   assigned  or   transferred   any  patent   rights,
           trademarks,   trade  names,   copyrights,   trade  secrets  or  other
           intangible  assets or intellectual  property rights, or disclosed any
           proprietary   confidential   information  to  any  person  except  to
           customers in the ordinary  course of business or to the  Purchaser or
           its representatives;

               (vii)  suffered  any  material  losses  (except  for  anticipated
           losses  consistent  with  prior  quarters)  or waived  any  rights of
           material value, whether or not in the ordinary course of business, or
           suffered the loss of any material amount of prospective business;

               (viii) made any changes in  employee  compensation  except in the
          ordinary course of business and consistent with past practices;

               (ix)   made capital  expenditures  or  commitments  therefor that
           aggregate in excess of $500,000;

               (x)    entered into any other  material  transaction,  whether or
           not in the ordinary course of business;

               (xi)   suffered  any  material  damage,  destruction  or casualty
           loss, whether or not covered by insurance;

               (xii)  experienced any material problems with labor or management
           in connection with the terms and conditions of their employment; or

               (xiii) effected  any two or more  events  of the  foregoing  kind
           which  in the  aggregate  would be  material  to the  Company  or its
           subsidiaries.

          (x) Governmental Approvals.  Except for the filing of any notice prior
     or subsequent to any Settlement Date that may be required under  applicable
     federal or state  securities  laws (which if required,  shall be filed on a
     timely  basis),  including  the  filing  of  a  registration  statement  or
     post-effective  amendment  pursuant to this  Agreement,  no  authorization,
     consent,  approval,  license, exemption of, filing or registration with any
     court or governmental  department,  commission,  board,  bureau,  agency or
     instrumentality,  domestic or foreign,  is or will be necessary  for, or in
     connection with, the delivery of the Shares,  or for the performance by the
     Company of its obligations under this Agreement.

          (aa) Acknowledgment  Regarding Purchaser's Purchase of Shares. Company
     acknowledges  and agrees that Purchaser is acting solely in the capacity of
     arm's length  purchaser with respect to this Agreement and the transactions
     contemplated hereunder. The Company further acknowledges that the Purchaser
     is not acting as a financial advisor or fiduciary of the Company (or in any
     similar  capacity)  with  respect to this  Agreement  and the  transactions
     contemplated  hereunder.  The Company  further  represents to the Purchaser
     that the  Company's  decision to enter into this  Agreement  has been based
     solely on (a) the  Purchaser's  representations  and  warranties in Section
     2.2,  and  (b)  the  independent  evaluation  by the  Company  and  its own
     representatives and counsel.

<PAGE>

     Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:

          (a)  Organization  and Standing of the  Purchaser.  The Purchaser is a
     corporation duly incorporated,  validly existing and in good standing under
     the laws of the British Virgin Islands.

          (b) Authorization and Power. The Purchaser has the requisite power and
     authority  to enter  into and  perform  the  Transaction  Documents  and to
     purchase the Shares being sold to it hereunder. The execution, delivery and
     performance of the Transaction  Documents by Purchaser and the consummation
     by it of the transactions  contemplated hereby have been duly authorized by
     all necessary  corporate action and at the Initial Closing shall constitute
     valid and binding  obligations  of the  Purchaser  enforceable  against the
     Purchaser in accordance with their terms, except as such enforceability may
     be   limited  by   applicable   bankruptcy,   insolvency,   reorganization,
     moratorium,  liquidation,  conservatorship,  receivership  or similar  laws
     relating to, or affecting  generally the enforcement of,  creditors' rights
     and remedies or by other equitable principles of general application

          (c) No Conflicts.  The  execution,  delivery and  performance  of this
     Agreement  and  the  consummation  by the  Purchaser  of  the  transactions
     contemplated  hereby or relating hereto do not and will not (i) result in a
     violation of the Purchaser's  charter  documents or bylaws or (ii) 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  to which the Purchaser is a party,  or result in a
     violation of any law, rule, or regulation, or any order, judgment or decree
     of any court or  governmental  agency  applicable  to the  Purchaser or its
     properties  (except for such  conflicts,  defaults and  violations as would
     not,  individually or in the aggregate,  have a Material  Adverse Effect on
     Purchaser).   The   Purchaser  is  not  required  to  obtain  any  consent,
     authorization  or order of, or make any filing or  registration  with,  any
     court or governmental agency in order for it to execute, deliver or perform
     any of its  obligations  under this  Agreement or to purchase the Shares in
     accordance with the terms hereof.

          (d) Financial  Risks.  The Purchaser  acknowledges  that it is able to
     bear the financial  risks  associated  with an investment in the Shares and
     that it has been given full  access to such  records of the Company and the
     subsidiaries  and to the officers of the Company and the subsidiaries as it
     has  deemed   necessary  or   appropriate  to  conduct  its  due  diligence
     investigation.  The Purchaser is capable of evaluating the risks and merits
     of an investment  in the Shares by virtue of its  experience as an investor
     and its knowledge, experience, and sophistication in financial and business
     matters  and the  Purchaser  is capable of bearing  the entire  loss of its
     investment in the Shares.

          (e) Accredited Investor.  The Purchaser is an "accredited investor" as
     defined in Regulation D promulgated under the Securities Act.

<PAGE>

          (f) General.  The  Purchaser  understands  that the Company is relying
     upon the truth and accuracy of the representations, warranties, agreements,
     acknowledgments  and  understandings  of the  Purchaser set forth herein in
     order to determine the suitability of the Purchaser to acquire the Shares.

                                    ARTICLE 3

                                    COVENANTS

     The Company covenants with the Purchaser as follows:

     Section 3.1. The Shares.  As of the date of each  applicable Draw Down, the
Company  will  have  authorized  and  reserved,  free of  preemptive  rights,  a
sufficient number of authorized but unissued shares of its Common Stock to cover
the Draw Down Shares to be issued in  connection  with such Draw Down  requested
under this  Agreement.  The Draw Down Shares to be issued under this  Agreement,
when paid for and issued in accordance with the terms hereof,  shall be duly and
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights  accorded to a holder of Common Stock.  Anything
in this  Agreement  to the  contrary  notwithstanding,  (i) at no time  will the
Company  request a Draw Down which would  result in the issuance of an aggregate
number of shares of Common Stock pursuant to this Agreement  which exceeds 19.9%
of the number of shares of Common  Stock issued and  outstanding  on the Initial
Closing Date without obtaining  stockholder approval of such excess issuance, or
such other  amount as would  require  stockholder  approval  under  rules of the
Principal Market or otherwise  without  obtaining  stockholder  approval of such
excess  issuance,  and (ii) the  Company  may not make a Draw Down to the extent
that,  after such purchase by the Purchaser,  the sum of the number of shares of
Common Stock beneficially owned by the Purchaser and its affiliates would result
in beneficial ownership by the Purchaser and its affiliates of more than 9.9% of
the then  outstanding  shares of Common Stock.  For purposes of the  immediately
preceding sentence,  beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act.

     Section 3.2. Securities Compliance. If applicable, the Company shall notify
the Principal  Market,  in  accordance  with its rules and  regulations,  of the
transactions  contemplated by this Agreement, and shall take all other necessary
action and  proceedings as may be required and permitted by applicable law, rule
and  regulation,  for the legal and valid issuance of the Shares and the Warrant
to the Purchaser or subsequent holders.

     Section 3.3.  Registration  and Listing.  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  material  respects  with its  reporting  and  filing
obligations under the Exchange Act, will comply with all requirements related to
any registration  statement filed pursuant to this Agreement,  and will not take
any action or file any document  (whether or not permitted by the

<PAGE>

Securities  Act or the  Exchange  Act or the rules  promulgated  thereunder)  to
terminate or suspend such  registration or to terminate or suspend its reporting
and filing  obligations  under the Exchange  Act or  Securities  Act,  except as
permitted  herein.  The Company  will take all action  necessary to continue the
listing or trading of its Common Stock on the  Principal  Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market and shall provide the Purchaser with
copies of any correspondence to or from such Principal Market which questions or
threatens  delisting of the Common  Stock,  within three (3) Trading Days of the
Company's  receipt  thereof,  until the  Purchaser  has  disposed  of all of the
Shares.

     Section 3.4. Escrow Arrangement.  The Company and the Purchaser shall enter
into an escrow  arrangement  with  Epstein  Becker & Green,  P.C.  (the  "Escrow
Agent") in the form of Exhibit B hereto  respecting  payment against delivery of
the Shares.

     Section 3.5.  Registration Rights Agreement.  The Company and the Purchaser
shall  enter into the  Registration  Rights  Agreement  in the Form of Exhibit A
hereto.  Before the  Purchaser  shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common  Stock to be  registered  to cover the Shares to be issued in  connection
with such Draw Down.

     Section 3.6.  Accuracy of Registration  Statement.On  each Settlement Date,
the  Registration  Statement  and the  prospectus  therein shall not contain any
untrue  statement of a material fact or omit to state any material fact required
to be stated  therein or necessary in order to make the  statements  therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date or date of filing the Registration  Statement and the prospectus
therein  will not include  any untrue  statement  of a material  fact or omit to
state a material fact necessary in order to make the statements  therein, in the
light of the circumstances under which they were made, not misleading; provided,
however,   the  Company  makes  no  representations  or  warranties  as  to  the
information  contained in or omitted  from the  Registration  Statement  and the
prospectus  therein in  reliance  upon and in  conformity  with the  information
furnished in writing to the Company by the Purchaser  specifically for inclusion
in the Registration Statement and the prospectus therein.

     Section 3.7. Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply,  with all applicable laws, rules,  regulations and orders,
noncompliance with which could have a Material Adverse Effect.

     Section  3.8.  Keeping of Records and Books of Account.  The Company  shall
keep and cause each subsidiary to keep adequate records and books of account, in
which  complete  entries  will be  made in  accordance  with  GAAP  consistently
applied,   reflecting  all  financial   transactions  of  the  Company  and  its
subsidiaries,  and in which,  for each  fiscal  year,  all proper  reserves  for
depreciation, depletion, obsolescence,  amortization, taxes, bad debts and other
purposes in connection with its business shall be made.


<PAGE>

     Section  3.9.  Other  Agreements.  The  Company  shall not  enter  into any
agreement the terms of which would restrict or impair the ability of the Company
to perform its obligations under this Agreement.

     Section 3.10. Notice of Certain Events Affecting  Registration;  Suspension
of Right to Request a Draw Down. The Company will promptly  notify the Purchaser
in writing upon the occurrence of any of the following  events in respect of the
Registration  Statement  or related  prospectus  in respect of the  Shares:  (i)
receipt of any  request  for  additional  information  from the SEC or any other
federal or state  governmental  authority  during the period of effectiveness of
the Registration Statement the response to which would require any amendments or
supplements  to the  Registration  Statement  or  related  prospectus;  (ii) the
issuance by the SEC or any other federal or state governmental  authority of any
stop order suspending the  effectiveness  of the  Registration  Statement or the
initiation  of  any  proceedings   for  that  purpose;   (iii)  receipt  of  any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of any of the  Shares for sale in any  jurisdiction  or the
initiation or threatening of any proceeding for such purpose; (iv) the happening
of any event that makes any  statement  made in the  Registration  Statement  or
related  prospectus or any document  incorporated  or deemed to be  incorporated
therein by reference  untrue in any material respect or that requires the making
of any changes in the Registration Statement, related prospectus or documents so
that, in the case of the Registration  Statement, it will not contain any untrue
statement of a material  fact or omit to state any material  fact required to be
stated therein or necessary to make the statements  therein not misleading,  and
that in the case of the  related  prospectus,  it will not  contain  any  untrue
statement of a material  fact or omit to state any material  fact required to be
stated therein or necessary to make the statements  therein, in the light of the
circumstances under which they were made, not misleading;  and (v) the Company's
reasonable determination that the filing of a post-effective amendment to or the
withdrawal of the Registration Statement would be appropriate. The Company shall
not deliver to the Purchaser any Draw Down Notice during the continuation of any
of the  foregoing  events.  The Company  shall  promptly  make  available to the
Purchaser any such supplements or amendments to the related prospectus, at which
time,  provided  that  the  registration   statement  and  any  supplements  and
amendments  thereto are then effective,  the Company may recommence the delivery
of Draw Down Notices.

     Section  3.11.  Consolidation;  Merger.  The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another  entity (a  "Consolidation  Event")  unless the  resulting  successor or
acquiring  entity  (if not the  Company)  assumes by  written  instrument  or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or  securities  as the  Purchaser  is entitled  to receive  pursuant to this
Agreement.

     Section 3.12.  Limitation  on Future  Financing.  The Company  agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a  discount  to the then  current  market  price  (including  securities
convertible, exchangeable, adjustable or which may be reset at a discount to the
then current market price) until the earlier of (i) 36 months from the Effective
Date, (ii) sixty (60) days after the entire Commitment Amount has been purchased
by the Purchaser, or (iii) the date this Agreement is terminated pursuant to the
terms herein. The foregoing shall not prevent or limit the Company from engaging
in any sale of  securities  (i) in a

<PAGE>

registered  public  offering by the Company which is underwritten by one or more
established investment banks (not including an "equity line" type of financing),
(ii)  pursuant  to  a  private   placement  where  the  investors  do  not  have
registration  rights,  (iii) pursuant to any  compensatory  plan for a full-time
employee or key consultant,  (iv) in connection with a strategic  partnership or
other  business  transaction,  the  principal  purpose of which is not simply to
raise money, or (v) to which Purchaser gives its prior written consent. Further,
the Purchaser shall have a right of first refusal to undertake and complete such
subsequent  transaction  in the case of (i),  (ii) and (v) above.  Such right of
first  refusal must be exercised in writing  within five (5) Trading Days of the
Purchaser's  receipt of notice of the  proposed  terms of such  financing or the
right to participate in such financing shall be waived.

     Section  3.13.  Use of Proceeds.  The proceeds  from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes,
including the retirement of outstanding convertible debentures.

     The Purchaser covenants with the Company as follows:

     Section 3.14.  Compliance  with Law. The Purchaser  agrees that its trading
activities  with  respect  to shares of the  Company's  Common  Stock will be in
compliance  with all applicable  state and federal  securities  laws,  rules and
regulations  and  rules and  regulations  of the  Principal  Market on which the
Company's  Common  Stock is  listed.  Without  limiting  the  generality  of the
foregoing,  the  Purchaser  agrees  that it will,  whenever  required by federal
securities laws, deliver the prospectus  included in the Registration  Statement
to any purchaser of Shares from the Purchaser.

                                   ARTICLE 4

                  CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS

     Section 4.1. Conditions  Precedent to the Obligation of the Company to Sell
the Shares.  The  obligation  hereunder  of the Company to proceed to close this
Agreement  and to issue and sell the Shares to the  Purchaser  is subject to the
satisfaction  or  waiver,  at or  before  the  Initial  Closing,  and as of each
Settlement Date of each of the conditions set forth below.  These conditions are
for the  Company's  sole benefit and may be waived by the Company at any time in
its sole discretion.

          (a) Accuracy of the Purchaser's  Representations  and Warranties.  The
     representations  and warranties of the Purchaser  shall be true and correct
     in all  material  respects  as of the date when made and as of the  Initial
     Closing and as of each Settlement Date as though made at that time,  except
     for representations and warranties that speak as of a particular date.

          (b) Performance by the Purchaser.  The Purchaser shall have performed,
     satisfied  and  complied  in  all  material   respects  with  all  material
     covenants,  agreements  and  conditions  required by this  Agreement  to be
     performed, satisfied or

<PAGE>

     complied with by the Purchaser at or prior to the Initial Closing and as of
     each Settlement Date.

          (c) 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.

     Section 4.2.  Conditions  Precedent to the  Obligation  of the Purchaser to
Close.  The  obligation  hereunder of the  Purchaser to perform its  obligations
under this  Agreement and to purchase the Shares is subject to the  satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below.  These  conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.

          (a) Accuracy of the Company's Representations and Warranties.  Each of
     the representations and warranties of the Company shall be true and correct
     in all  material  respects  as of the date when made and as of the  Initial
     Closing  as  though  made at that  time  (except  for  representations  and
     warranties that speak as of a particular date).

          (b)  Performance  by the Company.  The Company  shall have  performed,
     satisfied and complied in all respects with 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.

          (c) 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.

          (d) No Proceedings or Litigation. No action, suit or proceeding before
     any arbitrator or any governmental authority shall have been commenced, and
     no investigation by any governmental  authority shall have been threatened,
     against  the  Purchaser  or the  Company or any  subsidiary,  or any of the
     officers,  directors or affiliates of the Company or any subsidiary seeking
     to  restrain,  prevent  or change  the  transactions  contemplated  by this
     Agreement, or seeking damages in connection with such transactions.

          (e) Opinion of Counsel,  Etc. At the Initial  Closing,  the  Purchaser
     shall have  received an opinion of counsel to the Company,  dated as of the
     Initial Closing Date, in the form of Exhibit C hereto.

          (f) Warrant.  On the Initial  Closing Date, the Company shall issue to
     the  Purchaser  a warrant  to  purchase  up to a number of shares of Common
     Stock equal to $1,000,000 divided by the average of the VWAPs during the 15
     Trading Days  immediately  prior to the Initial  Closing (the "Warrant Base
     Price"). The Warrant shall have a term from its initial date of exercise of
     3 years.  The  exercise  price of the Warrant

<PAGE>

     shall be 110% of the Warrant Base Price.  The Common Stock  underlying  the
     Warrant will be registered  in the  Registration  Statement  referred to in
     Section 4.3 hereof. The Warrant shall be in the form of Exhibit E hereto.

     Section 4.3.  Conditions  Precedent to the  Obligation  of the Purchaser to
Accept a Draw Down and  Purchase  the Shares.  The  obligation  hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the  satisfaction at or before each  Settlement  Date, of each of the
conditions set forth below.

