<PAGE>

                       EXCHANGE AGREEMENT

          THIS EXCHANGE AGREEMENT, dated as of April 2, 1997, by and between 
MONTEREY PASTA COMPANY, a Delaware corporation, with headquarters located at 
1528 Moffat Street, Salinas, California 93905 (the "Company"), and the 
PANGAEA FUND LIMITED, a British Virgin Islands corporation (the "Buyer").

                       W I T N E S S E T H

          WHEREAS, the Company and the Buyer wish to exchange, upon the terms 
and subject to the conditions of this Agreement, outstanding shares (the 
"Series B Preferred Shares") of Series B Convertible Preferred Stock, $.001 
par value (the "Series B Preferred Stock"), held by Buyer for newly issued 
shares of Series B-1 Convertible Preferred Stock of the Company which will be 
convertible into shares of Common Stock, $.001 par value, of the Company, 
including the related rights pursuant to the Rights Agreement, dated as of 
May 15, 1996, between the Company and Corporate Stock Transfer, as Rights 
Agent, as amended from time to time in accordance with its terms (the "Rights 
Agreement") (such shares and rights collectively the "Common Stock"); and

          WHEREAS, the Company and the Buyer are executing this Agreement and 
intend to complete the transactions contemplated hereby in reliance upon one 
or more exemptions from securities registration under the Securities Act of 
1933, as amended (the "1933 Act"), including, without limitation, the 
exemption provided by Section 3(a)(9) of the 1933 Act;

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

          1.   AGREEMENT TO EXCHANGE.

          (a)  EXCHANGE.  The Buyer agrees to exchange on the Closing Date 
(as defined herein) 250 Series B Preferred Shares for 250 shares (the "Series 
B-1 Preferred Shares") of Series B-1 Convertible Preferred Stock, $.001 par 
value (the "Series B-1 Preferred Stock"), of the Company. In addition, on the 
Closing Date the Company shall pay to the Buyer an amount equal to $30,000 
(the "Cash Payment") as payment in full for all accrued and unpaid dividends 
on the Series B Preferred Stock and any and all amounts payable to the Buyer 
pursuant to Section 2(c) of the Registration Rights Agreement. The Series B-1 
Preferred Shares shall have the rights, designations and terms as set forth 
in the form of Certificate of Designations attached hereto as ANNEX I (the 
"Certificate of Designations"). The shares of Common Stock issuable upon 
conversion of the Series B-1 Preferred Shares are referred to herein as the 
"Common Shares." The Common Shares and the Series B-1 Preferred Shares are 
referred to herein collectively as the "Shares."

          (b)  CLOSING.  The exchange of Series B-1 Preferred Shares for 
Series B Preferred Shares shall occur at a closing (the "Closing") to be held 
on the date which is four New York Stock Exchange trading days after the date 
on which the Company and the Buyer shall have executed and delivered this 
Agreement one to the other. The Closing shall occur on the Closing Date at 
the offices of the Escrow Agent.

          (c)  ESCROW DELIVERIES.  The Buyer shall deliver the Series B 
Preferred Shares to be exchanged pursuant to this Agreement to the escrow 
agent (the "Escrow Agent") identified in the Joint Escrow Instructions 
attached hereto as ANNEX II (the "Joint Escrow Instructions") within two 
business days after the execution and delivery of this Agreement by the 
parties hereto. Such delivery of certificates shall be made against delivery 
by the Company of the certificates

<PAGE>

for the Series B-1 Preferred Shares to be issued in accordance with this 
Agreement registered in the name of the Buyer. Promptly following delivery by 
the Buyer to the Escrow Agent of the Series B Preferred Shares to be 
exchanged pursuant to this Agreement, but in no event later than the Closing 
Date, the Company shall deliver (x) certificates for the Series B-1 Preferred 
Shares to be issued in accordance with this Agreement, registered in the name 
of the Buyer, and (y) an amount equal to the sum of the Cash Payment plus the 
expenses of the Buyer payable pursuant to Section 4(e) in immediately 
available funds to the Escrow Agent. By signing this Agreement, the Buyer and 
the Company each agrees to all of the terms and conditions of, and becomes a 
party to, the Joint Escrow Instructions, all of the provisions of which are 
incorporated herein by this reference as if set forth in full.

          2.   BUYER REPRESENTATIONS, WARRANTIES, ETC.

          The Buyer represents and warrants to, and covenants and agrees 
with, the Company as follows:

          (a)  The Buyer is purchasing the Series B-1 Preferred Shares for 
its own account for investment only and not with a view towards the public 
sale or distribution thereof;

          (b)  The Buyer is an "accredited investor" as that term is defined 
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason 
of Rule 501(a)(3);

          (c)  All subsequent offers and sales of the Shares by the Buyer 
shall be made pursuant to registration of the Shares being offered and sold 
under the 1933 Act or pursuant to an exemption from registration;

          (d)  The Buyer understands that the Series B-1 Preferred Shares are 
being offered and sold, and the Common Shares are being offered, to it in 
reliance on specific exemptions from the registration requirements of United 
States federal and state securities laws and that the Company is relying upon 
the truth and accuracy of, and the Buyer's compliance with, the 
representations, warranties, agreements, acknowledgements and understandings 
of the Buyer set forth herein in order to determine the availability of such 
exemptions and the eligibility of the Buyer to acquire the Series B Preferred 
Shares and to receive an offer of the Common Shares;