          (a) Satisfaction of Conditions to Initial  Closing.  The Company shall
     have satisfied,  or the Purchaser shall have waived at the Initial Closing,
     the conditions set forth in Section 4.2 hereof

          (b)  Effective  Registration  Statement.  The  Registration  Statement
     registering the Shares,  subject to the Draw Down request,  shall have been
     declared effective by the SEC and shall remain effective on each Settlement
     Date.

          (c) No  Suspension.  Trading in the  Company's  Common Stock shall not
     have been  suspended  by the SEC or the  Principal  Market  (except for any
     suspension of trading of limited  duration agreed to by the Company,  which
     suspension  shall be  terminated  prior to the  delivery  of each Draw Down
     Notice),  and,  at any time  prior to such Draw  Down  Notice,  trading  in
     securities  generally  as reported on the  Principal  Market shall not have
     been  suspended  or  limited,   or  minimum  prices  shall  not  have  been
     established on securities whose trades are reported on the Principal Market
     unless the general  suspension  or  limitation  shall have been  terminated
     prior to the delivery of such Draw Down Notice.

          (d)  Material  Adverse  Effect.  No  Material  Adverse  Effect  and no
     Consolidation  Event where the  successor  entity has not agreed to perform
     the Company's  obligations  shall have  occurred,  such  occurrences  to be
     determined in accordance with Section 8.9 herein.

          (e)  Opinion  of  Counsel.   The  Purchaser   shall  have  received  a
     "down-to-date" letter from the Company's counsel,  confirming that there is
     no  change  from  the  counsel's  previously  delivered  opinion,  or  else
     specifying with  particularity  the reason for any change and an opinion as
     to the additional items specified in Exhibit C hereto.

                                    ARTICLE 5

                                 DRAW DOWN TERMS

     Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:

<PAGE>

          (a) The Company may, in its sole  discretion,  issue and exercise draw
     downs (each a "Draw Down") during the Commitment  Period,  which Draw Downs
     the  Purchaser  shall be  obligated  to  accept,  subject  to the terms and
     conditions herein.

          (b) Only one Draw Down  shall be  allowed  in each  Draw Down  Pricing
     Period. There shall be a minimum of five (5) Trading Days between Draw Down
     Pricing  Periods.  The number of shares of Common  Stock  purchased  by the
     Purchaser  with respect to each Draw Down shall be  determined as set forth
     in Section 5.1(e) herein and settled on:

               (i)  as to  the 1st  through  the  11th  Trading  Day  during the
          Draw Down Pricing Period, on or before the 13th Trading Day after such
          Draw Down Pricing Period commences; and

               (ii) as to the 12th  through the 22nd Trading Day during the Draw
          Down Pricing Period commences, on or before the 24th Trading Day after
          such  Draw Down  Pricing  Period  (such  settlement  periods  and such
          settlement  dates in  subsection  (i) and this  subsection  (ii)  each
          referred  to  as  a  "Settlement  Period"  and  a  "Settlement  Date",
          respectively).

          (c) In connection with each Draw Down Pricing Period,  the Company may
     set the Threshold Price in the Draw Down Notice.

          (d) The minimum  Investment Amount for any Draw Down shall be $100,000
     and the maximum  Investment Amount as to each Draw Down shall be the lesser
     of (i) $1,000,000, and (ii) 15% of the EQY weighted average price field (as
     reported on  Bloomberg  Financial  L.P.  using the BLPH  function)  for the
     Common Stock for the 30 calendar days  immediately  prior to the applicable
     Commencement Date (defined below) multiplied by the total trading volume in
     respect  of the  Common  Stock for such  period;  Notwithstanding  anything
     herein  to the  contrary,  in the event the  minimum  Investment  Amount is
     greater than the maximum  Investment Amount, as to such Draw Down only, the
     minimum Investment Amount shall equal the maximum Investment Amount, but in
     no event shall the minimum  Investment  Amount be less than  $50,000,  such
     that if the  maximum  Investment  Amount  is less  than  $50,000,  then the
     Company shall be precluded from exercising a Draw Down at such time.

          (e) The  number  of  Shares  of  Common  Stock  to be  issued  on each
     Settlement  Date  shall  be a  number  of  shares  equal  to the sum of the
     quotients (for each trading day within the Settlement Period) of (x) 1/22nd
     of the  Investment  Amount,  and (y) the Purchase Price on each Trading Day
     within the Settlement Period, subject to the following adjustments:

               (i)   if the  VWAP  on a  given  Trading  Day is  less  than  the
              Threshold Price,  then that portion of the Investment Amount to be
              paid on the immediately  pending  Settlement Date shall be reduced
              by 1/22nd of the  Investment  Amount and such Trading Day shall be
              withdrawn from the Settlement Period;

<PAGE>

               (ii)  if during any  Trading  Day during  the  Settlement  Period
              trading of the Common Stock on the  Principal  Market is suspended
              for more than three (3) hours, in the aggregate, or if any Trading
              Day during the Settlement  Period is shortened because of a public
              holiday,  then that portion of the Investment Amount to be paid on
              the immediately pending Settlement Date shall be reduced by 1/22nd
              of the  Investment  Amount and such Trading Day shall be withdrawn
              from the Settlement Period; and

               (iii) if during any  Trading  Day during  the  Settlement  Period
              sales of Draw Down Shares pursuant to the  Registration  Statement
              are suspended by the Company in  accordance  with Sections 3(j) or
              5(e) of the Registration  Rights Agreement for more than three (3)
              hours, in the aggregate,  during the Settlement Period,  then that
              portion  of the  Investment  Amount to be paid on the  immediately
              pending  Settlement  Date  shall  be  reduced  by  1/22nd  of  the
              Investment Amount and such Trading Day shall be withdrawn from the
              Settlement Period.

          (f) The Company must inform the  Purchaser  by  delivering a draw down
     notice,  in the form of  Exhibit D hereto  (the "Draw  Down  Notice"),  via
     facsimile  transmission  in accordance with Section 8.4 as to the amount of
     the Draw Down (the  "Investment  Amount")  the Company  wishes to exercise,
     before the first day of the Draw Down  Pricing  Period  (the  "Commencement
     Date"). If the Commencement Date is to be the date of the Draw Down Notice,
     the Draw Down Notice must be  delivered  to and  receipt  confirmed  by the
     Purchaser at least one (1) hour before  trading  commences on such date. At
     no time shall the  Purchaser be required to purchase  more than the maximum
     Investment  Amount  for a given  Draw  Down  Pricing  Period so that if the
     Company  chooses not to exercise the maximum  Investment  Amount in a given
     Draw Down Pricing  Period the  Purchaser is not  obligated to and shall not
     purchase more than the scheduled maximum  Investment Amount in a subsequent
     Draw Down Pricing Period.

          (g) On each  Settlement  Date,  the Shares  purchased by the Purchaser
     shall  be  delivered  to  The  Depository  Trust  Company  ("DTC")  on  the
     Purchaser's behalf. Upon the Company electronically delivering whole shares
     of Common  Stock to the  Purchaser  or its  designees  via DTC  through its
     Deposit  Withdrawal Agent Commission  ("DWAC") system by 1:00 p.m. EST, the
     Purchaser shall wire transfer immediately  available funds to the Company's
     designated  account  on such day,  less any fees as set forth in the Escrow
     Agreement,  which fees shall be wired as directed in the Escrow  Agreement.
     Upon the Company electronically  delivering whole shares of Common Stock to
     the  Purchaser or its  designees  DTC account via DWAC after 1:00 p.m. EST,
     the Purchaser shall wire transfer next day available funds to the Company's
     designated  account  on such day,  less any fees as set forth in the Escrow
     Agreement,  which fees shall be wired as directed in the Escrow  Agreement.
     In the event that either party elects to use the Escrow  Agent,  the Shares
     shall be  credited  by the  Company to the DTC  account  designated  by the
     Purchaser via DWAC upon receipt by the Escrow Agent of payment for the Draw
     Down Shares into the Escrow Agent's master escrow  account,  as further set
     forth in the Escrow  Agreement.  The Escrow  Agent shall be directed to pay
     the purchase  price to the Company,  net of $1,000 per Settlement as escrow
     expenses to the Escrow  Agent and any  additional  fees as set forth in the
     Escrow Agreement.  The

<PAGE>

     Company  understands  that a delay in the  delivery of the Draw Down Shares
     into the  Purchaser's DTC account beyond 3 Trading Days after the dates set
     forth herein or in the Escrow  Agreement,  as the case may be, could result
     in economic loss to the Purchaser.  Notwithstanding  anything herein to the
     contrary,  as  compensation  to the  Purchaser  for such loss,  the Company
     agrees to pay late  payments to the  Purchaser  for late  delivery  after 3
     Trading  Days from such dates in  accordance  with the  following  schedule
     (where  "No.  Trading  Days Late" is defined as the number of Trading  Days
     beyond  three 3 Trading  Days  from the  dates  set forth  herein or in the
     Escrow Agreement, as the case may be, on which such Draw Down Shares are to
     be delivered into the Purchaser's DTC account via the DWAC system):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
             No. Trading Days Late                           Late Payment for Each
                                                             $5,000 of Draw Down Shares
                                                             Being Purchased
------------------------------------------------------------------------------------------------
             <S>                                             <C>
             1                                               $100
------------------------------------------------------------------------------------------------
             2                                               $200
------------------------------------------------------------------------------------------------
             3                                               $300
------------------------------------------------------------------------------------------------
             4                                               $400
------------------------------------------------------------------------------------------------
             5                                               $500
------------------------------------------------------------------------------------------------
             6                                               $600
------------------------------------------------------------------------------------------------
             7                                               $700
------------------------------------------------------------------------------------------------
             8                                               $800
------------------------------------------------------------------------------------------------
             9                                               $900
------------------------------------------------------------------------------------------------
             10                                              $1,000
------------------------------------------------------------------------------------------------
             More than 10                                    $1,000 +$200 for each Trading Day
                                                             Late beyond 10 Trading Days
------------------------------------------------------------------------------------------------
</TABLE>


          The Company shall pay any payments  incurred under this Section 5.1(g)
     in immediately available funds upon demand.  Nothing herein shall limit the
     Purchaser's right to pursue injunctive relief and/or actual damages for the
     Company's failure to issue and deliver the Draw Down Shares to the Company,
     including,  without limitation, the Purchaser's actual losses occasioned by
     any "buy-in" of Common Stock necessitated by such late delivery.

                                    ARTICLE 6

                                   TERMINATION

     Section  6.1.  Term.  The term of this  Agreement  shall  begin on the date
hereof and shall end on the earlier of 36 months from the  Effective  Date or as
otherwise set forth in Section 6.2.

<PAGE>

     Section 6.2. Other Termination.


          (a) This Agreement  shall  terminate upon one (1) Trading Day's notice
     if (i) an event resulting in a Material Adverse Effect has occurred and has
     not been cured for a period of thirty (30) days after giving written notice
     thereof,  (ii) the Common  Stock is  de-listed  from the  Principal  Market
     unless such  de-listing  is in  connection  with the  Company's  subsequent
     listing of the Common Stock on the Nasdaq National Market,  Nasdaq SmallCap
     Market, the American Stock Exchange, the OTC Bulletin Board or the New York
     Stock  Exchange,  or (iii) the Company files for protection  from creditors
     under any applicable law.

          (b) The  Company may  terminate  this  Agreement  upon one (1) Trading
     Day's  notice if the  Purchaser  shall fail to fund more than one  properly
     noticed Draw Down within five (5) Trading Days of the end of the applicable
     Settlement Period.

     Section 6.3.  Effect of  Termination.  In the event of  termination of this
Agreement pursuant to Section 6.2 herein, written notice thereof shall forthwith
be given to the other party and the transactions  contemplated by this Agreement
shall be terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further  force and effect,  except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein. Nothing in this Section 6.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair  the  rights of the  Company or the  Purchaser  to compel  specific
performance by the other party of its obligations under this Agreement.

                                    ARTICLE 7

                                 INDEMNIFICATION

     Section 7.1. General Indemnity.

          (a) The Company  agrees to indemnify  and hold  harmless the Purchaser
     (and its directors,  officers,  affiliates, agents, successors and assigns)
     from and  against  any and all losses,  liabilities,  deficiencies,  costs,
     damages and expenses (including, without limitation,  reasonable attorneys'
     fees, charges and  disbursements)  incurred by the Purchaser as a result of
     any material inaccuracy in or breach of the representations,  warranties or
     covenants made by the Company herein.

          (b) The  Purchaser  agrees to indemnify  and hold harmless the Company
     and its directors,  officers,  affiliates,  agents,  successors and assigns
     from and  against  any and all losses,  liabilities,  deficiencies,  costs,
     damages and expenses (including, without limitation,  reasonable attorneys'
     fees, charges and  disbursements)  incurred by the Company as result of any
     material  inaccuracy  in or breach of the  representations,  warranties  or
     covenants  made by the Purchaser  herein.  Notwithstanding  anything to the

<PAGE>

     contrary  herein,  the Purchaser  shall be liable under this Section 7.1(b)
     for only that amount as does not exceed the net  proceeds to the  Purchaser
     as a result of the sale of the Shares.

     Section   7.2.   Indemnification   Procedure.   Any   party   entitled   to
indemnification  under this Article 7 (an "Indemnified Party") will give written
notice  to the  indemnifying  party of any  matters  giving  rise to a claim for
indemnification;   provided,   that  the  failure  of  any  party   entitled  to
indemnification  hereunder  to give notice as provided  herein shall not relieve
the  indemnifying  party of its  obligations  under this Article 7 except to the
extent that the  indemnifying  party is actually  prejudiced  by such failure to
give  notice.  In case any  action,  proceeding  or claim is brought  against an
Indemnified Party in respect of which  indemnification is sought hereunder,  the
indemnifying  party  shall be  entitled  to  participate  in and,  unless in the
reasonable  judgment of counsel to the Indemnified  Party a conflict of interest
between it and the  indemnifying  party may exist with  respect of such  action,
proceeding  or claim,  to assume the defense  thereof  with  counsel  reasonably
satisfactory to the Indemnified  Party. In the event that the indemnifying party
advises  an   Indemnified   Party  that  it  will   contest  such  a  claim  for
indemnification  hereunder,  or fails, within thirty (30) days of receipt of any
indemnification  notice to notify,  in writing,  such person of its  election to
defend,  settle  or  compromise,  at its sole  cost  and  expense,  any  action,
proceeding or claim (or  discontinues its defense at any time after it commences
such defense),  then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the  indemnifying  party  elects in  writing  to assume  and does so assume  the
defense of any such claim,  proceeding or action, the Indemnified  Party's costs
(including  reasonable  attorneys' fees, charges and disbursements) and expenses
arising out of the defense,  settlement or compromise of any such action,  claim
or  proceeding  shall  be  losses  subject  to  indemnification  hereunder.  The
Indemnified  Party  shall  cooperate  fully  with  the  indemnifying   party  in
connection  with any  settlement  negotiations  or defense of any such action or
claim by the indemnifying  party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying  party shall keep the Indemnified  Party fully
apprised  at  all  times  as to the  status  of the  defense  or any  settlement
negotiations  with respect thereto.  If the indemnifying  party elects to defend
any such  action or claim,  then the  Indemnified  Party  shall be  entitled  to
participate  in such  defense  with  counsel  of its choice at its sole cost and
expense.  The  indemnifying  party shall not be liable for any settlement of any
action,  claim  or  proceeding  effected  without  its  prior  written  consent.
Notwithstanding  anything in this Article 7 to the  contrary,  the  indemnifying
party shall not,  without the  Indemnified  Party's prior written consent (which
consent shall not be unreasonably  withheld),  settle or compromise any claim or
consent to entry of any  judgment in respect  thereof  which  imposes any future
obligation  on  the  Indemnified  Party  or  which  does  not  include,   as  an
unconditional  term thereof,  the giving by the claimant or the plaintiff to the
Indemnified  Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of  investigation  or defense,  as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably  agrees to refund such moneys,  with interest,
if it is ultimately  determined by a court of competent  jurisdiction  that such
party was not entitled to indemnification.  The indemnity  agreements  contained
herein shall be in addition to (a) any cause of action or similar  rights of the

<PAGE>

Indemnified  Party  against  the  indemnifying  party  or  others,  and  (b) any
liabilities to which the indemnifying party may be subject.

                                    ARTICLE 8

                                  MISCELLANEOUS

     Section  8.1.  Fees  and  Expenses.  Except  as set  forth  in  the  Escrow
Agreement,  each of the  parties  to this  Agreement  shall pay its own fees and
expenses  related  to  the  transactions  contemplated  by  this  Agreement.  In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any subsequent amendments, modifications or waivers
of this Agreement,  the Escrow Agreement or the Registration Rights Agreement or
incurred  in  connection  with the  enforcement  of this  Agreement,  the Escrow
Agreement and the Registration Rights Agreement,  including, without limitation,
all  reasonable  attorneys'  fees and  expenses  if such  subsequent  amendment,
modification  or waiver is at the request of the Company.  The Company shall pay
all stamp or other similar  taxes and duties levied in connection  with issuance
of the Shares pursuant hereto.

     Section  8.2.   Specific   Enforcement.   The  Company  and  the  Purchaser
acknowledge and agree that irreparable  damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance  with their
specific terms or were  otherwise  breached.  It is accordingly  agreed that the
parties  shall be entitled to an injunction  or  injunctions  to prevent or cure
breaches of the  provisions of this  Agreement and to enforce  specifically  the
terms and  provisions  hereof or  thereof,  this being in  addition to any other
remedy to which any of them may be entitled by law or equity.

     Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain
the entire  understanding  of the parties with respect to the matters covered in
the  Transaction  Documents.  No  provision of this  Agreement  may be waived or
amended  other than by a written  instrument  signed by the party  against  whom
enforcement  of any such  amendment  or  waiver is sought  and no  condition  to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.

     Section  8.4.  Notices.  Any  notice,  demand,  request,  waiver  or  other
communication  required or permitted to be given  hereunder  shall be in writing
and shall be  effective  (a) upon hand  delivery or  facsimile at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours where such notice is to be  received)  or (b) on the second  business  day
following  the date of  mailing  by  express  courier  service,  fully  prepaid,
addressed to such address,  or upon actual  receipt of such  mailing,  whichever
shall first occur. The addresses for such communications shall be:

<PAGE>

If to the Company:                   6509 Windcrest Drive, Suite 120
                                     Plano, Texas 75029
                                     Attn:  Michael McDonnell, President & CEO
                                     Tel:  (972) 265-4000
                                     Fax:  (972) [_______]

With copies to:                      Jackson Walker L.L.P.
(which shall not constitute          901 Main Street, Suite 6000
notice)                              Dallas, Texas 75202
                                     Attn: James S. Ryan, III
                                     Tel:  (214) 953-5801
                                     Fax:  (214) 953-5822

If to Purchaser:                     c/o Trident Chambers
                                     P.O. Box 146
                                     Road Town, Tortola
                                     British Virgin Islands
                                     Attn: Francois Morax
                                     Fax:  011-411-201-4800

with copies to:                      Epstein Becker & Green P.C.
(which shall not constitute          250 Park Avenue
notice)                              New York, NY  10177-1211
                                     Tel:  (212) 351-3771
                                     Fax:  (212) 661-0989
                                     Attn:  Robert F. Charron

     Any party  hereto may from time to time  change its  address for notices by
giving  written  notice of such  changed  address to the other  party  hereto in
accordance  herewith.  Section  8.5.  Waivers.  No waiver by either party 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 provisions,  condition or requirement  hereof,  nor shall any delay or
omission of any party to exercise any right  hereunder in any manner  impair the
exercise of any such right accruing to it thereafter.

     Section 8.6. Headings. The article, section and subsection headings in this
Agreement  are for  convenience  only and  shall not  constitute  a part of this
Agreement  for any other  purpose and shall not be deemed to limit or affect any
of the provisions hereof.

     Section 8.7.  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties and their  successors  and assigns.  The
parties  hereto  may not amend  this  Agreement  or any  rights  or  obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment.

     Section  8.8. 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.

<PAGE>

     Section 8.9. Governing Law/Arbitration. This Agreement shall be governed by
and  construed in  accordance  with the internal  laws of the State of New York,
without giving effect to the choice of law provisions  thereof.  The Company and
the Purchaser agree to submit themselves to the in personam  jurisdiction of the
state and federal courts situated  within the Southern  District of the State of
New York with  regard to any  controversy  arising  out of or  relating  to this
Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall
be submitted to  arbitration  under the American  Arbitration  Association  (the
"AAA")  in New York  City,  New  York,  and shall be  finally  and  conclusively
determined  by the decision of a board of  arbitration  consisting  of three (3)
members  (hereinafter  referred  to as the "Board of  Arbitration")  selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration)  with  respect to the  amount,  if any,  which the losing  party is
required to pay to the other party in respect of a claim  filed.  In  connection
with  rendering its decisions,  the Board of Arbitration  shall adopt and follow
the laws of the State of New York.  To the extent  practical,  decisions  of the
Board of  Arbitration  shall be rendered no more than thirty (30)  calendar days
following  commencement  of  proceedings  with  respect  thereto.  The  Board of
Arbitration  shall cause its written  decision  to be  delivered  to all parties
involved in the dispute.  The Board of  Arbitration  shall be authorized  and is
directed to enter a default  judgment  against any party refusing to participate
in the  arbitration  proceeding  within  thirty  days of any  deadline  for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the  expiration  of such thirty (30)  calendar day period) shall be final,
binding  and  conclusive  on the  parties to the  dispute,  and  entitled  to be
enforced  to the  fullest  extent  permitted  by law and entered in any court of
competent  jurisdiction.  The  prevailing  party  shall be  awarded  its  costs,
including  attorneys'  fees,  from  the  non-prevailing  party  as  part  of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent  jurisdiction in any case where such relief is available.
The  prevailing  party in such  injunctive  action  shall be awarded  its costs,
including reasonable attorneys' fees, from the non-prevailing party.

     Section 8.10. Counterparts. This Agreement may be executed in any number of
counterparts,  all of which taken  together  shall  constitute  one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties  hereto,  it being  understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.

     Section 8.11. Publicity.  Neither the Company nor the Purchaser shall issue
any press release or otherwise make any public  statement or  announcement  with
respect  to  this  Agreement  or the  transactions  contemplated  hereby  or the
existence  of this  Agreement,  without the prior  written  consent of the other
party.  After the Initial  Closing,  the  Company  may issue a press  release or
otherwise make a public statement or announcement with respect to this Agreement
or the  transactions  contemplated  hereby or the  existence of this  Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or  announcement,  the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.

     Section 8.12. Severability.  The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of

<PAGE>

competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions  contained in this Agreement  shall,  for any reason,  be
held to be invalid,  illegal or unenforceable  in any respect,  such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this  Agreement  shall be reformed and construed
as if such  invalid  or  illegal  or  unenforceable  provision,  or part of such
provision,  had never been contained  herein,  so that such provisions  would be
valid,  legal and  enforceable to the maximum extent  possible,  so long as such
construction does not materially  adversely affect the economic rights of either
party hereto.

     Section  8.13.  Further  Assurances.  From  and  after  the  date  of  this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the  Purchaser  shall  execute and deliver such  instruments,  documents and
other writings as may be reasonably  necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.

     Section 8.14.  Effectiveness  of  Agreement.  This  Agreement  shall become
effective  only upon  satisfaction  of the  conditions  precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.

                                    ARTICLE 9

                                   DEFINITIONS

     Section 9.1. Certain Definitions.

          (a)  "Commencement  Date" shall have the meaning assigned to such term
     in Section 5.1(f) hereof.

          (b) "Commitment  Amount" shall have the meaning  assigned to such term
     in Section 1.1 hereof.

          (c)  "Commitment  Period"  shall  mean the  period  commencing  on the
     Effective  Date and  expiring  on the  earliest to occur of (i) the date on
     which the Purchaser shall have exercised an aggregate  amount of Draw Downs
     equal to the Commitment Amount,  (ii) the date this Agreement is terminated
     in accordance with the terms hereof, or (iii) the date occurring thirty-six
     (36) months from the Effective Date.

          (d) "Common Stock" shall mean the Company's common stock, no par value
     per share.

          (e)  "Disclosure  Schedule"  shall mean the schedules  prepared by the
     Company and attached hereto.

          (f)  "Draw  Down"  shall  have the  meaning  assigned  to such term in
     Section 5.1(a) hereof.

<PAGE>

          (g) "Draw Down Notice" shall have the meaning assigned to such term in
     Section 5.1(f) hereof.

          (h) "Draw Down Pricing  Period" shall mean a period of twenty-two (22)
     consecutive  Trading Days  beginning on the date specified in the Draw Down
     Notice (as defined in Section 5.1(f) herein);  provided,  however, the Draw
     Down Pricing Period shall not begin before the day on which receipt of such
     notice is confirmed by the Purchaser.

          (i) "DTC"  shall  have the  meaning  assigned  to such term in Section
     5.1(g).

          (j) "DWAC"  shall have the  meaning  assigned  to such term in Section
     5.1(g).

          (k) "Effective Date" shall mean the date the Registration Statement of
     the Company  covering  the Shares being  subscribed  for hereby is declared
     effective by the SEC.

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

          (m) "GAAP" shall mean the United States Generally Accepted  Accounting
     Principles as those conventions, rules and procedures are determined by the
     Financial Accounting Standards Board and its predecessor agencies.

          (n) "Initial  Closing" shall have the meaning assigned to such term in
     Section 1.2 hereof.

          (o)  "Initial  Closing  Date" shall have the meaning  assigned to such
     term in Section 1.2 hereof.

          (p) "Investment  Amount" shall have the meaning  assigned to such term
     in Section 5.1(f) hereof.

          (q) "Material  Adverse  Effect"  shall mean any adverse  effect on the
     business,  operations,  properties,  or financial  condition of the Company
     that is  material  and  adverse to the  Company  and its  subsidiaries  and
     affiliates,  taken  as a  whole  and/or  any  condition,  circumstance,  or
     situation  that would prohibit or otherwise  materially  interfere with the
     ability of the Company to perform  any of its  material  obligations  under
     this  Agreement  or the  Registration  Rights  Agreement  or to perform its
     obligations under any other Material Agreement.

          (r)  "Material  Agreement"  shall mean any  written or oral  contract,
     instrument, agreement, commitment,  obligation, plan or arrangement, a copy
     of which is  required  to be filed with the SEC as an exhibit to any of the
     SEC Documents.

<PAGE>

(s)      "Principal  Market" shall mean initially the Nasdaq National Market and
         shall include the American Stock Exchange, Nasdaq Small-Cap Market, the
         OTC  Bulletin  Board and the New York  Stock  Exchange  if the  Company
         becomes  listed and trades on such  market or  exchange  after the date
         hereof.

          (t)  "Purchase  Price" shall mean,  with  respect to Shares  purchased
     during each applicable  Settlement Period, 82.5% of the VWAP on the date in
     question.

          (u)  "Registration  Statement" shall mean the registration  statements
     under the  Securities  Act, to be filed with the  Securities  and  Exchange
     Commission for the  registration of the Shares pursuant to the Registration
     Rights  Agreement  attached hereto as Exhibit A (the  "Registration  Rights
     Agreement).

          (v) "SEC" shall mean the Securities and Exchange Commission.

          (w) "SEC Documents"  shall mean the Company's latest Form 10-K or Form
     10-KSB as of the time in  question,  all Forms 10-Q or 10-QSB and 8-K filed
     thereafter,  and the Proxy  Statement  for its latest fiscal year as of the
     time in question until such time as the Company no longer has an obligation
     to maintain the  effectiveness of a Registration  Statement as set forth in
     the Registration Rights Agreement.

          (x)  "Securities  Act"  shall  mean the  Securities  Act of  1933,  as
     amended, and the rules and regulations promulgated thereunder.

          (y) "Settlement"  shall mean the delivery of the Draw Down Shares into
     the  Purchaser's  DTC account via DTC's DWAC System in exchange for payment
     therefor.

          (z) "Settlement  Date" shall have the meaning assigned to such term in
     Section 5.1(b).

          (aa) "Settlement  Period" shall have the meaning assigned to such term
     in Section 5.1(b).

          (bb) "Shares" shall mean, collectively,  the shares of Common Stock of
     the Company being subscribed for hereunder (the "Draw Down Shares") and the
     shares of Common Stock  issuable upon exercise of the Warrant (the "Warrant
     Shares").

          (cc)  "Threshold  Price" shall mean the price per Share  designated by
     the Company as the lowest VWAP during any Draw Down Pricing Period at which
     the Company shall sell its Common Stock in accordance with this Agreement.

          (dd) "Trading Day" shall mean any day on which the Principal Market is
     open for business.

          (ee)   "Transaction   Documents"   shall  mean  this  Agreement,   the
     Registration Rights Agreement and the Escrow Agreement.

<PAGE>

          (ff) "VWAP" shall mean the daily volume weighted  average price of the
     Company's  Common  Stock on the  Principal  Market as reported by Bloomberg
     Financial L.P. (based on a trading day from 9:30 a.m.  Eastern Time to 4:02
     p.m. Eastern Time) using the VAP function on the date in question.

          (gg) "Warrant" shall mean the warrant issued to the Purchaser pursuant
     to Section 4.2(f) hereof.


                            [SIGNATURE PAGE FOLLOWS]

<PAGE>

               [SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly  executed  by their  respective  authorized  officer as of this 26th day of
July, 2001.

                                 DATA RACE, INC.



                                 By:
                                     -------------------------------------------
                                      James G. Scogin, President & CFO

                                 Grenville Finance Ltd.



                                 By:
                                     -------------------------------------------
                                      Francois Morax, Authorized Signatory

<PAGE>


                                 Schedule 2.1(c)

     The following  chart  demonstrates  the outstanding  options,  warrants and
convertible debentures as of June 11, 2001:


                 Capital Shares Equivalents as of June 13, 2001
         ---------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       No. of shares      No. of shares
                                                                      ----------------------------------
         <S>                                                            <C>                    <C>
         Options outstanding                                                                   3,599,699
         -------------------

         Warrants
         --------
          June 2001 funding                                             1,000,000
          May 2001 funding                                              1,416,666
          March 2001 private placement                                    304,762
          June 2000 private placement                                     471,822
          December 1999 private placement                                 571,429
          June 1999 private placement                                     693,888
          -----------------------------------------------------------------------
            Total warrants outstanding                                                         4,208,568
                                                                                   ---------------------

         Debentures
         ----------

         June 2001 Convertible Debentures -                                 Convertible  at  a  floating
         $1,000,000 principal amount                                        price equal to the lesser of
                                                                            110%  of  the   closing  bid
                                                                            price   of   the   Company's
                                                                            common   stock  on  the  day
                                                                            before    the     applicable
                                                                            closing   or   50%   of  the
                                                                            average  of the five  lowest
                                                                            closing      bid      prices
                                                                            immediately   prior  to  the
                                                                            date    upon    which    the
                                                                            debenture is converted

         May 2001 Convertible Debentures - $700,000                                            2,333,333
         principal amount with a conversion price of
         $0.30 per share
</TABLE>

     As of June 13, 2001, there were options  outstanding to purchase  3,599,699
shares of  Common  Stock.  Also as of June 13,  2001,  there  were  warrants  to
purchase  3,458,568  shares of Common  Stock  outstanding.  Warrants to purchase
1,000,000 of those shares were issued (along with the  Company's 6%  Convertible
Debentures  in the aggregate  principal  amount of  $1,000,000)  pursuant to the
Convertible Debentures and Warrants Purchase Agreement by and among the Company,
Alpha Capital AG and Stonestreet  L.P.  Warrants to purchase  1,416,666 of those
shares were issued (along with the Company's 10% Secured Convertible  Promissory
Notes in the aggregate

<PAGE>

principal  amount of $700,000.00,  initially  convertible  into 2,333,333 shares
Common Stock at $0.30 per share) pursuant to the Securities  Purchase  Agreement
dated May 11, 2001 by and among the Company , First  Capital  Group of Texas II,
L.P.  and ICN Capital  Ltd.  Warrants to purchase  304,762 of those  shares were
issued pursuant to the Securities  Purchase Agreement dated March 2, 2001 by and
among the  Company,  Protius  Overseas  Limited,  Keyway  Investments  Ltd.  and
Lionhart  Investments  Ltd.  Warrants to purchase  471,822 of those  shares were
issued  pursuant to a Securities  Purchase  Agreement dated June 12, 2000 by and
among the Company,  Cranshire Capital,  L.P., Keyway Investments Ltd.,  Lionhart
Investments Ltd., EURAM Cap Strat. "A" Fund Limited,  ICN Capital Ltd. and G-Bar
Limited  Partnership.  Warrants to purchase  571,429 of those shares were issued
pursuant to the Securities  Purchase Agreement dated December 10, 1999 among the
Company,   Cranshire  Capital,   L.P.,  Keyway  Investments  Ltd.  and  Lionhart
Investments  Ltd.  Warrants  to  purchase  693,888 of those  shares  were issued
pursuant to the Securities  Purchase Agreement dated June 25, 1999, by and among
the Company,  Cranshire  Capital,  L.P.,  Keyway  Investments  Ltd. and Lionhart
Investments Ltd.

     All of the Agreements listed in the previous paragraph granted registration
and anti-dilution  rights to the investors.  There have been other agreements in
the past that granted such registration and anti-dilution  rights, but there are
no longer any  outstanding  Capital  Shares  Equivalents  nor any  agreements or
understandings  pursuant  to which any  Capital  Shares  Equivalents  can become
outstanding under those agreements.


                                       2
<PAGE>

                                 Schedule 2.1(g)

     The  Company  has a  dormant  subsidiary,  organized  under the laws of the
United Kingdom, which is not in good standing.


                                       3
<PAGE>

                                 Schedule 2.1(h)

     See  Schedule  3.12  regarding  litigation,  as  well  as  Schedule  2.1(c)
regarding recent issuances of securities.


                                       4
<PAGE>

                                 Schedule 2.1(i)


                                       5
<PAGE>

                                 Schedule 2.1(l)

     Pursuant  to a  Security  Agreement  dated  May 11,  2001 by and  among the
Company, First Capital Group of Texas II, L.P. and ICN Capital Ltd., the Company
granted a security  interest  in and to all  personal  property  of the  Company
(other than fixtures) then owned or thereafter acquired.

     The Uniform  Commercial  Code index  maintained  by the Texas  Secretary of
State reflects the following effective filings regarding IP AXESS:

     1.   UCC Financing  Statement Number  01-00014861 filed on January 22, 2001
          at 08:00 A.M. The secured party is listed as The Manifest  Group,  100
          E. Saratoga, Marshall, Minnesota 56258-1714.

     The Uniform  Commercial  Code index  maintained  by the Texas  Secretary of
State reflects the following effective filings regarding DATA RACE INC:

     1.   UCC Financing  Statement Number 96-00248283 filed on December 16, 1996
          at 08:00  A.M.  The  secured  party is listed as  Imperial  Bank,  226
          Airport Parkway, San Jose, California 95110.

     2.   UCC Financing  Statement Number  00-00523541 filed on June 16, 2000 at
          08:00  A.M.  The  secured   party  is  listed  as   Ameritech   Credit
          Corporation, 2550 W. Golf Road, Rolling Meadows, Illinois 60008.

     3.   UCC Financing  Statement Number  00-00540732 filed on July 11, 2000 at
          08:00 A.M. The secured party is listed as NEC America, Inc., 300 Frank
          W. Burr Boulevard, Teaneck, New Jersey 07666.