          (e)  The Buyer and its advisors, if any, have been furnished with 
all materials relating to the business, finances and operations of the 
Company and materials relating to the offer and sale of the Series B-1 
Preferred Shares and the offer of the Common Shares which have been requested 
by the Buyer. The Buyer and its advisors, if any, have been afforded the 
opportunity to ask questions of the Company and have received complete and 
satisfactory answers to any such inquiries. Without limiting the generality 
of the foregoing, the Buyer has had the opportunity to obtain and to review 
the following documents of the Company: (1) Annual Report on Form 10-K for 
the fiscal year ended December 31, 1995, (2) Quarterly Reports on Form 10-Q 
for the fiscal quarters ended March 31, 1996, June 30, 1996 and September 30, 
1996, (3) Current Reports on Form 8-K, dated October 17, 1996, October 25, 
1996 and Amendment No. 1 on Form 8-K/A dated November 8, 1996 and (4) 
definitive Proxy Statement for the Company's 1996 Annual Meeting of 
Stockholders, in each case as filed with the SEC. The Buyer understands that 
its investment in the Shares involves a high degree of risk;

          (f)  The Buyer understands that no United States federal or state 
agency or any other government or governmental agency has passed on or made 
any recommendation or endorsement of the Shares; and

          (g)  This Agreement has been duly and validly authorized, executed 
and

                               -2-

<PAGE>

delivered on behalf of the Buyer and is a valid and binding agreement of the 
Buyer enforceable in accordance with its terms, subject as to enforceability 
to general principles of equity and to bankruptcy, insolvency, moratorium and 
other similar laws affecting the enforcement of creditors' rights generally.

          3.   COMPANY REPRESENTATIONS, WARRANTIES, ETC.

          The Company represents and warrants to, and covenants and agrees 
with, the Buyer that:

          (a)  CONCERNING THE SHARES.  The Series B-1 Preferred Shares have 
been duly authorized and the Series B-1 Preferred Shares, when issued in 
exchange for the Series B Preferred Shares in accordance with this Agreement, 
and the Common Shares, when issued upon conversion of the Series B-1 
Preferred Shares will be duly and validly issued, fully paid and 
non-assessable and will not subject the holder thereof to personal liability 
by reason of being such holder. There are no preemptive rights of any 
stockholder of the Company, as such, to acquire any of the Shares. The Common 
Stock is listed for trading on the Nasdaq National Market ("Nasdaq") and (1) 
the Company and the Common Stock meet the criteria for continued listing and 
trading on Nasdaq; (2) the Company has not been notified since January 1, 
1995 by the National Association of Securities Dealers, Inc. ("NASD") of any 
failure or potential failure to meet the criteria for continued listing and 
trading on Nasdaq and (3) no suspension of trading in the Common Stock is in 
effect.

          (b)  EXCHANGE AGREEMENT.  This Agreement has been duly and validly 
authorized, executed and delivered by the Company and is the valid and 
binding agreement of the Company enforceable in accordance with its terms, 
subject as to enforceability to general principles of equity and to 
bankruptcy, insolvency, moratorium and other similar laws affecting the 
enforcement of creditors' rights generally; for purposes of the Rights 
Agreement, this Agreement and the transactions contemplated hereby are an 
action or transaction or a series of related actions or transactions approved 
by the Board of Directors, as a result of which the Buyer shall not, by 
reason of this Agreement and the transactions contemplated hereby, become an 
Acquiring Person (as defined in the Rights Agreement); and the Rights 
Agreement, in the form filed with the SEC as an exhibit to the Company's 
Current Report on Form 8-K, dated May 15, 1996, is the Rights Agreement as in 
effect on the date hereof.

          (c)  NON-CONTRAVENTION.  The execution and delivery of this 
Agreement by the Company and the consummation by the Company of the issuance 
of the Series B-1 Preferred Shares and the other transactions contemplated by 
this Agreement and the terms of the Series B-1 Preferred Stock do not and 
will not conflict with or result in a breach by the Company of any of the 
terms or provisions of, or constitute a default under, the certificate of 
incorporation or by-laws of the Company, or any indenture, mortgage, deed of 
trust or other material agreement or instrument to which the Company is a 
party or by which it or any of its properties or assets are bound, or any 
applicable law, rule or regulation or any applicable decree, judgment or 
order of any court, United States federal or state regulatory body, 
administrative agency or other governmental body having jurisdiction over the 
Company or any of its properties or assets.

          (d)  APPROVALS.  No authorization, approval or consent of or filing 
with any court, governmental body, regulatory agency, self-regulatory 
organization, or stock exchange or market or the stockholders of the Company 
is required to be obtained by the Company for the issuance and sale of the 
Shares as contemplated by this Agreement and the Series B-1 Preferred Stock, 
other than (1) listing of the Common Shares on Nasdaq and (2) the 
requirements of any applicable blue sky laws.

          (e)  SEC REPORTING STATUS AND FILINGS.  The Company has timely 
filed with

                               -3-

<PAGE>the SEC all reports and other information required to be filed under 
Sections 13(a), 14 and 15(d) of the Securities Act of 1934, as amended (the 
"1934 Act"). All of such forms, reports and other documents complied, when 
filed, in all material respects, with all applicable requirements of the 1933 
Act and the 1934 Act. Since December 31, 1995, the Company has not filed any 
reports or other information with the SEC pursuant to Sections 13(a), 14 and 
15(d) of the 1934 Act other than the reports and other information identified 
in Section 2(e) hereof.

          (f)  INFORMATION PROVIDED.  The information provided by or on 
behalf of the Company to the Buyer in connection with the transactions 
contemplated by this Agreement, including, without limitation, the 
information referred to in Section 2(e) of this Agreement, does not contain 
any untrue statement of a material fact or omit to state any material fact 
necessary in order to make the statements therein, in the light of the 
circumstances under which they are made, not misleading.

          (g)  ABSENCE OF CERTAIN CHANGES.  Since December 31, 1995, there 
has been no material adverse change and no material adverse development in 
the business, properties, operations, condition (financial or other), results 
of operations or prospects of the Company, except as disclosed in the 
documents referred to in Section 2(e) hereof.

          (h)  ABSENCE OF CERTAIN PROCEEDINGS.  There is no action, suit, 
proceeding, inquiry or investigation before or by any court, public board or 
body pending or, to the knowledge of the Company or any of its subsidiaries, 
threatened against or affecting the Company or any of its subsidiaries, 
wherein an unfavorable decision, ruling or finding would have a material 
adverse effect on the properties, business, condition (financial or other), 
results of operations or prospects of the Company and its subsidiaries taken 
as a whole or the transactions contemplated by this Agreement or any of the 
documents contemplated hereby or which would adversely affect the validity or 
enforceability of, or the authority or ability of the Company to perform its 
obligations under, this Agreement or any of such other documents.

          (i)  EXCHANGE OF STOCK; NO BROKERS, ETC. The Company has not and 
will not pay any commission or other remuneration for soliciting exchanges of 
Series B Preferred Shares for Series B-1 Preferred Shares. No broker, finder 
or similar person is entitled to any commission, fee or other compensation by 
reason of the transactions contemplated by this Agreement and the Company 
shall pay, and indemnify and hold harmless the Buyer from, any claim made 
against the Buyer by any person for any such conversion, fee or other 
compensation.

          4.   CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

          (a)  TRANSFER RESTRICTIONS.  The Buyer acknowledges that (1) the 
Series B-1 Preferred Shares have not been and are not being registered under 
the provisions of the 1933 Act and, except as provided in the Registration 
Rights Agreement, dated as of August 9, 1996, by and between the Company and 
the Buyer (as amended hereby, the "Registration Rights Agreement"), the 
Common Shares have not been and are not being registered under the 1933 Act, 
and may not be transferred unless (A) subsequently registered thereunder or 
(B) the Buyer shall have delivered to the Company an opinion of counsel, 
reasonably satisfactory in form, scope and substance to the Company, to the 
effect that the Shares to be sold or transferred may be sold or transferred 
pursuant to an exemption from such registration; (2) any sale of the Shares 
made in reliance on Rule 144 promulgated under the 1933 Act may be made only 
in accordance with the terms of said Rule and further, if said Rule is not 
applicable, any such resale of Shares under circumstances in which the 
seller, or the person through whom the sale is made, may be deemed to be an 
underwriter, as that term is used in the 1933 Act, may require compliance 
with some other exemption under the 1933 Act or the rules and regulations of 
the SEC thereunder; and (3) neither the Company nor any other person is under 
any obligation to register the Shares (other than pursuant to the 
Registration Rights Agreement) under the 1933 Act or to comply with 

                     -4-

<PAGE>

the terms and conditions of any exemption thereunder (other than pursuant to 
the Registration Rights Agreement).

          (b)  RESTRICTIVE LEGEND.  The Buyer acknowledges and agrees that 
the certificates for the Series B-1 Preferred Shares may bear a restrictive 
legend in substantially the following form (and a stop-transfer order may be 
placed against transfer of the certificates for the Series B-1 Preferred 
Shares);

     The securities representing by this certificate have not been registered 
under the Securities Act of 1933, as amended. The securities have been 
acquired for investment and may not be sold, transferred or assigned in the 
absence of an effective registration statement for the securities under the 
Securities Act of 1933, as amended, or an opinion of counsel that 
registration is not required under said Act.

          (c)  REPORTING STATUS.  So long as the Buyer beneficially owns any 
of the Series B-1 Preferred Shares of the Common Shares, the Company shall 
file all reports required to be filed with the SEC pursuant to Section 13 or 
15(d) of the 1934 Act and the Company shall not terminate its status as an 
issuer required to file reports under the 1934 Act even if the 1934 Act or 
the rules and regulations thereunder would permit such termination.

          (d)  BLUE SKY LAWS.  On or before the Closing Date, the Company 
shall take such action as shall be necessary to qualify, or to obtain an 
exemption for, the Series B-1 Preferred Shares for sale to the Buyer pursuant 
to this Agreement and the Common Shares for issuance to the Buyer on 
conversion of the Series B-1 Preferred Shares under such of the securities or 
"blue sky" laws of jurisdictions in the United States as shall be applicable 
to the sale of the Series B-1 Preferred Shares to the Buyer pursuant to this 
Agreement and the issuance of the Common Shares to the Buyer on conversion of 
the Series B-1 Preferred Shares. The Company shall furnish copies of all 
filings, applications, orders and grants or confirmations of exemptions 
relating to such securities or "blue sky" laws on or prior to the Closing 
Date.