                                       6
<PAGE>

                                 Schedule 2.1(m)

     The  Company  represents  that it has  received a summons to United  States
District Court,  file stamped May 11, 2001. The case is styled ANDREW PLOTKIN AS
TRUSTEE FOR ZACHARY S.  PLOTKIN AND NATALIE R. PLOTKIN  TRUSTS  DATED  12/17/95;
ROBERT PLOTKIN AS BENEFICIARY OF ROBERT PLOTKIN IRA: ROBERT PLOTKIN IRA ROLLOVER
DATED 11/10/99;  ROBERT PLOTKIN;  NANCY PLOTKIN; AND MANUEL PLOTKIN V. IP AXESS,
INC.  D/B/A DATA  RACE,  MICHAEL  MCDONNELL  AND JAMES G.  SCOGIN  AND  LIVIAKIS
FINANCIAL COMMUNICATION, INC., AND JOHN LIVIAKIS. The case number is 01C 3505.

     Pursuant to the above  referenced  case,  plaintiffs  brought a  securities
action,  alleging that they were induced by misrepresentations  and omissions of
material fact, concerning a fraudulent scheme affecting the present business and
future  prospects of the Company,  to purchase Common Stock between May 12, 2000
and September 1, 2000,  inclusive.  The complaint also questions the veracity of
the Company's August 18, 2000 press release.


                                       7
<PAGE>

                                 Schedule 2.1(n)

     The  Company  is  currently  not in good  standing  in Texas,  its state of
incorporation, due to its failure to satisfy all state tax requirements.


                                       8
<PAGE>

                                 Schedule 2.1(o)

     The Company failed to pay its 2001 Texas  franchise taxes which were due on
May 14, 2001,  and, as of the date  hereof,  has not paid sales tax in Texas for
either June or July.


                                       9
<PAGE>

                                 Schedule 2.1(s)

     The  Company  has   received  a  notice  of  default  with  regard  to  the
Registration  Rights  Agreement  dated  March 2, 2001 by and among the  Company,
Protius Overseas Limited,  Keyway Investments Ltd. and Lionhart Investments Ltd.
notifying  the  Company  that,  due to its  failure  to have the SEC  declare  a
registration  statement  effective as to the shares of Common Stock issued or to
be issued  pursuant to the Agreement,  the Company must pay  liquidated  damages
according to a formula in an amount  approximately equal to 2% of $2,000,000 per
month (broken down into a per day charge).

     The Company is also in default regarding the Registration  Rights Agreement
dated May 11, 2001 by and among the Company,  First  Capital  Group of Texas II,
L.P. and ICN Capital Ltd., due to its failure to file a  registration  statement
within  30  calendar  days of the  date  of the  Registration  Rights  Agreement
covering  the  shares of Common  Stock  issued or to be issued  pursuant  to the
Agreement,  though the  Company  has not yet  received a notice  regarding  such
default.  The penalties due are approximately  equal to 2% of $700,000 per month
(broken down into a per day charge).


                                       10
<PAGE>

                                 Schedule 2.1(t)

     Jeffrey P. Blanchard,  the Chairman of the Company's board of directors, is
an affiliate of First Capital  Group of Texas II, L.P.,  which entered into that
certain  Securities  Purchase  Agreement  dated  May 11,  2001 by and  among the
Company, First Capital Group of Texas II, L.P. and ICN Capital Ltd., purusant to
which  First  Capital  Group of Texas II,  L.P.  invested  over  $350,000 in the
securities of the Company.

     Mr.  Blanchard,  the  Chairman  of the Board of Data Race,  owns 50% of the
membership  interests  and  is  the  Managing  Member  of  First  Capital  Group
Management  Company,  LLC ("FCG  Management")  which owns a 1%  general  partner
interest in First Capital  Group  Investment  Partners,  L.P.  ("FCG  Investment
Partners").  Mr.  Blanchard  owns  a  59.4%  limited  partner  interest  in  FCG
Investment Partners.  FCG Investment Partners owns a 1% general partner interest
in First Capital Group of Texas II, L.P. ("FCGT II"),  which holds a large block
of our common  stock.  In  addition,  FCG  Management  performs  management  and
advisory services for FCGT II.


                                       11
<PAGE>

                                 Schedule 2.1(v)

     Michael  McDonnell  resigned his positions as President and Chief Executive
Officer of Data Race and as a member of our Board of Directors on July 11, 2001.
James G. Scogin,  our Chief Financial Officer since December 1999, has succeeded
Mr. McDonnell as President.


                                       12
<PAGE>

                                 Schedule 2.1(w)

     See  Schedule   2.1(c)   regarding   issuances  of  securities,   including
convertible debt.

     Due to a capital shortage,  the Company only paid half of its June 15, 2001
employee payroll.


                                       13
<PAGE>


                                                                       EXHIBIT A

                          REGISTRATION RIGHTS AGREEMENT

     THIS  REGISTRATION  RIGHTS  AGREEMENT,  dated as of  July26,  2001  between
Grenville Finance Ltd. ("Purchaser") and Data Race, Inc. (the "Company").

     WHEREAS,  simultaneously with the execution and delivery of this Agreement,
the parties shall enter into the Common Stock  Purchase  Agreement,  dated as of
the date hereof, (the "Purchase  Agreement") pursuant to which the Purchaser has
committed to purchase up to $30,000,000 of the Company's Common Stock (terms not
defined  herein  shall  have  the  meanings  ascribed  to them  in the  Purchase
Agreement) and the Warrant; and

     WHEREAS,  the execution and delivery of this  Agreement and granting to the
Purchaser of the registration rights set forth herein with respect to the Shares
is  a  component  part  of  the  transaction  contemplated  under  the  Purchase
Agreement.

     NOW, THEREFORE, the parties hereto mutually agree as follows:

     Section 1.  Registrable  Securities.  As used herein the term  "Registrable
Security"  means all Shares  that (i) have not been sold under the  Registration
Statement,  (ii) have not been sold under  circumstances  under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the  Securities  Act  ("Rule  144")  are met,  (iii)  have  not  been  otherwise
transferred to persons who may trade such Shares without  restriction  under the
Securities  Act,  and the  Company  has  delivered  a new  certificate  or other
evidence of ownership for such Shares not bearing a restrictive  legend, or (iv)
may not be sold without any time, volume or manner limitations  pursuant to Rule
144(k) (or any similar  provision then in effect) under the  Securities  Act. In
the event of any  merger,  reorganization,  consolidation,  recapitalization  or
other change in corporate  structure affecting the Common Stock, such adjustment
shall be deemed to be made in the  definition  of  "Registrable  Security" as is
appropriate  in order to  prevent  any  dilution  or  enlargement  of the rights
granted pursuant to this Agreement.

     Section  2.  Restrictions  on  Transfer.  The  Purchaser  acknowledges  and
understands  that  in  the  absence  of  an  effective   Registration  Statement
authorizing  the  resale of the  Shares  as  provided  herein,  the  Shares  are
"restricted  securities" as defined in Rule 144. The Purchaser  understands that
no disposition or transfer of the Shares may be made by Purchaser in the absence
of (i) an opinion of counsel to the Purchaser,  in form and substance reasonably
satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.

     With a view to making  available to the Purchaser the benefits of Rule 144,
the Company agrees to:

          (a) comply with the provisions of paragraph (c)(1) of Rule 144; and

          (b) to file with the  Commission  in a timely  manner all  reports and
     other documents  required to be filed by the Company pursuant to Section 13
     or 15(d) under the

<PAGE>

     Exchange  Act;  and, if at any time it is not required to file such reports
     but in the past had been  required  to or did file such  reports,  it will,
     upon the request of the  Purchaser,  make  available  other  information as
     required by, and so long as  necessary to permit sales of, its  Registrable
     Securities pursuant to Rule 144.

     Section 3. Registration Rights With Respect to the Shares.

          (a) The  Company  agrees  that it  will  prepare  and  file  with  the
     Securities and Exchange Commission  ("Commission"),  within forty-five (45)
     days after the date hereof,  a  registration  statement (on Form S-3 and/or
     SB-2,  or other  appropriate  form of  registration  statement)  under  the
     Securities Act (the "Registration  Statement"),  at the sole expense of the
     Company  (except as provided  in Section  3(c)  hereof),  so as to permit a
     public  offering  and  resale of the  Shares  under the  Securities  Act by
     Purchaser.

          (b) The Company  shall use its best efforts to cause the  Registration
     Statement  to become  effective  within the  earlier of (i) one hundred and
     twenty (120) days of the date of filing the Registration Statement, or (ii)
     five (5) days after  receiving  written  notice of SEC  clearance  and will
     within  said  five (5) days  request  acceleration  of  effectiveness.  The
     Company will notify  Purchaser  of the  effectiveness  of the  Registration
     Statement within one Trading Day of such event.

          (c)  The  Company  will   maintain  the   Registration   Statement  or
     post-effective  amendment filed under this Section 3 hereof effective under
     the  Securities  Act  until  the  earliest  of (i) the  date  that  all the
     Registrable  Securities have been disposed of pursuant to the  Registration
     Statement,  (ii) the date that all of the Registrable  Securities have been
     sold pursuant to the Registration Statement, (iii) the date that all of the
     Registrable  Securities have been otherwise  transferred to persons who may
     trade such shares without  restriction  under the  Securities  Act, and the
     Company has delivered a new  certificate or other evidence of ownership for
     such Shares not bearing a restrictive legend, (iv) the date that all of the
     Registrable  Securities  may be sold  without  any  time,  volume or manner
     limitations pursuant to Rule 144(k) or any similar provision then in effect
     under the  Securities  Act in the opinion of counsel to the Company,  which
     counsel shall be reasonably acceptable to the Purchaser (the "Effectiveness
     Period").

          (d) All  fees,  disbursements  and  out-of-pocket  expenses  and costs
     incurred by the Company in connection  with the  preparation  and filing of
     the Registration  Statement under  subparagraph  3(a) and in complying with
     applicable securities and Blue Sky laws (including, without limitation, all
     attorneys'  fees  of the  Company)  shall  be  borne  by the  Company.  The
     Purchaser shall bear the cost of underwriting  and/or brokerage  discounts,
     fees and commissions, if any, applicable to the Shares being registered and
     the fees and expenses of its counsel.

          (e) The Purchaser and its counsel shall have a reasonable  period, not
     to exceed  ten (10)  Trading  Days,  to review  the  proposed  Registration
     Statement or any amendment  thereto,  prior to filing with the  Commission,
     and the  Company  shall  provide


                                       2
<PAGE>

     the  Purchaser  with  copies  of any  comment  letters  received  from  the
     Commission  with  respect  thereto  within two (2) Trading  Days of receipt
     thereof.

          (f) The Company  shall make  reasonably  available  for  inspection by
     Purchaser, any underwriter participating in any disposition pursuant to the
     Registration  Statement,  and  any  attorney,  accountant  or  other  agent
     retained by the Purchaser or any such  underwriter  all relevant  financial
     and other  records,  pertinent  corporate  documents and  properties of the
     Company and its subsidiaries,  and cause the Company's officers,  directors
     and  employees  to  supply  all  information  reasonably  requested  by the
     Purchaser  or any  such  underwriter,  attorney,  accountant  or  agent  in
     connection with the Registration  Statement,  in each case, as is customary
     for  similar  due  diligence  examinations;  provided,  however,  that  all
     records,  information  and documents  that are designated in writing by the
     Company,  in good faith,  as  confidential,  proprietary  or containing any
     material non-public information shall be kept confidential by the Purchaser
     and any such  underwriter,  attorney,  accountant  or  agent,  unless  such
     disclosure  is made  pursuant  to  judicial  process in a court  proceeding
     (after  first  giving  the  Company  an  opportunity  promptly  to  seek  a
     protective order or otherwise limit the scope of the information  sought to
     be  disclosed)  or is  required  by law, or such  records,  information  or
     documents become available to the public generally or through a third party
     not in violation of an accompanying  obligation of confidentiality.  If the
     foregoing inspection and information  gathering would otherwise disrupt the
     Company's  conduct  of  its  business,   such  inspection  and  information
     gathering shall, to the maximum extent  possible,  be coordinated on behalf
     of the  Purchaser  and the other  parties  entitled  thereto by one firm of
     counsel  designed by and on behalf of the majority in interest of Purchaser
     and other parties.

          (g) The  Company  shall  qualify  any of the  Shares  for sale in such
     states  as  the   Purchaser   reasonably   designates   and  shall  furnish
     indemnification  in the manner provided in Section 6 hereof.  However,  the
     Company shall not be required to qualify in any state which will require an
     escrow or other restriction  relating to the Company and/or the sellers, or
     which will  require  the Company to qualify to do business in such state or
     require  the  Company to file  therein  any  general  consent to service of
     process.

          (h) The Company at its expense will supply the  Purchaser  with copies
     of the  Registration  Statement and the final  prospectus  included therein
     (the "Prospectus") and other related documents in such quantities as may be
     reasonably requested by the Purchaser.

          (i) The Company shall not be required by this Section 3 to include the
     Purchaser's  Shares in any Registration  Statement which is to be filed if,
     in the  opinion of counsel  for both the  Purchaser  and the  Company  (or,
     should they not agree,  in the opinion of another  counsel  experienced  in
     securities  law matters  acceptable  to counsel for the  Purchaser  and the
     Company)  the  proposed  offering  or  other  transfer  as  to  which  such
     registration  is  requested  is exempt  from  applicable  federal and state
     securities laws and would result in all purchasers or transferees obtaining
     securities  which are not "restricted  securities",  as defined in Rule 144
     under the Securities Act.


                                       3
<PAGE>

          (j) If at any time or from time to time  after the  effective  date of
     the Registration  Statement,  the Company notifies the Purchaser in writing
     of the existence of a Potential  Material Event (as defined in Section 3(k)
     below),  the Purchaser  shall not offer or sell any Shares or engage in any
     other  transaction  involving  or relating to Shares,  from the time of the
     giving of notice  with  respect to a  Potential  Material  Event  until the
     Purchaser  receives  written  notice from the Company  that such  Potential
     Material  Event  either  has been  disclosed  to the  public  or no  longer
     constitutes  a  Potential   Material  Event  (the   "Suspension   Period").
     Notwithstanding  anything  herein to the contrary,  if a Suspension  Period
     occurs at any time  during any period  commencing  on a Trading  Day a Draw
     Down Notice is deemed  delivered and ending ten (10) Trading Days following
     the end of the  corresponding  Draw Down Pricing  Period,  then the Company
     must  compensate  the  Purchaser for any net decline in the market value of
     any Shares  purchased,  or  committed  to be  purchased,  by the  Purchaser
     pursuant to such recent Draw Down  Pricing  Period  through the end of such
     Suspension  Period.  Net  decline  shall be  calculated  as the  difference
     between the highest VWAP during the  applicable  Suspension  Period and the
     VWAP on the Trading Day immediately  following a properly  delivered notice
     to the  Purchaser  that such  Suspension  Period has ended.  If a Potential
     Material Event shall occur prior to the date the Registration  Statement is
     filed,  then the Company's  obligation to file the  Registration  Statement
     shall be delayed  without  penalty for not more than  thirty (30)  calendar
     days. The Company must give Purchaser notice in writing of the existence of
     a Potential  Material  Event  promptly  upon  knowledge  that such an event
     exists and, where possible, at least two (2) days prior to the first day of
     a Suspension Period, if lawful to do so.

          (k) "Potential  Material  Event" means any of the  following:  (i) the
     possession  by the  Company of  material  information  that is not ripe for
     disclosure in a registration  statement, as determined in good faith by the
     Chief  Executive  Officer or the Board of  Directors of the Company or that
     disclosure  of such  information  in the  Registration  Statement  would be
     detrimental  to the business and affairs of the Company;  (ii) any material
     engagement  or  activity  by the  Company  which  would,  in the good faith
     determination  of the Chief Executive  Officer or the Board of Directors of
     the  Company,  be  adversely  affected  by  disclosure  in  a  registration
     statement at such time, which  determination shall be accompanied by a good
     faith  determination  by  the  Chief  Executive  Officer  or the  Board  of
     Directors  of  the  Company  that  the  Registration   Statement  would  be
     materially  misleading absent the inclusion of such  information,  or (iii)
     pursuant   to   applicable   law,   the  Company  is  required  to  file  a
     post-effective  amendment to the Registration Statement because the Company
     experiences a fundamental  change,  must change the plan of distribution to
     the Prospectus,  or must update the information  included in the Prospectus
     pursuant to Section 10(a)(3) of the Securities Act.

     Section 4. Cooperation with Company.  The Purchaser will cooperate with the
Company in all respects in  connection  with this  Agreement,  including  timely
supplying  all  information  reasonably  requested  by the Company  (which shall
include all  information  regarding the Purchaser and proposed manner of sale of
the  Registrable  Securities  required  to  be  disclosed  in  the  Registration
Statement)  and executing and  returning all documents  reasonably  requested in
connection  with the  registration  and sale of the  Registrable  Securities and
entering into and


                                       4
<PAGE>

performing its obligations under any underwriting  agreement, if the offering is
an  underwritten  offering,  in usual  and  customary  form,  with the  managing
underwriter or underwriters of such underwritten  offering.  The Purchaser shall
consent  to be  named  as an  underwriter  in the  Registration  Statement.  The
Purchaser  acknowledges that in accordance with current  Commission  policy, the
Purchaser  will be named as the  underwriter  of the Shares in the  Registration
Statement.