          (e)  CERTAIN EXPENSES.  Whether or not the closing occurs, the 
Company shall pay or reimburse the Buyer for all reasonable legal fees and 
expenses of counsel to the Buyer for the preparation and negotiation of, and 
closing under, this Agreement (not to exceed $15,000 if the Closing Date is 
on or before April 4, 1997). The obligations of the Company under the 
provisions of this Section 4(e) shall be in addition to the obligation of the 
Company for expenses under the Registration Rights Agreement.

          (f)  CERTAIN ISSUANCES OF SECURITIES.  Unless the Company obtains 
Stockholder Approval (as defined in the Certificate of Designations) or a 
waiver thereof from the NASD, the Company will not issue any shares of Common 
Stock or shares of any other series of preferred stock or other securities 
convertible into Common Stock of the Company which would be integrated as a 
transaction with the offer and sale of the Series B-1 Preferred Shares to the 
Buyer and the conversion thereof into Common Shares for purposes of the rule 
set forth in Section 4460(i)(1)(D) of the rules of the NASD (or any successor 
or replacement provision thereof).

          (g)  BEST EFFORTS.  Each of the parties shall use its best efforts 
timely to satisfy each of the conditions to the other party's obligations to 
exchange Series B Preferred Shares for Series B-1 Preferred Shares set forth 
in Section 6 or 7, as the case may be, of this Agreement on or before the 
Closing Date.

          (h)  REGISTRATION STATEMENT.  In addition to its obligations under 
Section 2(a) of the Registration Rights Agreement, the Company shall file a 
Registration Statement on Form S-3 (the "Registration Statement") relating to 
the Registrable Securities (as defined in the

                               -5-

<PAGE>

Registration Rights Agreement) with the SEC on or before April 30, 1997.

          (i)  AMENDMENTS OF REGISTRATION RIGHTS AGREEMENT.  If the Closing 
shall occur, from and after the Closing Date the Registration Rights 
Agreement shall be amended as follows:

          (1)  The two recitals to the Registration Rights Agreement shall be 
so amended by deleting the existing text of such recitals in their entirety 
and substituting in lieu thereof the following:

          WHEREAS, in connection with the Subscription Agreement,      dated 
as of August 9, 1996, between the Initial Investor and      the Company (the 
"Subscription Agreement"), the Company has      agreed, upon the terms and 
subject to the conditions of the      Subscription Agreement, to issue and 
sell to the Initial      Investor 500 shares (the "Series B Preferred 
Shares") of      Preferred Stock of the Company as provided in the      
Subscription Agreement and in connection with the Exchange      Agreement, 
dated as of April 2, 1997, between the Initial      Investor and the Company 
(the "Exchange Agreement"), the      Company and the Buyer have agreed to 
exchange 250 Series B      Preferred Shares for 250 shares (the Series B-1 
Preferred      Shares, and, together with the Series B Preferred Shares,      
the "Preferred Shares") of a new series of Preferred Stock      of the 
Company, which Preferred Shares are convertible into      shares (including 
the related rights, the "Conversion      Shares") of Common Stock, $.001 par 
value, of the Company      including the related rights issued pursuant to 
the Rights      Agreement, dated as of May 15, 1996, between the Company and  
    Corporate Stock Transfer, as Rights Agent, as amended from      time to 
time in accordance with its terms (the "Rights      Agreement") (such shares 
and rights collectively the "Common      Stock"); and

          WHEREAS, to induce the Initial Investor to execute and      deliver 
the Subscription Agreement and the Exchange      Agreement, the Company has 
agreed to provide certain      registration rights under the Securities Act 
of 1933, as      amended, and the rules and regulations thereunder, or any    
  similar successor statute (collectively, the "Securities      Act"), and 
applicable state securities laws with respect to      the Conversion Shares;

          (2)  The first sentence of Section 2(a) of the Registration Rights 
Agreement is so amended by deleting the figure "200,000" and substituting in 
lieu thereof the figure "500,000".

          (3)  Section 2(c) of the Registration Rights Agreement is so 
amended by deleting the existing text of Section 2(c) in its entirety and 
substituting in lieu thereof the following:

          (c)  Pursuant to the Exchange Agreement, all amounts      
originally payable pursuant to this Section 2(c) are deemed      to have been 
satisfied and the Initial Investor has waived      any further claim with 
respect to such amounts. If the      Registration Statement covering the 
Registrable Securities      which is required to be filed by the Company 
pursuant to      Section 2(a) hereof is not (1) filed with the SEC on or      
before April 30, 1997 or (2) declared effective by the SEC      on or before 
July 31, 1997, then in either such case the      Company will make payments 
to the Initial Investor in such      amounts and at such times as shall be 
determined pursuant to      this Section 2(c). The amount to be paid by the 
Company to      the Initial Investor shall be determined as of each      
Computation Date, and such amount shall be equal to one      percent (1%) of 
the aggregate subscription price paid by the      Initial Investor for 250 
Series B Preferred Shares pursuant      to the Subscription Agreement (each, 
a "Periodic Amount");      PROVIDED, HOWEVER, that if any Computation Date is 
less than      seven days subsequent to another Computation Date, then the    
  Periodic Amount payable

                               -6-

<PAGE>

on the later Computation Date shall be pro rated. The Periodic Amount shall 
be paid by the Company within two business days after each Computation Date 
and shall be payable in cash by wire transfer of immediately available funds 
to the Initial Investor. If the Company fails to make any payment of a 
Periodic Amount in full when due hereunder then, in lieu of such payment of a 
Periodic Amount the Conversion Percentage (as defined in the Certificate of 
Designations for the Series B-1 Preferred Shares (the "Certificate of 
Designations")) applicable to the Series B-1 Preferred Shares shall be 
reduced as provided in the Certificate of Designations. Notwithstanding any 
other provision of this Section 2(c), in no event shall the Company be 
obligated to pay any Payment Amount for any period subsequent to on the date 
on which Investors may sell all Registrable Securities (as defined in the 
Rights Agreement) pursuant to Rule 144 under the Securities Act in a period 
of 90 consecutive days (in which case a Payment Amount shall be due with 
respect to such date as if such date were a Computation Date).

          As used in this Section 2(c), the following term shall have the 
following meaning:

          "Computation Date" means

          (1)  if the Registration Statement is not filed by the Company with 
the SEC on or before April 30, 1997:

               (A)  May 7, 1997, if the Company has not filed the      
Registration Statement with the SEC on or before such date;

               (B)  each date which is seven calendar days subsequent to May 7,
1997, in each such case if the Company has not filed the Registration Statement
with the SEC on or before such subsequent date; and

               (C)  the date on which the Company files the Registration
Statement with the SEC; and

          (2)  if the Registration Statement has not been declared effective 
by the SEC on or before July 31, 1997:

               (A)  August 7, 1997, unless the Registration Statement has been
declared effective by the SEC on or before August 7, 1997;

               (B)  each date which is seven calendar days subsequent to
August 7, 1997, in each such case unless the Registration Statement has not been
declared effective by the SEC on or before such subsequent date; and

               (C)  the date on which the Registration Statement is declared
effective by the SEC;

PROVIDED, HOWEVER, that if more than one event which could give rise to a 
Computation Date during any period shall have occurred, only one of such 
events shall be deemed to result in a Computation Date so that the Periodic 
Payments provided herein by reason of the occurrence of a Computation Date 
shall be made only once in respect of any period of time and then in the 
maximum amount based on all such Computation Dates.

          5.   TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.

          (a)  TRANSFER AGENT INSTRUCTIONS.  Promptly following the delivery 
by the

                               -7-

<PAGE>

Buyer of the certificates for the Series B Preferred Shares in accordance 
with Section 1(c) hereof, and in any event prior to the Closing Date, the 
Company will (1) irrevocably instruct Corporate Stock Transfer, as Transfer 
Agent and Registrar (the "Transfer Agent"), pursuant to an agreement 
substantially in the form attached hereto as ANNEX III (the "Transfer Agent 
Agreement") to issue certificates for the Common Shares from time to time 
upon conversion of the Series B-1 Preferred Shares in such amounts as 
specified from time to time to the Transfer Agent in the Notices of 
Conversion surrendered in connection with such conversions and referred to in 
Section 5(b) of this Agreement and (2) appoint the Transfer Agent the 
conversion agent for the Series B-1 Preferred Stock. The Company agrees to 
enter into the Transfer Agent Agreement substantially in the form attached 
hereto as ANNEX III on or prior to the Closing Date. The certificates for the 
Common Shares may bear the restrictive legend specified in Section 4(b) of 
this Agreement prior to registration of the resale of the Common Shares under 
the 1933 Act. Common Shares shall be issued and registered in the name of the 
Buyer or its nominee and in such denominations to be specified by the Buyer 
in connection with each conversion of Series B-1 Preferred Shares. The 
Company warrants that no instruction other than (x) such instructions 
referred to in this Section 5, (y) stop transfer instructions to give effect 
to Section 4(a) hereof prior to registration of the resale of the Common 
Shares under the 1933 Act and (z) the instructions required by Section 3(n) 
of the Registration Rights Agreement will be given by the Company to the 
Transfer Agent and that the Common Shares shall otherwise be freely 
transferable on the books and records of the Company as and to the extent 
provided in this Agreement. Nothing in this Section 5(a) shall limit in any 
way the Buyer's obligations and agreement to comply with all applicable 
securities laws upon resale of the Shares. If the Buyer provides the Company 
with an opinion of counsel reasonably satisfactory in form, scope and 
substance to the Company that registration of a resale by the Buyer of any of 
the Shares in accordance with clause (1)(B) of Section 4(a) of this Agreement 
is not required under the 1933 Act, the Company shall permit the transfer of 
such Shares and, in the case of the Common Shares, promptly, but in no event 
later than three days after receipt of such opinion, instruct the Company's 
transfer agent to issue upon transfer one or more share certificates in such 
name and in such denominations as specified by the Buyer. Nothing in this 
Section 5(a) shall limit the obligations of the Company under Section 3(n) of 
the Registration Rights Agreement.

          (b)  CONVERSION PROCEDURE.  In connection with the exercise of 
conversion rights relating to the Series B-1 Preferred Shares, the Buyer or 
any subsequent holder of the Series B-1 Preferred Shares shall complete, sign 
and furnish to the Transfer Agent a Notice of Conversion in the form attached 
hereto as ANNEX IV, which shall be deemed to satisfy all requirements of the 
Certificate of Designations.