     Section 5. Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the  registration of any of
the Registrable  Securities  under the Securities Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible,  subject
to the Purchaser's assistance and cooperation as reasonably required:

          (a) (i)  prepare  and file with the  Commission  such  amendments  and
     supplements  to the  Registration  Statement  and the  Prospectus as may be
     necessary to keep such registration  statement effective and to comply with
     the  provisions  of the  Securities  Act with  respect to the sale or other
     disposition  of all  securities  covered  by  such  registration  statement
     whenever the Purchaser of such Registrable  Securities shall desire to sell
     or otherwise  dispose of the same (including  prospectus  supplements  with
     respect to the sales of securities  from time to time in connection  with a
     registration   statement   pursuant  to  Rule  415  promulgated  under  the
     Securities  Act) and (ii) take all lawful  action such that each of (A) the
     Registration  Statement and any amendment thereto does not, when it becomes
     effective,  contain an 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 and (B) the Prospectus, and any amendment
     or supplement thereto, does not at any time during the Effectiveness Period
     include an untrue  statement of a material fact or omit to state a material
     fact  required to be stated  therein or  necessary  to make the  statements
     therein,  in light of the  circumstances  under  which they were made,  not
     misleading;

          (b) (i) prior to the filing with the  Commission  of any  Registration
     Statement  (including  any  amendments  thereto)  and the  distribution  or
     delivery of the Prospectus  (including any  supplements  thereto),  provide
     draft copies  thereof to the  Purchaser  and reflect in such  documents all
     such comments as the Purchaser (and its counsel) reasonably may propose and
     (ii)  furnish to the  Purchaser  such  numbers of copies of the  Prospectus
     including a  preliminary  prospectus  or any amendment or supplement to the
     Prospectus,  as  applicable,  in conformity  with the  requirements  of the
     Securities Act, and such other  documents,  as the Purchaser may reasonably
     request in order to facilitate the public sale or other  disposition of the
     Registrable Securities;

          (c)  comply  with the New  York  blue sky  laws  with  respect  to the
     Registrable  Securities  (subject to the  limitations  set forth in Section
     3(g)  above),  and do any  and all  other  acts  and  things  which  may be
     reasonably necessary or advisable to enable the Purchaser to consummate the
     public sale or other  disposition in such  jurisdiction  of the Registrable
     Securities,  except  that the  Company  shall not for any such  purpose  be
     required


                                       5
<PAGE>

     to qualify to do  business  as a foreign  corporation  in any  jurisdiction
     wherein it is not so qualified  or to file  therein any general  consent to
     service of process;

          (d) list such Registrable  Securities on the Principal Market, and any
     other exchange on which the Common Stock of the Company is then listed,  if
     the listing of such  Registrable  Securities  is then  permitted  under the
     rules of such exchange or the Principal Market;

          (e) notify the  Purchaser at any time when the  Prospectus is required
     to be delivered  under the Securities Act, of the happening of any event of
     which it has  knowledge  as a result  of which the  Prospectus,  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,  and the Company shall  prepare and file a curative  amendment or
     curative supplement under Section 5(a) as quickly as commercially  possible
     and the period beginning on the date of notice until the curative amendment
     is effective or a curative supplement is filed shall be deemed a Suspension
     Period and the  Company  shall  compensate  the  Purchaser  as set forth in
     Section 3(j) herein;

          (f) as promptly as  practicable  after  becoming  aware of such event,
     notify the Purchaser  (or, in the event of an  underwritten  offering,  the
     managing  underwriters)  of the  issuance  by the  Commission  or any state
     authority of any stop order or other suspension of the effectiveness of the
     Registration  Statement at the earliest  possible  time and take all lawful
     action to effect the  withdrawal,  rescission or removal of such stop order
     or other suspension;

          (g)  take  all such  other  lawful  actions  reasonably  necessary  to
     expedite and facilitate the disposition by the Purchaser of its Registrable
     Securities in accordance with the intended methods therefor provided in the
     Prospectus   which  are   customary   for  issuers  to  perform  under  the
     circumstances;

          (h) in the event of an  underwritten  offering,  promptly  include  or
     incorporate in a prospectus  supplement or post-effective  amendment to the
     Registration  Statement  such  information  as  the  managing  underwriters
     reasonably  agree should be included  therein and to which the Company does
     not  reasonably  object and make all  required  filings of such  prospectus
     supplement or  post-effective  amendment as soon as practicable after it is
     notified of the matters to be included or  incorporated  in such prospectus
     supplement or post-effective amendment; and

          (i) maintain a transfer agent for its Common Stock.

     Section 6. Indemnification.

          (a) The Company  agrees to indemnify  and hold  harmless the Purchaser
     and each person,  if any, who controls the Purchaser  within the meaning of
     the Securities Act ("Distributing  Purchaser") against any losses,  claims,
     damages or liabilities,  joint or several


                                       6
<PAGE>

     (which  shall,  for all  purposes of this  Agreement,  include,  but not be
     limited  to, all  reasonable  costs of defense  and  investigation  and all
     reasonable attorneys' fees), to which the Distributing Purchaser may become
     subject,  under the  Securities  Act or otherwise,  insofar as such losses,
     claims, damages or liabilities (or actions in respect thereof) arise out of
     or are based upon any untrue  statement or alleged untrue  statement of any
     material  fact  contained  in the  Registration  Statement,  or any related
     preliminary prospectus,  the Prospectus or amendment or supplement thereto,
     or arise out of or are based upon the omission or alleged omission to state
     therein a material fact required to be stated  therein or necessary to make
     the  statements  therein  in  light  of the  circumstances  when  made  not
     misleading;  provided,  however, that the Company will not be liable in any
     such case to the extent  that any such  loss,  claim,  damage or  liability
     arises  out of or is based  upon an  untrue  statement  or  alleged  untrue
     statement  or  omission  or  alleged  omission  made  in  the  Registration
     Statement,   preliminary   prospectus,   the  Prospectus  or  amendment  or
     supplement  thereto in  reliance  upon,  and in  conformity  with,  written
     information  furnished  to  the  Company  by  the  Distributing   Purchaser
     specifically  for use in the preparation  thereof.  This Section 6(a) shall
     not inure to the benefit of any Distributing  Purchaser with respect to any
     person  asserting such loss,  claim,  damage or liability who purchased the
     Registrable  Securities  which are the subject thereof if the  Distributing
     Purchaser failed to send or give a copy of the Prospectus to such person at
     or prior to the  written  confirmation  to such  person of the sale of such
     Registrable  Securities,  where the Distributing Purchaser was obligated to
     do so under the  Securities  Act or the rules and  regulations  promulgated
     thereunder.  This indemnity  agreement will be in addition to any liability
     which the Company may otherwise have.

          (b) Each Distributing Purchaser agrees that it will indemnify and hold
     harmless the Company, and each officer,  director of the Company or person,
     if any, who controls the Company within the meaning of the Securities  Act,
     against any losses,  claims,  damages or liabilities  (which shall, for all
     purposes of this Agreement,  include, but not be limited to, all reasonable
     costs of defense and investigation  and all reasonable  attorneys' fees) to
     which the Company or any such officer,  director or controlling  person may
     become  subject  under the  Securities  Act or  otherwise,  insofar as such
     losses,  claims,  damages or  liabilities  (or actions in respect  thereof)
     arise out of or are based  upon any  untrue  statement  or  alleged  untrue
     statement of any material fact contained in the Registration  Statement, or
     any  related  preliminary  prospectus,   the  Prospectus  or  amendment  or
     supplement  thereto,  or arise out of or are based upon the omission or the
     alleged  omission to state  therein a material  fact  required to be stated
     therein or necessary to make the statements therein not misleading,  but in
     each case only to the extent that such untrue  statement or alleged  untrue
     statement  or omission  or alleged  omission  was made in the  Registration
     Statement,   preliminary   prospectus,   the  Prospectus  or  amendment  or
     supplement  thereto in  reliance  upon,  and in  conformity  with,  written
     information  furnished  to  the  Company  by  such  Distributing  Purchaser
     specifically for use in the preparation  thereof.  This indemnity agreement
     will be in addition to any liability which the  Distributing  Purchaser may
     otherwise  have.  Notwithstanding  anything  to the  contrary  herein,  the
     Distributing  Purchaser shall not be liable under this Section 6(b) for any
     amount in excess


                                       7
<PAGE>


     of the net proceeds to such Distributing  Purchaser as a result of the sale
     of Registrable Securities pursuant to the Registration Statement.

          (c) Promptly after receipt by an indemnified  party under this Section
     6 of notice of the commencement of any action, such indemnified party will,
     if a claim in respect thereof is to be made against the indemnifying  party
     under this  Section 6, notify the  indemnifying  party of the  commencement
     thereof;  but the  omission  so to notify the  indemnifying  party will not
     relieve the indemnifying  party from any liability which it may have to any
     indemnified party except to the extent of actual prejudice  demonstrated by
     the  indemnifying  party.  In case any such  action is brought  against any
     indemnified   party,  and  it  notifies  the  indemnifying   party  of  the
     commencement   thereof,   the  indemnifying   party  will  be  entitled  to
     participate in, and, to the extent that it may wish, jointly with any other
     indemnifying party similarly notified,  assume the defense thereof, subject
     to the  provisions  herein  stated and after  notice from the  indemnifying
     party to such  indemnified  party of its  election so to assume the defense
     thereof,  the  indemnifying  party  will not be liable to such  indemnified
     party  under this  Section 6 for any legal or other  expenses  subsequently
     incurred by such  indemnified  party in connection with the defense thereof
     other than reasonable costs of investigation, unless the indemnifying party
     shall not pursue the action to its final conclusion.  The indemnified party
     shall have the right to employ  separate  counsel in any such action and to
     participate  in the  defense  thereof,  but the fees and  expenses  of such
     counsel  shall  not be at the  expense  of the  indemnifying  party  if the
     indemnifying  party has  assumed  the  defense of the action  with  counsel
     reasonably  satisfactory  to the  indemnified  party;  provided that if the
     indemnified party is the Distributing  Purchaser,  the fees and expenses of
     such counsel shall be at the expense of the  indemnifying  party if (i) the
     employment of such counsel has been  specifically  authorized in writing by
     the  indemnifying  party,  or (ii) the  named  parties  to any such  action
     (including any impleaded  parties) include both the Distributing  Purchaser
     and the indemnifying  party and the Distributing  Purchaser shall have been
     advised  by such  counsel  in  writing  that there may be one or more legal
     defenses  available to the indemnifying party different from or in conflict
     with  any  legal  defenses  which  may be  available  to  the  Distributing
     Purchaser (in which case the indemnifying party shall not have the right to
     assume the defense of such action on behalf of the Distributing  Purchaser,
     it  being  understood,  however,  that the  indemnifying  party  shall,  in
     connection with any one such action or separate but  substantially  similar
     or related actions in the same jurisdiction arising out of the same general
     allegations or  circumstances,  be liable only for the reasonable  fees and
     expenses of one separate firm of attorneys for the Distributing  Purchaser,
     which firm shall be designated in writing by the Distributing Purchaser and
     be approved by the indemnifying party). No settlement of any action against
     an indemnified party shall be made without the prior written consent of the
     indemnified party, which consent shall not be unreasonably withheld.

     All fees and expenses of the indemnified party (including  reasonable costs
of defense and  investigation in a manner not inconsistent with this Section and
all  reasonable  attorneys'  fees and  expenses)  shall be promptly  paid to the
indemnified  party, as incurred;  within ten (10) Trading Days of written notice
thereof to the indemnified  party;  provided,  that the  indemnifying  party may
require such  indemnified  party to  undertake  to  reimburse  all such fees and


                                       8
<PAGE>

expenses to the extent it is finally judicially determined that such indemnified
party is not entitled to indemnification hereunder.

     Section  7.  Contribution.  In order  to  provide  for  just and  equitable
contribution  under the Securities Act in any case in which (i) the  indemnified
party  makes a claim for  indemnification  pursuant  to  Section 6 hereof but is
judicially  determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for  indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified  party,  then the Company and the
applicable  Distributing  Purchaser  shall  contribute to the aggregate  losses,
claims,  damages or liabilities  to which they may be subject (which shall,  for
all purposes of this Agreement,  include,  but not be limited to, all reasonable
costs of defense and  investigation  and all  reasonable  attorneys'  fees),  in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to  information  supplied by the Company on the one hand
or the  applicable  Distributing  Purchaser on the other hand,  and the parties'
relative intent, knowledge,  access to information and opportunity to correct or
prevent such statement or omission.  The Company and the Distributing  Purchaser
agree that it would not be just and equitable if  contribution  pursuant to this
Section 7 were  determined  by pro rata  allocation  or by any  other  method of
allocation which does not take account of the equitable  considerations referred
to in this  Section 7. The amount paid or payable by an  indemnified  party as a
result of the  losses,  claims,  damages or  liabilities  (or actions in respect
thereof)  referred  to above in this  Section 7 shall be deemed to  include  any
legal  or  other  expenses  reasonably  incurred  by such  indemnified  party in
connection with  investigating  or defending any such action or claim. No person
guilty of fraudulent  misrepresentation  (within the meaning of Section 11(f) of
the Securities  Act) shall be entitled to  contribution  from any person who was
not guilty of such fraudulent misrepresentation.

     Notwithstanding  any other  provision  of this Section 7, in no event shall
any (i)  Purchaser be required to  undertake  liability to any person under this
Section 7 for any amounts in excess of the dollar  amount of the net proceeds to
be  received  by the  Purchaser  from  the sale of the  Purchaser's  Registrable
Securities  (after  deducting  any fees,  discounts and  commissions  applicable
thereto)  pursuant to any  Registration  Statement under which such  Registrable
Securities  are or were to be  registered  under  the  Securities  Act and  (ii)
underwriter be required to undertake  liability to any person  hereunder for any
amounts in excess of the aggregate  discount,  commission or other  compensation
payable  to  such  underwriter  with  respect  to  the  Registrable   Securities
underwritten by it and distributed pursuant to the Registration Statement.

     Section 8. Notices. All notices, demands,  requests,  consents,  approvals,
and other  communications  required or permitted  hereunder  shall be in writing
and, unless otherwise  specified herein,  shall be delivered as set forth in the
Purchase Agreement.


                                       9
<PAGE>

     Section  9.  Assignment.  Neither  this  Agreement  nor any  rights  of the
Purchaser or the Company  hereunder may be assigned by either party to any other
person.  Notwithstanding  the foregoing,  upon the prior written  consent of the
Company, which consent shall not be unreasonably withheld or delayed in the case
of an assignment to an affiliate of the Purchaser,  the Purchaser's  interest in
this  Agreement  may be assigned at any time,  in whole or in part, to any other
person or entity  (including  any affiliate of the  Purchaser)  who agrees to be
bound hereby.

     Section 10.  Counterparts/Facsimile.  This Agreement may be executed in two
or more  counterparts,  each of which shall  constitute an original,  but all of
which, when together shall constitute but one and the same instrument, and shall
become  effective when one or more  counterparts  have been signed by each party
hereto and delivered to the other party.  In lieu of the  original,  a facsimile
transmission  or copy of the original  shall be as effective and  enforceable as
the original.

     Section  11.  Remedies  and  Severability.  The  remedies  provided in this
Agreement are cumulative  and not exclusive of any remedies  provided by law. If
any term,  provision,  covenant or  restriction  of this  Agreement is held by a
board  of  arbitration  or a court  of  competent  jurisdiction  to be  invalid,
illegal,  void  or  unenforceable,  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 best 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 those
that may be hereafter declared invalid, illegal, void or unenforceable.

     Section 12.  Conflicting  Agreements.  The Company shall not enter into any
agreement with respect to its securities  that is  inconsistent  with the rights
granted  to the  purchasers  of  Registrable  Securities  in this  Agreement  or
otherwise  prevents  the  Company  from  complying  with all of its  obligations
hereunder.

     Section 13.  Headings.  The headings in this  Agreement  are for  reference
purposes only and shall not affect in any way the meaning or  interpretation  of
this Agreement.

     Section  14.  Governing  Law.  This  Agreement  shall  be  governed  by and
construed in  accordance  with the laws of the State of New York  applicable  to
contracts  made in New York by persons  domiciled  in New York City and  without
regard to its  principles of conflicts of laws. Any action may be brought as set
forth in the Purchase  Agreement.  The Company and the Purchaser agree to submit
themselves  to the in  personam  jurisdiction  of the state and  federal  courts
situated  within the  Southern  District of the State of New York with regard to
any controversy  arising out of or relating to this  Agreement.  Any party shall
have  the  right  to  seek  injunctive   relief  from  any  court  of  competent
jurisdiction in any case where such relief is available.  Any dispute under this
Agreement  shall be submitted  to  arbitration  under the  American  Arbitration
Association  (the  "AAA") in New York City,  New York,  and shall be finally and
conclusively  determined by the decision of a board of arbitration consisting of
three (3)  members  (hereinafter  referred  to as the  "Board  of  Arbitration")
selected as according to the rules  governing the AAA. The


                                       10
<PAGE>

Board of Arbitration  shall meet on consecutive  business days in New York City,
New York,  and shall reach and render a decision in writing  (concurred  in by a
majority of the members of the Board of Arbitration) with respect to the amount,
if any,  which the losing party is required to pay to the other party in respect
of a claim filed.  In  connection  with  rendering its  decisions,  the Board of
Arbitration  shall  adopt and follow  the laws of the State of New York.  To the
extent  practical,  decisions of the Board of  Arbitration  shall be rendered no
more than thirty (30) calendar days following  commencement of proceedings  with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be  authorized  and is  directed to enter a default  judgment  against any party
refusing to participate in the arbitration  proceeding within thirty days of any
deadline for such  participation.  Any decision made by the Board of Arbitration
(either  prior to or after the  expiration  of such  thirty  (30)  calendar  day
period)  shall be final,  binding and  conclusive on the parties to the dispute,
and entitled to be enforced to the fullest  extent  permitted by law and entered
in any court of competent  jurisdiction.  The prevailing  party shall be awarded
its costs,  including  attorneys' fees, from the non-prevailing party as part of
the arbitration  award. Any party shall have the right to seek injunctive relief
from any  court of  competent  jurisdiction  in any case  where  such  relief is
available.  The prevailing party in such injunctive  action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.