          6.   CONDITIONS TO THE COMPANY'S OBLIGATION TO EXCHANGE AND ISSUE.

          The Buyer understands that the Company's obligation to issue the 
Series B-1 Preferred Shares to the Buyer pursuant to this Agreement is 
conditioned upon:

          (a)  The receipt and acceptance by the Company of this Agreement as 
evidenced by execution of this Agreement by the Company and delivery of an 
executed counterpart of this Agreement to the Buyer or its legal counsel;

          (b)  Delivery by the Buyer to the Escrow Agent of the certificates 
for the Series B Preferred Shares to be exchanged in accordance with Section 
1(c) hereof; and

          (c)  The accuracy of the Closing Date of the representations and 
warranties of the Buyer contained in this Agreement as if made on the Closing 
Date and the performance by the Buyer on or before the Closing Date of all 
covenants and agreements of the Buyer required to be performed on or before 
the Closing Date.

                               -8-

<PAGE>

          7.   CONDITIONS TO THE BUYER'S OBLIGATION TO EXCHANGE.

          The Company understands that the Buyer's obligation to exchange the 
Series B Preferred Shares on the Closing Date is conditioned upon:

          (a)  Delivery by the Company to the Escrow Agent of the 
certificates for the Series B-1 Preferred Shares in accordance with this 
Agreement;

          (b)  The accuracy on the Closing Date of the representations and 
warranties of the Company contained in this Agreement as if made on the 
Closing Date and the performance by the Company on or before the Closing Date 
of all covenants and agreements of the Company required to be performed on or 
before the Closing Date and receipt by the Buyer of a certificate, dated the 
Closing Date, of the Chief Executive Officer or the Chief Financial Officer 
of the Company confirming such matters and such other matters as the Buyer 
may reasonably request;

          (c)  The receipt by the Buyer of confirmation of the filing with 
the Secretary of State of the State of Delaware of the Certificate of 
Designations in the form attached hereto as ANNEX I;

          (d)  The receipt by the Buyer of a certificate, dated the Closing 
Date, of the Secretary of the Company certifying (1) the Certificate of 
Incorporation and By-Laws of the Company as in effect on the Closing Date, 
(2) all resolutions of the Board of Directors (and committees thereof) of the 
Company relating to this Agreement and the transactions contemplated hereby 
and (3) such other matters as reasonably requested by the Buyer; and

          (e)  Receipt by the Buyer on the Closing Date of an opinion of 
counsel for the Company, dated the Closing Date, in form, scope and substance 
reasonably satisfactory to the Buyer, to the effect set forth in ANNEX V 
attached hereto.

          8.   MISCELLANEOUS.

          (a)  This Agreement shall be governed and interpreted in accordance 
with the laws of the State of California.

          (b)  This Agreement may be executed in counterparts and by the 
parties hereto on separate counterparts, all of which together shall 
constitute one and the same instrument. A facsimile transmission of this 
Agreement bearing a signature on behalf of a party hereto shall be legal and 
binding on such party.

          (c)  The headings of this Agreement are for convenience of 
reference and shall not form part of, or affect the interpretation of, this 
Agreement.

          (d)  If any provision of this Agreement shall be invalid or 
unenforceable in any jurisdiction, such invalidity or unenforceability shall 
not affect the validity or enforceability of the remainder of this Agreement 
or the validity or enforceability of this Agreement in any other jurisdiction.

          (e)  No failure or delay by any party in exercising any right or 
remedy under this Agreement or otherwise, and no course of dealing between 
the parties, shall operate as a waiver thereof or amendment of this 
Agreement, nor shall any single or partial exercise of any such right or 
power, or any abandonment or discontinuance of steps to enforce such a right 
or power, preclude any other or further exercise thereof or exercise of any 
other right or power.

                               -9-

<PAGE>

          (f)  Neither this Agreement nor any term thereof (including this 
paragraph) may be amended, changed, waived, discharged or terminated unless 
such amendment, change, waiver, discharge or termination is in writing signed 
by the party to be charged with enforcement.

          (g)  Any notices required or permitted to be given under the terms 
of this Agreement shall be sent by mail or delivered personally (which shall 
include telephone line facsimile transmission) or by courier and shall be 
effective five days after being placed in the mail, if mailed, or upon 
receipt, if delivered personally or by courier, in each case addressed to a 
party at such party's address shown in the introductory paragraph or on the 
signature page of this Agreement, Attention: Chief Financial Officer 
(telephone line facsimile number 714-833-3990, in the case of the Company, 
and as set forth on the signature page hereof, in the case of the Buyer), 
with a copy to: Pangaea Asset Management, Inc., 250 Kitchawan Road, South 
Salem, New York 10590 (telephone line facsimile number 914-533-5124) or such 
other address as a party shall have provided by notice to the other party in 
accordance with this provision. The Buyer hereby designates as its address 
and telephone line facsimile transmission number for any notice required or 
permitted to be given to the Buyer pursuant to the Certificate of 
Designations or the Registration Rights Agreement the address and telephone 
line facsimile transmission number set forth on the signature page hereof, 
until the Buyer shall by notice to the Company designate another address or 
telephone line facsimile transmission number for such purpose.