                            [SIGNATURE PAGE FOLLOWS]


                                       11
<PAGE>

      [SIGNATURE PAGE TO REGISTRATION RIGHTS REGISTRATION RIGHTS AGREEMENT]

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, on this 26th day of July, 2001

                                   DATA RACE, INC.



                                   By:
                                        ----------------------------------------
                                        James G. Scogin, President & CEO

                                   GRENVILLE FINANCE LTD.



                                   By:
                                        ----------------------------------------
                                        Francois Morax, Authorized Signatory


                                       12
<PAGE>


                                                                       EXHIBIT B

                                ESCROW AGREEMENT


     THIS ESCROW  AGREEMENT  (this  "Agreement") is made as of July 26, 2001, by
and among Data Race,  Inc.,  a  corporation  incorporated  under the laws of the
State of Texas,  (the  "Company"),  Grenville  Finance Ltd.  ("Purchaser"),  and
Epstein Becker & Green, P.C., having an address at 250 Park Avenue, New York, NY
10177 (the "Escrow Agent").  Capitalized terms used but not defined herein shall
have the meanings set forth in the Common Stock Purchase  Agreement  referred to
in the first recital.

     WHEREAS,  the Purchaser will from time to time as requested by the Company,
purchase  shares of the Company's  Common Stock from the Company as set forth in
that certain Common Stock Purchase  Agreement (the "Purchase  Agreement")  dated
the date hereof  between the  Purchaser  and the Company,  which shares shall be
issued pursuant to the terms and conditions contained herein and in the Purchase
Agreement; and

     WHEREAS, the Company and the Purchaser have requested that the Escrow Agent
hold in escrow and then distribute the initial documents and certain funds which
are conditions  precedent to the  effectiveness of the Purchase  Agreement,  and
have further  requested that upon each exercise of a Draw Down, the Escrow Agent
hold the relevant documents and the applicable purchase price pending receipt by
Purchaser of the securities issuable upon such Draw Down;

     NOW,  THEREFORE,  in  consideration  of the covenants  and mutual  promises
contained  herein and other good and  valuable  consideration,  the  receipt and
legal  sufficiency of which are hereby  acknowledged and intending to be legally
bound hereby, the parties agree as follows:

                                    ARTICLE I

                   TERMS OF THE ESCROW FOR THE INITIAL CLOSING

     1.1.  The parties  hereby  agree to  establish  an escrow  account with the
Escrow Agent whereby the Escrow Agent shall hold the funds and  documents  which
are referenced in Section 4.2 of the Purchase Agreement.

     1.2. At the Initial Closing, the Company shall deliver to the Escrow Agent:

          (i)   the original executed  Registration Rights Agreement in the form
        of Exhibit A to the Purchase Agreement;

          (ii)  the original executed opinion of Jackson Walker L.L.P.,  counsel
        to the Company, in the form of Exhibit C to the Purchase Agreement;

          (iii) the  original  executed  Company   counterpart  of  this  Escrow
        Agreement;

<PAGE>

          (iv) the  original  executed  Company  counterpart  of  the  Purchase
     Agreement;

          (v)  $20,000  for  the  Purchaser's  legal  and  administrative  costs
     and  expenses,  (except  that  payment of $10,000 of such  amount  shall be
     delayed until the second closing of that certain Convertible Debentures and
     Warrants Purchase Agreement,  dated June 12, 2001, entered into between the
     Company and the investors  signatory  thereto under the terms of the escrow
     agreement (the "Debenture Escrow Agreement") entered into therewith); and

          (vi) the original executed Warrant.

     1.3. Upon receipt of the  foregoing,  and receipt of executed  counterparts
from Purchaser of the Purchase Agreement,  the Registration Rights Agreement and
this Escrow  Agreement,  the Escrow Agent shall calculate and enter the exercise
price, issuance date and termination date on the face of the Warrant, shall wire
transfer $10,000 to Epstein Becker & Green,  P.C. as a  non-accountable  expense
allowance for the Purchaser's  legal and  administrative  costs and expenses and
shall then arrange to have the Purchase  Agreement,  this Escrow Agreement,  the
Registration Rights Agreement,  the Warrant and the opinion of counsel delivered
to the appropriate parties. Upon receipt of $10,000 by the Escrow Agent pursuant
to the terms of the Debenture  Escrow  Agreement at the second closing  therein,
the Escrow Agent shall wire transfer $10,000 to Epstein Becker & Green,  P.C. as
a non-accountable expense allowance for the Purchaser's legal and administrative
costs and expenses.

     1.4 Wire  transfers to the Escrow Agent (not address for notice or delivery
of documents) shall be made as follows:

               Epstein Becker & Green, P.C.
               Master Escrow Account
               Chase Manhattan Bank
               1411 Broadway - Fifth Floor
               New York, New York 10018
               ABA No. 021000021
               Account No. 035 1 346036
               Attention: L. Borneo

                                   ARTICLE II

                     TERMS OF THE ESCROW FOR EACH DRAW DOWN

     2.1.  Each time the Company  shall send a Draw Down Notice to the Purchaser
as provided in the Purchase  Agreement,  it shall send a copy, by facsimile,  to
the Escrow Agent.

     2.2. Each time the Purchaser shall purchase Shares pursuant to a Draw Down,
the Purchaser  shall send the applicable  Purchase Price of the Draw Down Shares
to the Escrow


                                       2
<PAGE>

Agent.  Upon  receipt of such funds,  the Escrow  Agent shall advise the Company
that it has  received  the funds for such Draw Down  Shares.  The Company  shall
promptly,  but no later than one (1) Trading Day after  receipt of such  funding
notice from the Escrow Agent:

               (i)  cause its  transfer  agent to issue the Draw Down  Shares to
                    the Purchaser via DTC's DWAC system to the account specified
                    by the Purchaser from time to time;

              (ii)  deliver the original executed attorney's opinion in the form
                    of Exhibit C to the Purchase Agreement to the Purchaser; and

             (iii)  if required by law,  deliver a Form  424(b)(3)  supplemental
                    prospectus to the Purchaser.

     2.3. Upon receipt of written  confirmation  from the transfer agent or from
the Purchaser  that such Draw Down Shares have been so deposited and the opinion
and the supplemental prospectus have been so delivered,  the Escrow Agent shall,
within  one  (1)  Trading  Day of  receipt  of the  foregoing,  wire  92% of the
applicable Investment Amount per the written instructions of the Company, net of
one thousand  dollars  ($1,000) as escrow expenses to the Escrow Agent,  and the
remaining 8% to Hadrian Investments Limited.

     2.4. The Escrow Agent shall remit  Hadrian  Investments  Limited's  fees in
accordance with the respective wire instructions that it will send to the Escrow
Agent.

     2.5. In the event that such Draw Down Shares are not in the Purchaser's DTC
account and the opinion and  supplemental  prospectus  are not  delivered to the
Purchaser  within two (2) Trading Days of the date of the Escrow Agent's notice,
then  Purchaser  shall  have the right to demand,  by notice,  the return of the
Purchase Price, and the applicable Draw Down Notice shall be deemed cancelled.

                                  ARTICLE III

                                  MISCELLANEOUS

     3.1. No waiver of any breach of any covenant or provision  herein contained
shall be deemed a waiver of any preceding or succeeding  breach  thereof,  or of
any other  covenant or  provision  herein  contained.  No  extension of time for
performance  of any  obligation  or act shall be deemed an extension of the time
for performance of any other obligation or act.

     3.2. All notices or other  communications  required or permitted  hereunder
shall be in writing, and shall be sent by fax, overnight courier,  registered or
certified mail, postage prepaid,  return receipt requested,  and shall be deemed
received upon receipt thereof, as set forth in the Purchase Agreement.


                                       3
<PAGE>

     3.3.  This Escrow  Agreement  shall be binding  upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.

     3.4.  This Escrow  Agreement is the final  expression  of, and contains the
entire agreement between,  the parties with respect to the subject matter hereof
and  supersedes  all prior  understandings  with  respect  thereto.  This Escrow
Agreement may not be modified, changed,  supplemented or terminated, nor may any
obligations  hereunder  be waived,  except by written  instrument  signed by the
parties to be charged or by their  respective  agents duly authorized in writing
or as otherwise expressly permitted herein.

     3.5.  Whenever  required  by the  context  of this  Escrow  Agreement,  the
singular shall include the plural and masculine shall include the feminine. This
Escrow Agreement shall not be construed as if it had been prepared by one of the
parties,  but rather as if both parties had prepared the same.  Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.

     3.6. The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance with the
laws of the State of New York. Except as expressly set forth herein,  any action
to enforce,  arising out of, or relating in any way to, any  provisions  of this
Escrow  Agreement  shall be brought  as is more fully set forth in the  Purchase
Agreement.

     3.7. The Escrow Agent's duties hereunder may be altered,  amended, modified
or revoked  only by a writing  signed by the Company,  Purchaser  and the Escrow
Agent.

     3.8. The Escrow Agent shall be obligated  only for the  performance of such
duties as are  specifically set forth herein and may rely and shall be protected
in relying or refraining  from acting on any instrument  reasonably  believed by
the  Escrow  Agent to be genuine  and to have been  signed or  presented  by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow  Agent may do or omit to do  hereunder  as the Escrow Agent while
acting  in good  faith,  excepting  only its own  gross  negligence  or  willful
misconduct,  and any act done or  omitted by the Escrow  Agent  pursuant  to the
advice of the Escrow Agent's  attorneys-at-law  (other than Escrow Agent itself)
shall be conclusive evidence of such good faith.

     3.9. The Escrow Agent is hereby  expressly  authorized to disregard any and
all  warnings  given by any of the  parties  hereto  or by any  other  person or
corporation,  excepting  only  orders or  process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order,  judgment
or decree,  the Escrow Agent shall not be liable to any of the parties hereto or
to any  other  person,  firm or  corporation  by  reason  of such  decree  being
subsequently reversed,  modified,  annulled, set aside, vacated or found to have
been entered without jurisdiction.

     3.10. The Escrow Agent shall not be liable in any respect on account of the
identity,  authorization  or rights of the parties  executing or  delivering  or
purporting  to execute or deliver the  Purchase  Agreement  or any  documents or
papers deposited or called for thereunder or hereunder.


                                       4
<PAGE>

3.11.  The Escrow Agent shall be entitled to employ such legal counsel and other
experts as the Escrow  Agent may deem  necessary  properly  to advise the Escrow
Agent in connection with the Escrow Agent's duties hereunder,  may rely upon the
advice  of such  counsel,  and  may pay  such  counsel  reasonable  compensation
therefor. The Escrow Agent has acted as legal counsel for the Purchaser, and may
continue  to act as  legal  counsel  for  the  Purchaser,  from  time  to  time,
notwithstanding  its duties as the Escrow Agent hereunder.  The Company consents
to the Escrow  Agent in such  capacity as legal  counsel for the  Purchaser  and
waives any claim that such  representation  represents a conflict of interest on
the part of the Escrow Agent. The Company understands that the Purchaser and the
Escrow Agent are relying explicitly on the foregoing  provision in entering into
this Escrow Agreement.

     3.12. The Escrow Agent's  responsibilities  as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written  notice to the Company and
the  Purchaser.  In the event of any such  resignation,  the  Purchaser  and the
Company shall appoint a successor Escrow Agent.

     3.13. If the Escrow Agent reasonably  requires other or further instruments
in connection with this Escrow  Agreement or obligations in respect hereto,  the
necessary parties hereto shall join in furnishing such instruments.

     3.14.  It is  understood  and agreed  that  should any  dispute  arise with
respect to the delivery and/or ownership or right of possession of the documents
or the escrow  funds held by the Escrow  Agent  hereunder,  the Escrow  Agent is
authorized and directed in the Escrow  Agent's sole  discretion (i) to retain in
the Escrow  Agent's  possession  without  liability to anyone all or any part of
said  documents or the escrow funds until such disputes  shall have been settled
either by mutual  written  agreement of the parties  concerned by a final order,
decree  or  judgment  of  a  board  of  arbitration  or  a  court  of  competent
jurisdiction  after the time for  appeal  has  expired  and no  appeal  has been
perfected,  but the Escrow Agent shall be under no duty  whatsoever to institute
or defend  any such  proceedings,  or (ii) to deliver  the escrow  funds and any
other  property and documents  held by the Escrow Agent  hereunder to a state or
Federal court having  competent  subject matter  jurisdiction and located in the
State and City of New York in accordance with the applicable procedure therefor.

     3.15.  The  Company  and the  Purchaser  agree  jointly  and  severally  to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and  representatives  from any and all  claims,  liabilities,  costs or expenses
(including  reasonable  attorneys'  fees) in any way arising from or relating to
the duties or  performance  of the Escrow Agent  hereunder  or the  transactions
contemplated  hereby or by the  Purchase  Agreement  other than any such  claim,
liability,  cost or expense to the extent the same shall have been determined by
final,  unappealable  judgment  of a court  of  competent  jurisdiction  to have
resulted from the gross negligence or willful misconduct of the Escrow Agent.

                            [SIGNATURE PAGE FOLLOWS]


                                       5
<PAGE>

                 [SIGNATURE PAGE TO EQUITY LINE ESROW AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of
this 26th day of July, 2001.

                                    DATA RACE, INC.


                                    By:
                                        ----------------------------------------
                                          James G. Scogin, President & CEO

                                    Grenville Finance Ltd.



                                    By:
                                        ----------------------------------------
                                         Francois Morax, Authorized Signatory


                                    ESCROW AGENT:

                                    EPSTEIN BECKER & GREEN, P.C.



                                    By:
                                        ----------------------------------------
                                        Robert F. Charron, Authorized Signatory


                                       6
<PAGE>

                                                                       EXHIBIT D

                     DRAW DOWN NOTICE/COMPLIANCE CERTIFICATE

                                 Data Race, Inc.

     The undersigned hereby certifies, with respect to shares of Common Stock of
Data Race,  Inc.  (the  "Company")  issuable in  connection  with this Draw Down
Notice and Compliance Certificate dated _____________ (the "Notice"),  delivered
pursuant to the Common Stock Purchase  Agreement  dated as of July 26, 2001 (the
"Agreement"), as follows:

     1. The undersigned is the duly appointed  Chief Executive  Officer or Chief
Financial Officer of the Company.

     2.   Except  as  set  forth  on  the   schedules   attached   hereto,   the
representations  and  warranties  of the Company set forth in the  Agreement are
true and correct in all  material  respects as though made on and as of the date
hereof  and all SEC  Documents  are as  represented  in  Section  2.1(f)  of the
Agreement.

     3. The Company has  performed in all material  respects all  covenants  and
agreements to be performed by the Company under the Agreement on or prior to the
date of this Draw Down Notice and has complied in all material respects with all
of the Company's obligations and conditions contained in the Agreement.

     4. The Investment Amount is $___________.

     5. The Threshold Price, if any, is $__________.

     6. The Draw Down Pricing Period shall commence on ____________.

     The  undersigned has executed this  Certificate  this ____ day of ________,
_____.


                                                DATA RACE, INC.


                                                By:
                                                   -----------------------------
                                                   Name:
                                                   Title:

<PAGE>


                                                                       EXHIBIT E

NEITHER  THIS WARRANT NOR THE SHARES  ISSUABLE  UPON  EXERCISE  HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT")
OR ANY OTHER  APPLICABLE  SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES  ISSUABLE UPON EXERCISE  HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED,  ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND
ANY APPLICABLE STATE LAWS.


                             STOCK PURCHASE WARRANT

                To Purchase 16,366,612 Shares of Common Stock of

                                 DATA RACE, INC.

     THIS  CERTIFIES  that,  for value  received,  Grenville  Finance Ltd.  (the
"Holder"),  is  entitled,  upon the  terms and  subject  to the  limitations  on
exercise and the conditions  hereinafter set forth, at any time on or after July
30, 2001 (the "Initial  Exercise Date") and on or prior to the close of business
on July 30, 2004 (the "Termination  Date") but not thereafter,  to subscribe for
and purchase from Data Race, Inc., a corporation organized under the laws of the
State of Texas (the "Company"),  up to 16,366,612  shares (the "Warrant Shares")
of Common Stock,  no par value per share,  of the Company (the "Common  Stock").
The purchase  price of one share of Common Stock (the  "Exercise  Price")  under
this  Warrant  shall be $0.07027.  The Exercise  Price and the number of Warrant
Shares for which the Warrant is  exercisable  shall be subject to  adjustment as
provided herein.  In the event of any conflict between the terms of this Warrant
and the Common Stock  Purchase  Agreement  dated as of July 26, 2001 pursuant to
which this  Warrant has been issued (the  "Purchase  Agreement"),  the  Purchase
Agreement shall control. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth for such terms in the Purchase Agreement.


                                       1
<PAGE>

     1.  Title  to  Warrant.  Prior  to the  Termination  Date  and  subject  to
compliance  with  applicable  laws,  this Warrant and all rights  hereunder  are
transferable, subject to Section 7 herein, in whole or in part, at the office or
agency of the  Company by the Holder in person or by duly  authorized  attorney,
upon surrender of this Warrant  together with the Assignment Form annexed hereto
properly endorsed.

     2.  Authorization of Shares.  The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights  represented by this Warrant,
be duly authorized,  validly issued,  fully paid and nonassessable and free from
all taxes,  liens and charges in respect of the issue thereof  (other than taxes
in respect of any transfer occurring contemporaneously with such issue).

     3. Exercise of Warrant.

          (a) Except as provided in Section 4 herein,  exercise of the  purchase
     rights  represented  by this Warrant may be made at any time or times on or
     after the Initial  Exercise  Date and on or before the close of business on
     the  Termination  Date by the  surrender  of this Warrant and the Notice of
     Exercise Form annexed  hereto duly  executed,  at the office of the Company
     (or such  other  office or agency of the  Company  as it may  designate  by
     notice in writing to the  registered  Holder at the  address of such Holder
     appearing  on the books of the  Company)  and upon  payment of the Exercise
     Price of the shares thereby  purchased by wire transfer or cashier's  check
     drawn on a United  States  bank,  or by means of a cashless  exercise,  the
     Holder shall be entitled to receive a certificate for the number of Warrant
     Shares so purchased.  Certificates for shares purchased  hereunder shall be
     delivered  to the Holder  within  three (3) Trading  Days after the date on
     which this Warrant  shall have been  exercised as  aforesaid.  This Warrant
     shall be deemed to have been exercised and such certificate or certificates
     shall be deemed  to have been  issued,  and  Holder or any other  person so
     designated  to be named  therein shall be deemed to have become a holder of
     record of such shares for all purposes, as of the date the Warrant has been
     exercised  by payment to the  Company of the  Exercise  Price and all taxes
     required to be paid by the Holder,  if any,  pursuant to Section 5 prior to
     the issuance of such shares, have been paid.

          (b) If this Warrant  shall have been  exercised  in part,  the Company
     shall,  at  the  time  of  delivery  of  the  certificate  or  certificates
     representing Warrant Shares, deliver to Holder a new Warrant evidencing the
     rights of Holder to purchase the  unpurchased  Warrant Shares called for by
     this Warrant,  which new Warrant  shall in all other  respects be identical
     with this Warrant.

          (c) If there is no registration in effect permitting the resale by the
     Holder of the  Warrant  Shares at any time from and after one year from the
     issuance date of this Warrant,  this Warrant shall also be  exercisable  by
     means of a  "cashless  exercise"  in which the Holder  shall be entitled to
     receive  a  certificate  for the  number  of  Warrant  Shares  equal to the
     quotient obtained by dividing [(A-B) (X)] by (A), where:

                                       2
<PAGE>

          (A) = the  average  of the high and low  trading  prices  per share of
          Common Stock on the Trading Day preceding the date of such election on
          the Nasdaq Stock  Market,  or if the Common Stock is not traded on the
          Nasdaq Stock Market, then the Principal Market in terms of volume;

          (B) = the Exercise Price of this Warrant; and

          (X) = the number of Warrant  Shares  issuable  upon  exercise  of this
          Warrant in accordance with the terms of this Warrant and the Notice of
          Exercise.

          (d) Notwithstanding anything herein to the contrary, in no event shall
     the Holder be permitted to exercise this Warrant for Warrant  Shares to the
     extent  that (i) the number of shares of Common  Stock owned by such Holder
     (other than Warrant  Shares  issuable  upon  exercise of this Warrant) plus
     (ii) the number of Warrant  Shares  issuable upon exercise of this Warrant,
     would be equal to or exceed  9.9% of the  number of shares of Common  Stock
     then issued and  outstanding,  including  shares  issuable upon exercise of
     this Warrant held by such Holder after application of this Section 3(d). As
     used herein,  beneficial  ownership  shall be determined in accordance with
     Section  13(d) of the  Exchange  Act.  To the  extent  that the  limitation
     contained in this Section 3(d) applies,  the  determination of whether this
     Warrant  is  exercisable  (in  relation  to other  securities  owned by the
     Holder) and of which a portion of this Warrant is  exercisable  shall be in
     the sole  discretion  of such  Holder,  and the  submission  of a Notice of
     Exercise shall be deemed to be such Holder's  determination of whether this
     Warrant is  exercisable  (in  relation  to other  securities  owned by such
     Holder) and of which portion of this Warrant is  exercisable,  in each case
     subject to such aggregate percentage limitation, and the Company shall have
     no  obligation  to verify or confirm the  accuracy  of such  determination.
     Nothing  contained herein shall be deemed to restrict the right of a Holder
     to exercise this Warrant into Warrant  Shares at such time as such exercise
     will not violate the  provisions  of this Section 3(d).  The  provisions of
     this Section 3(d) may be waived by the Holder upon,  at the election of the
     Holder,  with not less than 61 days' prior notice to the  Company,  and the
     provisions of this Section 3(d) shall continue to apply until such 61st day
     (or such later  date as may be  specified  in such  notice of  waiver).  No
     exercise of this Warrant in violation of this Section 3(d) but otherwise in
     accordance  with this Warrant shall affect the status of the Warrant Shares
     as validly issued, fully-paid and nonassessable.

     4.  No  Fractional   Shares  or  Scrip.  No  fractional   shares  or  scrip
representing  fractional  shares  shall  be  issued  upon the  exercise  of this
Warrant.  As to any fraction of a share which Holder would otherwise be entitled
to purchase  upon such  exercise,  the Company  shall pay a cash  adjustment  in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

     5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made  without  charge to the  Holder for any issue or  transfer  tax or
other incidental expense in respect of the issuance of such certificate,  all of
which taxes and  expenses  shall be paid by the Company,  and such  certificates
shall be  issued  in the name of the  Holder  or in such


                                       3
<PAGE>

name or names as may be directed by the Holder;  provided,  however, that in the
event  certificates for Warrant Shares are to be issued in a name other than the
name of the  Holder,  this  Warrant  when  surrendered  for  exercise  shall  be
accompanied by the Assignment  Form attached hereto duly executed by the Holder;
and the  Company  may  require,  as a  condition  thereto,  the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

     6. Closing of Books.  The Company will not close its  stockholder  books or
records in any manner which prevents the timely exercise of this Warrant.

     7. Transfer, Division and Combination.

          (a)  Subject  to  compliance  with  any  applicable  securities  laws,
     transfer  of this  Warrant and all rights  hereunder,  in whole or in part,
     shall be registered  on the books of the Company to be maintained  for such
     purpose,  upon  surrender  of this Warrant at the  principal  office of the
     Company,  together with a written assignment of this Warrant  substantially
     in the form  attached  hereto  duly  executed by the Holder or its agent or
     attorney and funds  sufficient  to pay any transfer  taxes payable upon the
     making of such transfer.  In the event that the Holder wishes to transfer a
     portion of this Warrant,  the Holder shall transfer at least 100,000 shares
     underlying this Warrant to any such transferee. Upon such surrender and, if
     required, such payment, the Company shall execute and deliver a new Warrant
     or  Warrants  in  the  name  of  the  assignee  or  assignees  and  in  the
     denomination or  denominations  specified in such instrument of assignment,
     and shall  issue to the  assignor a new Warrant  evidencing  the portion of
     this Warrant not so assigned, and this Warrant shall promptly be cancelled.
     A Warrant,  if properly assigned,  may be exercised by a new holder for the
     purchase of Warrant Shares without having a new Warrant issued.

          (b) This Warrant may be divided or combined  with other  Warrants upon
     presentation hereof at the aforesaid office of the Company, together with a
     written notice specifying the names and denominations in which new Warrants
     are to be issued, signed by the Holder or its agent or attorney. Subject to
     compliance  with Section 7(a), as to any transfer  which may be involved in
     such division or  combination,  the Company shall execute and deliver a new
     Warrant or Warrants  in exchange  for the Warrant or Warrants to be divided
     or combined in accordance with such notice.

          (c) The Company  shall  prepare,  issue and deliver at its own expense
     (other than transfer  taxes) the new Warrant or Warrants under this Section
     7.

          (d) The Company agrees to maintain, at its aforesaid office, books for
     the registration and the registration of transfer of the Warrants.

     8. No Rights as Shareholder  until Exercise.  This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder  of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price or by means of a cashless exercise,  the Warrant
Shares so  purchased  shall be and be deemed to be issued to such  Holder as the
record owner of such shares as of the close of business on the later of the date
of such surrender or payment.


                                       4
<PAGE>

     9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence  reasonably  satisfactory  to it of
the  loss,  theft,  destruction  or  mutilation  of this  Warrant  or any  stock
certificate  relating  to the  Warrant  Shares,  and in case of  loss,  theft or
destruction, of indemnity or security reasonably satisfactory to it (which shall
not include the posting of any bond),  and upon  surrender and  cancellation  of
such  Warrant or stock  certificate,  if  mutilated,  the Company  will make and
deliver a new  Warrant or stock  certificate  of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

     10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the  expiration of any right  required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.

     11. Adjustments of Exercise Price and Number of Warrant Shares.

          (a) Stock Splits,  etc. The number and kind of securities  purchasable
     upon the exercise of this  Warrant and the Exercise  Price shall be subject
     to adjustment from time to time upon the happening of any of the following.
     In case the Company  shall (i) pay a dividend in shares of Common  Stock or
     make a distribution in shares of Common Stock to holders of its outstanding
     Common Stock, (ii) subdivide its outstanding  shares of Common Stock into a
     greater number of shares,  (iii) combine its  outstanding  shares of Common
     Stock into a smaller  number of shares of Common  Stock,  or (iv) issue any
     shares of its capital stock in a reclassification of the Common Stock, then
     the number of Warrant  Shares  purchasable  upon  exercise of this  Warrant
     immediately  prior  thereto  shall be adjusted so that the Holder  shall be
     entitled  to  receive  the kind  and  number  of  Warrant  Shares  or other
     securities  of the Company  which it would have owned or have been entitled
     to receive had such Warrant been  exercised in advance  thereof.  Upon each
     such  adjustment  of the  kind  and  number  of  Warrant  Shares  or  other
     securities of the Company which are purchasable hereunder, the Holder shall
     thereafter  be entitled to purchase  the number of Warrant  Shares or other
     securities  resulting from such adjustment at an Exercise Price per Warrant
     Share or other  security  obtained by  multiplying  the  Exercise  Price in
     effect immediately prior to such adjustment by the number of Warrant Shares
     purchasable  pursuant  hereto  immediately  prior  to such  adjustment  and
     dividing by the number of Warrant Shares or other securities of the Company
     resulting  from  such  adjustment.  An  adjustment  made  pursuant  to this
     paragraph shall become  effective  immediately  after the effective date of
     such event retroactive to the record date, if any, for such event.

          (b) Anti-Dilution Provisions. During the Exercise Period, the Exercise
     Price and the number of Warrant  Shares  issuable  hereunder  and for which
     this  Warrant is then  exercisable  pursuant  to Section 1 hereof  shall be
     subject to adjustment  from time to time as provided in this Section 11(b).
     In the event that any adjustment of the Exercise  Price as required  herein
     results in a fraction of a cent, such Exercise Price shall be rounded up or
     down to the nearest cent.

               (i) Adjustment of Exercise  Price.  If and whenever solely during
          the first twelve (12) months of the Exercise Period the Company issues
          or sells,  or


                                       5
<PAGE>

          in  accordance  with  Section  8(b) hereof is deemed to have issued or
          sold, any shares of Common Stock for a consideration per share of less
          than the then current  market price (the "Base Share Price") or for no
          consideration  (collectively,  a "Dilutive Issuance"),  then effective
          immediately  upon the Dilutive  Issuance,  the Exercise  Price will be
          adjusted in accordance with the following formula:

                E' =  E  x      O + P/BSP
                            -------------
                                 CSDO
                where:

                E'     =    the adjusted Exercise Price;
                E      =    the then current Exercise Price;
                BSP    =    the  Base Share Price;
                O      =    the number of shares of Common Stock outstanding
                                  immediately prior to the Dilutive Issuance;
                P      =    the aggregate  consideration,  calculated as set
                                  forth in Section 11(b)(ii)  hereof,  received
                                  by the Company upon such Dilutive  Issuance;
                                  and
                CSDO   =    the total number  of  shares  of  Common  Stock
                            Deemed Outstanding immediately after the Dilutive
                            Issuance.

               (ii) Effect on Exercise Price of Certain Events.  For purposes of
          determining  the adjusted  Exercise  Price under Section 11(b) hereof,
          the following will be applicable:

                    (A)  Issuance  of Rights or  Options.  If the Company in any
               manner issues or grants any warrants,  rights or options, whether
               or not immediately  exercisable,  to subscribe for or to purchase
               Common Stock or other securities exercisable, convertible into or
               exchangeable for Common Stock  ("Convertible  Securities")  (such
               warrants,   rights  and  options  to  purchase  Common  Stock  or
               Convertible  Securities are hereinafter referred to as "Options")
               and the price per share for which Common  Stock is issuable  upon
               the  exercise  of such  Options is less than the Base Share Price
               ("Below Base Price  Options"),  then the maximum  total number of
               shares of Common  Stock  issuable  upon the  exercise of all such
               Below Base Price Options  (assuming full exercise,  conversion or
               exchange of Convertible  Securities,  if applicable)  will, as of
               the  date of the  issuance  or  grant of such  Below  Base  Price
               Options,  be deemed to be outstanding and to have been issued and
               sold by the Company for such price per share. For purposes of the
               preceding  sentence,  the "price per share for which Common Stock
               is issuable  upon the exercise of such Below Base Price  Options"
               is determined by dividing (i) the total amount,  if any, received
               or receivable by the Company as consideration for the issuance or
               granting of all such Below Base Price  Options,  plus the minimum
               aggregate amount of additional consideration,  if any, payable to
               the  Company  upon the


                                       6
<PAGE>

               exercise of all such Below Base Price Options,  plus, in the case
               of  Convertible  Securities  issuable  upon the  exercise of such
               Below  Base  Price  Options,  the  minimum  aggregate  amount  of
               additional consideration payable upon the exercise, conversion or
               exchange  thereof at the time such  Convertible  Securities first
               become  exercisable,  convertible  or  exchangeable,  by (ii) the
               maximum total number of shares of Common Stock  issuable upon the
               exercise  of all such  Below Base Price  Options  (assuming  full
               conversion of Convertible Securities, if applicable).  No further
               adjustment  to the  Exercise  Price  will be made upon the actual
               issuance  of such  Common  Stock upon the  exercise of such Below
               Base Price Options or upon the  exercise,  conversion or exchange
               of  Convertible  Securities  issuable upon exercise of such Below
               Base Price Options.

                    (B) Issuance of  Convertible  Securities.  If the Company in
               any manner issues or sells any Convertible Securities, whether or
               not  immediately  convertible  (other  than  where  the  same are
               issuable  upon the  exercise of Options)  and the price per share
               for which Common Stock is issuable upon such exercise, conversion
               or exchange is less than the Base Share  Price,  then the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities  will,  as  of  the  date  of  the  issuance  of  such
               Convertible  Securities,  be deemed to be outstanding and to have
               been issued and sold by the Company for such price per share. For
               the purposes of the preceding sentence,  the "price per share for
               which Common Stock is issuable upon such exercise,  conversion or
               exchange" is determined by dividing (i) the total amount, if any,
               received or  receivable by the Company as  consideration  for the
               issuance  or sale of all such  Convertible  Securities,  plus the
               minimum  aggregate  amount of additional  consideration,  if any,
               payable to the Company upon the exercise,  conversion or exchange
               thereof  at the time such  Convertible  Securities  first  become
               exercisable,  convertible  or  exchangeable,  by (ii) the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities.  No further  adjustment to the Exercise Price will be
               made upon the actual issuance of such Common Stock upon exercise,
               conversion or exchange of such Convertible Securities.

                    (C) Change in Option Price or Conversion Rate. If there is a
               change at any time in (i) the amount of additional  consideration
               payable to the Company upon the exercise of any Options; (ii) the
               amount  of  additional  consideration,  if  any,  payable  to the
               Company  upon  the  exercise,   conversion  or  exchange  of  any
               Convertible   Securities;   or  (iii)   the  rate  at  which  any
               Convertible  Securities are convertible  into or exchangeable for
               Common Stock (in each such case, other than under or by reason of
               provisions  designed to protect against  dilution),  the Exercise
               Price in effect at the time of such change will be  readjusted to
               the  Exercise


                                       7
<PAGE>

               Price  which  would  have  been in  effect  at such time had such
               Options or Convertible  Securities still outstanding provided for
               such changed additional consideration or changed conversion rate,
               as the case may be,  at the time  initially  granted,  issued  or
               sold.

                    (D) Treatment of Expired Options and Unexercised Convertible
               Securities. If, in any case, the total number of shares of Common
               Stock  issuable  upon  exercise  of any Option or upon  exercise,
               conversion or exchange of any  Convertible  Securities is not, in
               fact,  issued  and the  rights  to  exercise  such  Option  or to
               exercise,  convert or exchange such Convertible  Securities shall
               have expired or  terminated,  the  Exercise  Price then in effect
               will be readjusted to the Exercise Price which would have been in
               effect at the time of such  expiration  or  termination  had such
               Option  or  Convertible  Securities,  to the  extent  outstanding
               immediately  prior to such expiration or termination  (other than
               in respect of the actual  number of shares of Common Stock issued
               upon exercise or conversion thereof), never been issued.

                    (E)  Calculation of  Consideration  Received.  If any Common
               Stock, Options or Convertible  Securities are issued,  granted or
               sold for cash, the  consideration  received therefor for purposes
               of  this  Warrant  will be the  amount  received  by the  Company
               therefor,    before   deduction   of   reasonable    commissions,
               underwriting discounts or allowances or other reasonable expenses
               paid or incurred by the Company in connection with such issuance,
               grant or sale. In case any Common Stock,  Options or  Convertible
               Securities are issued or sold for a consideration  part or all of
               which shall be other than cash,  the amount of the  consideration
               other than cash  received by the Company  will be the fair market
               value of such  consideration,  except  where  such  consideration
               consists of securities, in which case the amount of consideration
               received by the Company  will be the Market  Price  thereof as of
               the  date of  receipt.  In case  any  Common  Stock,  Options  or
               Convertible  Securities are issued in connection  with any merger
               or   consolidation   in  which  the  Company  is  the   surviving
               corporation,  the amount of consideration therefor will be deemed
               to be the fair market value of such portion of the net assets and
               business of the  non-surviving  corporation as is attributable to
               such Common Stock, Options or Convertible Securities, as the case
               may be. The fair  market  value of any  consideration  other than
               cash  or  securities  will be  determined  in  good  faith  by an
               investment  banker  or  other  appropriate   expert  of  national
               reputation  selected by the Company and reasonably  acceptable to
               the holder  hereof,  with the costs of such appraisal to be borne
               by the Company.