          (h)  The Buyer shall have the right to assign its rights and 
obligations under this Agreement with respect to the exchange of all or any 
portion of the Series B Preferred Shares to another investment fund, provided 
such assignee, by written instrument duly executed by such assignee, assumes 
all obligations of the Buyer hereunder with respect to the exchange of the 
portion of the Series B Preferred Shares so assigned and makes the same 
representations and warranties with respect thereto as the Buyer makes in 
this Agreement, whereupon the Buyer shall be relieved of any further 
obligations, responsibilities and liabilities with respect to the exchange of 
all or the portion of the Series B Preferred Shares the obligation for the 
exchange of which has been so assigned. In the case of any such assignment, 
the Company shall agree in writing with such assignee to make available to 
such assignee the benefits of the Registration Rights Agreement with respect 
to the Common Shares issuable on conversion of the Series B-1 Preferred 
Shares with respect to which the exchange under this Agreement has been so 
assigned.

          (i)  The respective representations, warranties, covenants and 
agreements of the Buyer and the Company contained in this Agreement or made 
by or on behalf of them, respectively, pursuant to this Agreement shall 
survive the delivery of payment for the Preferred Shares and shall remain in 
full force and effect regardless of any investigation made by or on behalf of 
them or any person controlling or advising any of them.

          (j)  This Agreement and its Annexes and the Registration Rights 
Agreement set forth the entire agreement between the parties hereto with 
respect to the subject matter hereof and supersede all prior agreements and 
understandings, whether written or oral, with respect thereto.

          (k)  The Buyer shall have the right to terminate this Agreement by 
giving notice to the Company at any time at or prior to the Closing Date if:

          (1)  the Company shall have failed, refused, or been unable at or 
prior to the date of such termination of this Agreement to perform any of its 
obligations hereunder;

          (2)  any other condition of the Buyer's obligations hereunder is 
not fulfilled; or

          (3)  the closing shall not have occurred on a Closing Date on or 
before April 4,

                              -10-

<PAGE>

     1997, other than solely by reason of a breach of this Agreement by 
the Buyer.

Any such termination shall be effective upon the giving of notice thereof by 
the Buyer. Upon such termination, the Buyer shall have no further obligation 
to the Company hereunder and the Company shall remain liable for any breach 
of this Agreement or the other documents contemplated hereby which occurred 
on or prior to the date of such termination.

          (l)  From and after the Closing Date, all references in the 
Registration Rights Agreement to the Registration Rights Agreement shall be 
deemed to be references to the Registration Rights Agreement as amended 
hereby.

          (m)  The Subscription Agreement, dated as of August 9, 1996, by and 
between the Company and the Buyer (the "Subscription Agreement") and, except 
as amended by this Agreement, the Registration Rights Agreement, shall remain 
in effect in accordance with their respective terms notwithstanding the 
execution and delivery of, and Closing under, this Agreement. Notwithstanding 
the foregoing, the Buyer agrees not to commence any action, suit or 
proceeding relating to any claim for any breach of the Company's covenants or 
obligations under the Subscription Agreement or the Registration Rights 
Agreement as may have occurred prior to the execution and delivery of, and 
the Closing under, this Agreement (collectively, "Prior Claims") from the 
date of execution and delivery of this Agreement by the parties hereto 
through July 31, 1997, subject to the following:

          (1)  if the Registration Statement is declared effective by 
     the SEC on or before July 31, 1997, then the Buyer waives forever all 
     rights regarding the Prior Claims;

          (2)  if the Registration Statement is not declared effective 
     by the SEC on or before July 31, 1997, then the Buyer thereafter will 
     not be required to forebear from commencing actions, suits or 
     proceedings regarding any Prior Claim; and

          (3)  upon conversion of all of the Series B-1 Preferred Shares 
     and the sale by the Buyer of all of the Common Shares, the Buyer shall 
     waive forever all rights regarding the Prior Claims.

                              -11-

<PAGE>

          IN WITNESS WHEREOF, this Agreement has been duly executed by the 
Buyer or one of its officers thereunto duly authorized as of the date set 
forth below.

                              PANGAEA FUND LIMITED

                              By: /s/ PANGAEA FUND LIMITED
                                  ------------------------
                                  Title:

                              Address: MeesPierson Fund  
                                        Services (Bahamas) Ltd.
                                       Windemere House 
                                       404 East Bay street  
                                       Nassau
                                       The Bahamas

                              Facsimile Number:  (242) 394-3284

                              MONTEREY PASTA COMPANY

                              By: /s/ Kenneth A. Steel Jr.
                                  -------------------------
                                  Title:  Chief Executive Officer

                              -12-

<PAGE>


                                                         ANNEX I
                                                            TO
                                                         EXCHANGE 
                                                         AGREEMENT

                         MONTEREY PASTA COMPANY

                      CERTIFICATE OF DESIGNATIONS 
                                  OF 
                SERIES B-1 CONVERTIBLE PREFERRED STOCK

                    (Pursuant to Section 151 of the
            General Corporation Law of the State of Delaware)

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

          Monterey Pasta Company, a Delaware corporation (the "Corporation"), 
in accordance with the provisions of Section 103 of the General Corporation 
Law of the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:

          That pursuant to the authority vested in the Board of Directors of 
the Corporation by the Certificate of Incorporation, as amended, of the 
Corporation, the Board of Directors of the Corporation, at a meeting duly 
called and held on March 12, 1997, adopted a resolution providing for the 
creation of a series of the Corporation's Preferred Stock, $.001 par value, 
which Series is designated "Series B-1 Convertible Preferred Stock," which 
resolution is as follows:

          RESOLVED, that pursuant to the authority vested in the Board of 
Directors of the Corporation by the Certificate of Incorporation of the 
Corporation, a series of Preferred Stock, par value $.001 per share, of the 
Corporation be, and hereby is, created to be designated "Series B-1 
Cumulative Preferred Stock" (hereinafter referred to as "Series B-1 Preferred 
Stock"), consisting of 250 shares, having the powers, preferences and rights, 
and the qualifications, limitations and restrictions thereof, as set forth in 
Annex 1, which is attached hereto and incorporated herein by this reference.