                    (F)   Exceptions  to  Adjustment  of  Exercise   Price.   No
               adjustment  to the  Exercise  Price  will be made  (i)  upon  the
               exercise of this  Warrant or any other  warrant of this series or
               of any other series issued by


                                       8
<PAGE>

               the  Company  in  connection  with  the  offer  and  sale of this
               Company's  securities  pursuant to the Purchase  Agreement;  (ii)
               upon the exercise of or conversion of any Convertible Securities,
               options  or  warrants  issued  and  outstanding  on  the  initial
               issuance date of this  Warrant;  (iii) upon the grant or exercise
               of any Convertible  Securities  which may hereafter be granted or
               exercised  under any  employee  benefit  plan of the  Company now
               existing  or to be  implemented  in the  future,  so  long as the
               issuance of such Convertible Securities is approved by a majority
               of the  non-employee  members  of the Board of  Directors  of the
               Company  or  a  majority  of  the  members  of  a  committee   of
               non-employee  directors  established for such purpose;  (iv) upon
               the  issuance  of Common  Stock or  Convertible  Securities  in a
               public  offering,  whether  or not  underwritten;  (v)  upon  the
               issuance  of  Common  Stock  or  Convertible  Securities  in  any
               transaction of the nature  contemplated by Rule 145,  promulgated
               under  the  Securities  Act;  or  (vi)  in  connection  with  any
               strategic  partnership  or  joint  venture  or  acquisition  (the
               primary  purpose of which is not to raise equity  capital for the
               Company).

               (iii) Notice  of  Adjustment.  Upon  the  occurrence of any event
          which requires any adjustment of the Exercise Price, then, and in each
          such case, the Company shall give notice thereof to the holder of this
          Warrant,  which notice shall state the Exercise  Price  resulting from
          such  adjustment and the increase or decrease in the number of Warrant
          Shares  purchasable  at such price  upon  exercise,  setting  forth in
          reasonable  detail the method of calculation  and the facts upon which
          such calculation is based, provided that such notice shall not contain
          any  material  nonpublic   information.   Such  calculation  shall  be
          certified by the chief financial officer of the Company.

               (iv) Minimum  Adjustment of Exercise  Price. No adjustment of the
          Exercise  Price  shall  be made in an  amount  of less  than 1% of the
          Exercise  Price in  effect at the time such  adjustment  is  otherwise
          required to be made, but any such lesser  adjustment  shall be carried
          forward  and  shall  be made at the time  and  together  with the next
          subsequent  adjustment which, together with any adjustments so carried
          forward, shall amount to not less than 1% of such Exercise Price.

               (v) Certain Events.  If, at any time during the Exercise  Period,
          any event occurs of the type contemplated by the adjustment provisions
          of this Section 11 but not expressly  provided for by such provisions,
          the  Company  will give notice of such event as provided in Section 11
          hereof,  and the Company's Board of Directors will make an appropriate
          adjustment  in the  Exercise  Price and the number of shares of Common
          Stock  acquirable  upon exercise of this Warrant so that the rights of
          the holder shall be neither enhanced nor diminished by such event.


                                       9
<PAGE>

               (vi) Certain Definitions. "Common Stock Deemed Outstanding" shall
          mean the number of shares of Common Stock  actually  outstanding  (not
          including shares of Common Stock held in the treasury of the Company),
          plus (x) in the case of any  adjustment  hereunder  resulting from the
          issuance of any Options,  the maximum total number of shares of Common
          Stock  issuable  upon  the  exercise  of the  Options  for  which  the
          adjustment is required  (including  any Common Stock issuable upon the
          conversion  of  Convertible  Securities  issuable upon the exercise of
          such  Options),  and  (y)  in the  case  of  any  adjustment  required
          hereunder  resulting from the issuance of any Convertible  Securities,
          the maximum  total number of shares of Common Stock  issuable upon the
          exercise,  conversion or exchange of the  Convertible  Securities  for
          which the  adjustment is required,  as of the date of issuance of such
          Convertible Securities, if any.

     12. Reorganization,  Reclassification, Merger, Consolidation or Disposition
of Assets.  In case the Company shall  reorganize  its capital,  reclassify  its
capital stock,  consolidate or merge with or into another corporation (where the
Company  is not the  surviving  corporation  or where  there  is a change  in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or  otherwise  dispose  of all or  substantially  all its  property,  assets  or
business   to  another   corporation   and,   pursuant  to  the  terms  of  such
reorganization,   reclassification,  merger,  consolidation  or  disposition  of
assets, shares of common stock of the successor or acquiring corporation, or any
cash,  shares of stock or other securities or property of any nature  whatsoever
(including  warrants or other subscription or purchase rights) in addition to or
in lieu of  common  stock of the  successor  or  acquiring  corporation  ("Other
Property"),  are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant,  the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving  corporation,
and  Other  Property  receivable  upon or as a  result  of such  reorganization,
reclassification,  merger, consolidation or disposition of assets by a Holder of
the  number of shares of Common  Stock for which  this  Warrant  is  exercisable
immediately   prior  to  such  event.  In  case  of  any  such   reorganization,
reclassification,  merger, consolidation or disposition of assets, the successor
or acquiring  corporation (if other than the Company) shall expressly assume the
due and  punctual  observance  and  performance  of each and every  covenant and
condition of this  Warrant to be  performed  and observed by the Company and all
the obligations and liabilities hereunder,  subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for  adjustments of Warrant Shares
for which this Warrant is  exercisable  which shall be as nearly  equivalent  as
practicable to the adjustments  provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring  corporation" shall
include  stock of such  corporation  of any class which is not  preferred  as to
dividends or assets over any other class of stock of such  corporation and which
is  not  subject  to  redemption   and  shall  also  include  any  evidences  of
indebtedness,  shares of stock or other securities which are convertible into or
exchangeable  for any such stock,  either  immediately  or upon the arrival of a
specified  date or the happening of a specified  event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing


                                       10
<PAGE>

provisions   of  this   Section   12  shall   similarly   apply  to   successive
reorganizations,  reclassifications,  mergers,  consolidations or disposition of
assets.

     13. Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant  reduce the then current  Exercise  Price to any amount
and for any period of time deemed  appropriate  by the Board of Directors of the
Company.

     14. Notice of  Adjustment.  Whenever the number of Warrant Shares or number
or kind of securities or other  property  purchasable  upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested,  to the
Holder  notice of such  adjustment  or  adjustments  setting forth the number of
Warrant Shares (and other securities or property)  purchasable upon the exercise
of this  Warrant  and the  Exercise  Price of such  Warrant  Shares  (and  other
securities or property) after such  adjustment,  setting forth a brief statement
of the facts  requiring  such  adjustment  and setting forth the  computation by
which such adjustment was made.  Such notice,  in the absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.

     15. Notice of Corporate Action. If at any time:

          (a) the Company shall take a record of the holders of its Common Stock
     for  the  purpose  of  entitling  them  to  receive  a  dividend  or  other
     distribution,  or any right to subscribe  for or purchase any  evidences of
     its indebtedness,  any shares of stock of any class or any other securities
     or property, or to receive any other right, or

          (b) there  shall be any capital  reorganization  of the  Company,  any
     reclassification or recapitalization of the capital stock of the Company or
     any  consolidation or merger of the Company with, or any sale,  transfer or
     other  disposition  of all or  substantially  all the  property,  assets or
     business of the Company to, another corporation or,

          (c) there shall be a voluntary or involuntary dissolution, liquidation
     or winding up of the Company;

then, in any one or more of such cases,  the Company shall give to Holder (i) at
least 20 days' prior written  notice of the date on which a record date shall be
selected for such dividend,  distribution or right or for determining  rights to
vote  in  respect  of  any  such   reorganization,   reclassification,   merger,
consolidation, sale, transfer, disposition,  liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days'  prior  written  notice of the date when the same shall take  place.  Such
notice in accordance  with the foregoing  clause also shall specify (i) the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution  or right,  the date on which the holders of Common  Stock shall be
entitled  to any such  dividend,  distribution  or  right,  and the  amount  and
character  thereof,  and  (ii)  the  date  on  which  any  such  reorganization,
reclassification,    merger,   consolidation,   sale,   transfer,   disposition,
dissolution,  liquidation  or winding  up is to take place and the time,  if any
such  time


                                       11
<PAGE>

is to be fixed,  as of which the  holders of Common  Stock  shall be entitled to
exchange their Warrant Shares for securities or other property  deliverable upon
such  disposition,  dissolution,  liquidation  or winding up. Each such  written
notice shall be sufficiently given if addressed to Holder at the last address of
Holder  appearing on the books of the Company and delivered in  accordance  with
Section 17(d).

     16.  Authorized  Shares.  The Company  covenants that during the period the
Warrant is outstanding,  it will reserve from its authorized and unissued Common
Stock a  sufficient  number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant.  The Company
further  covenants  that its  issuance of this  Warrant  shall  constitute  full
authority  to its  officers  who are charged  with the duty of  executing  stock
certificates  to execute and issue the  necessary  certificates  for the Warrant
Shares upon the exercise of the purchase rights under this Warrant.  The Company
will take all such  reasonable  action as may be  necessary  to assure that such
Warrant  Shares  may be issued  as  provided  herein  without  violation  of any
applicable law or regulation,  or of any  requirements  of the Principal  Market
upon which the Common Stock may be listed.

     The  Company  shall  not  by any  action,  including,  without  limitation,
amending  its  certificate  of  incorporation  or  through  any  reorganization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities or any other voluntary action,  avoid or seek to avoid the observance
or  performance  of any of the terms of this  Warrant,  but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or  appropriate to protect the rights of Holder
against  impairment.  Without  limiting the  generality  of the  foregoing,  the
Company  will (a) not  increase  the par value of any Warrant  Shares  above the
amount payable therefor upon such exercise immediately prior to such increase in
par value,  (b) take all such action as may be necessary or appropriate in order
that the Company may  validly  and  legally  issue fully paid and  nonassessable
Warrant  Shares upon the  exercise  of this  Warrant,  and (c) use  commercially
reasonable  efforts to obtain all such  authorizations,  exemptions  or consents
from any public regulatory body having jurisdiction  thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.

     Before  taking any action which would result in an adjustment in the number
of Warrant  Shares for which this  Warrant  is  exercisable  or in the  Exercise
Price, the Company shall obtain all such  authorizations or exemptions  thereof,
or consents  thereto,  as may be necessary  from any public  regulatory  body or
bodies having jurisdiction thereof.

     17. Miscellaneous.

          (a)  Jurisdiction.  This Warrant shall constitute a contract under the
     laws of New York,  without  regard to its  conflict of law,  principles  or
     rules, and be subject to arbitration pursuant to the terms set forth in the
     Purchase Agreement.

          (b)  Restrictions.  The Holder  acknowledges  that the Warrant  Shares
     acquired upon the exercise of this Warrant,  if not  registered,  will have
     restrictions upon resale imposed by state and federal securities laws.


                                       12
<PAGE>

          (c)  Nonwaiver  and  Expenses.  No course of  dealing  or any delay or
     failure to exercise any right hereunder on the part of Holder shall operate
     as a waiver of such right or otherwise prejudice Holder's rights, powers or
     remedies, notwithstanding all rights hereunder terminate on the Termination
     Date.  If the  Company  willfully  and  knowingly  fails to comply with any
     provision of this  Warrant,  which  results in any material  damages to the
     Holder, the Company shall pay to Holder such amounts as shall be sufficient
     to cover any costs and expenses  including,  but not limited to, reasonable
     attorneys'  fees,  including  those of appellate  proceedings,  incurred by
     Holder in  collecting  any  amounts  due  pursuant  hereto or in  otherwise
     enforcing any of its rights, powers or remedies hereunder.

          (d)  Notices.  Any  notice,  request  or other  document  required  or
     permitted to be given or  delivered  to the Holder by the Company  shall be
     delivered  in  accordance  with  the  notice  provisions  of  the  Purchase
     Agreement.

          (e) Limitation of Liability.  No provision  hereof,  in the absence of
     affirmative action by Holder to purchase Warrant Shares, and no enumeration
     herein of the  rights  or  privileges  of  Holder,  shall  give rise to any
     liability  of Holder for the  purchase  price of any  Common  Stock or as a
     stockholder  of the  Company,  whether  such  liability  is asserted by the
     Company or by creditors of the Company.

          (f) Remedies.  Holder,  in addition to being  entitled to exercise all
     rights granted by law, including  recovery of damages,  will be entitled to
     specific  performance of its rights under this Warrant.  The Company agrees
     that  monetary  damages  would not be  adequate  compensation  for any loss
     incurred by reason of a breach by it of the  provisions of this Warrant and
     hereby  agrees to waive the defense in any action for specific  performance
     that a remedy at law would be adequate.

          (g) Successors  and Assigns.  Subject to applicable  securities  laws,
     this Warrant and the rights and obligations evidenced hereby shall inure to
     the benefit of and be binding  upon the  successors  of the Company and the
     successors and permitted assigns of Holder.  The provisions of this Warrant
     are intended to be for the benefit of all Holders from time to time of this
     Warrant  and shall be  enforceable  by any such Holder or holder of Warrant
     Shares.

          (h)  Amendment.  This  Warrant  may  be  modified  or  amended  or the
     provisions  hereof  waived with the written  consent of the Company and the
     Holder.

          (i) Severability.  Wherever  possible,  each provision of this Warrant
     shall be  interpreted  in such  manner as to be  effective  and valid under
     applicable law, but if any provision of this Warrant shall be prohibited by
     or invalid under applicable law, such provision shall be ineffective to the
     extent  of  such  prohibition  or  invalidity,   without  invalidating  the
     remainder of such provisions or the remaining provisions of this Warrant.

          (j)  Headings.   The  headings  used  in  this  Warrant  are  for  the
     convenience of reference  only and shall not, for any purpose,  be deemed a
     part of this Warrant.


                                       13
<PAGE>

     IN WITNESS  WHEREOF,  the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.

Dated: July 26, 2001
                                   DATA RACE, INC.



                                   By:__________________________________________
                                      James G. Scogin, President & CFO


                                       14
<PAGE>

                               NOTICE OF EXERCISE

To: Data Race, Inc.


     (1)______The  undersigned hereby elects to purchase ________ Warrant Shares
(the "Common Stock"),  of Data Race, Inc.  pursuant to the terms of the attached
Warrant,  and tenders herewith  payment of the exercise price in full,  together
with all applicable transfer taxes, if any.

     (2)______Please  issue a  certificate  or  certificates  representing  said
Warrant  Shares  in the  name of the  undersigned  or in such  other  name as is
specified below:

              _____________________________________________


The Warrant Shares shall be delivered to the following:

              _____________________________________________

              _____________________________________________

              _____________________________________________



                                          [PURCHASER]


                                          By: ______________________________
                                              Name:
                                              Title:

                                          Dated:  ________________________

<PAGE>

                   NOTICE OF EXERCISE OF COMMON STOCK WARRANT
                    PURSUANT TO CASHLESS EXERCISE PROVISIONS


To: Data Race, Inc.

Aggregate Price of Warrant Before Exercise:  $
                                              ------------------
Aggregate Price Being Exercised:  $
                                   ------
Exercise Price:  $       per share
                  ------
Number of Shares of Common Stock to be Issued Under this Notice:
                                                                  --------
Remaining Aggregate Price (if any) After Issuance:  $
                                                     -------

Gentlemen:

     The  undersigned,  registered  Holder of the  Warrant  delivered  herewith,
hereby irrevocably exercises such Warrant for, and purchases thereunder,  shares
of the Common Stock of Data Race,  Inc., a corporation  organized under the laws
of the State of Texas, as provided below.  Capitalized terms used herein, unless
otherwise  defined  herein,  shall have the meanings  given in the Warrant.  The
portion of the Exercise  Price (as defined in the Warrant) to be applied  toward
the  purchase of Common  Stock  pursuant to this Notice of Exercise is $_______,
thereby  leaving a remaining  Exercise  Price (if any) equal to $________.  Such
exercise shall be pursuant to the cashless  exercise  provisions of Section 3 of
the  Warrant;  therefore,  Holder makes no payment with this Notice of Exercise.
The number of shares to be issued  pursuant to this exercise shall be determined
by reference to the formula in Section 3 of the Warrant  which,  by reference to
Section 3,  requires the use of the high and low trading  price of the Company's
Common Stock on the Trading Day  preceding the date of such  election.  The high
and low trading  price of the  Company's  Common  Stock has been  determined  by
Holder to be $______ and $_________, respectively, which figure is acceptable to
Holder  for  calculations  of the  number of shares  of  Common  Stock  issuable
pursuant to this Notice of Exercise.  Holder requests that the  certificates for
the   purchased   shares   of   Common   Stock   be   issued   in  the  name  of
_________________________              and              delivered             to
______________________________________________.  To  the  extent  the  foregoing
exercise is for less than the full Aggregate Price of the Warrant, a replacement
Warrant representing the remainder of the Aggregate Price (and otherwise of like
form, tenor and effect) shall be delivered


                                       2
<PAGE>

to Holder along with the share certificate evidencing the Common Stock issued in
response to this Notice of Exercise.

                                       [Purchaser]


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:

                                       Date:

     NOTE The  execution  to the  foregoing  Notice  of  Exercise  must  exactly
correspond to the name of the Holder on the Warrant


                                       3
<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

     FOR VALUE RECEIVED,  the foregoing Warrant and all rights evidenced thereby
are hereby assigned to


_______________________________________________ whose address is


__________________________________________________________________.



__________________________________________________________________

                                                 Dated:  ______________, _______


                           Holder's Signature: _________________________________

                           Holder's Address:   _________________________________

                                               _________________________________


Signature Guaranteed:  ___________________________________________


NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of  corporations  and  those  acting  in an  fiduciary  or other  representative
capacity  should  file  proper  evidence of  authority  to assign the  foregoing
Warrant.