<PAGE>

          IN WITNESS WHEREOF, Monterey Pasta Company has caused its corporate 
seal to be hereunto affixed and this certificate to be signed by             , 
its President and Chief Executive Officer, as of the     day of April 1997.

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

                               -2-

<PAGE>

                                                        ANNEX 1               
                                                          TO 
                                                      CERTIFICATE
                                                          OF
                                                      DESIGNATIONS

             SERIES B-1 CONVERTIBLE PREFERRED STOCK

          SECTION 1.  DESIGNATION AND AMOUNT.  The shares of such series 
shall be designated as "Series B-1 Convertible Preferred Stock" (the "Series 
B-1 Convertible Preferred Stock"), and the number of shares constituting the 
Series B-1 Convertible Preferred Stock shall be 250, and shall not be subject 
to increase.

          SECTION 2.  STATED CAPITAL.  The amount to be represented in stated 
capital at all times for each share of Series B-1 Convertible Preferred Stock 
shall be the greater of(a) the sum of (1) $1,150, (2) to the extent legally 
available, the accrued but unpaid dividends on such share of Series B-1 
Convertible Preferred Stock, PLUS (3) an amount equal to the accrued and 
unpaid interest on dividends in arrears (as provided in Section 4) through 
the date of determination and (b) an amount equal to the product obtained by 
multiplying (x) the number of shares of Common Stock which would, at the time 
of such determination, be issuable on conversion in accordance with Section 
9(a) of one share of Series B-1 Convertible Preferred Stock and any accrued 
and unpaid dividends thereon and any accrued and unpaid interest on dividends 
thereon in arrears if a Conversion Notice (as defined herein) were given by 
the holder of such share of Series B-1 Convertible Preferred Stock on the 
date of such determination (determined without regard to any limitation on 
conversion contained in Section 9(a)) TIMES (y) the arithmetic average of the 
Closing Price (as defined in Section 9(b)) of the Common Stock for the five 
consecutive trading days ending one trading day prior to the date of such 
determination. The Corporation shall take such action as may be required to 
maintain the amount required by this Section 2 to be represented in stated 
capital for the Series B-1 Convertible Preferred Stock not less frequently 
than monthly.

          SECTION 3.  RANK.  All Series B-1 Convertible Preferred Stock shall 
rank (i) senior to the Common Stock, par value $.001 including the related 
rights issued pursuant to the Rights Agreement, dated as of May 15, 1996, 
between the Company and Corporate Stock Transfer, as Rights Agent, as amended 
from time to time in accordance with its terms (the "Rights Agreement") (such 
shares and rights, collectively, the "Common Stock"), of the Corporation, now 
or hereafter issued, as to payment of dividends and distribution of assets 
upon liquidation, dissolution, or winding up of the Corporation, whether 
voluntary or involuntary, and (ii) on a parity with the Series A Convertible 
Preferred Stock and any additional series of preferred stock of any class 
which the Board of Directors or the stockholders may from time to time 
authorize, both as to payment of dividends and as to distributions of assets 
upon liquidation, dissolution, or winding up of the Corporation, whether 
voluntary or involuntary.

          SECTION 4.  DIVIDENDS AND DISTRIBUTIONS.  (a) The holders of shares 
of Series B-1 Convertible Preferred Stock shall be entitled to receive, when, 
as, and if declared by the Board of Directors of the Corporation (the "Board 
of Directors" or the "Board") out of funds legally available for such 
purpose, dividends at the rate of $80.00 per annum per share, and no more, 
which shall be fully cumulative, shall accrue without interest (except as 
otherwise provided herein as to dividends in arrears) from April 1, 1997 and 
shall be payable in cash quarterly on March 1, June 1, September 1, and 
December 1 of each year commencing June 1, 1997 (except that if any such date 
is a Saturday, Sunday, or legal holiday, then such dividend shall be payable 
on the next succeeding day that is not a Saturday, Sunday, or legal holiday) 
to holders of record as they appear on the stock books of the Corporation on 
such record dates, not more than 20 nor less than 10 days preceding the 
payment dates for such dividends, as shall be fixed by the Board. Dividends 
on the Series B-1 Convertible Preferred Stock shall be paid in cash or, 
subject to the limitations in Section 4(b) hereof, shares of Common Stock of 
the Corporation or any combination of cash and shares of Common Stock, at the 
option of the

                               A-1

<PAGE>

Corporation as hereinafter provided. The amount of the dividends payable per 
share of Series B-1 Convertible Preferred Stock for each quarterly dividend 
period shall be computed by dividing the annual dividend amount by four. The 
amount of dividends payable for the initial dividend period and any period 
shorter than a full quarterly dividend period shall be computed on the basis 
of a 360-day year of twelve 30-day months. Dividends not paid on a payment 
date, whether or not such dividends have been declared, will bear interest at 
the rate of 12% per annum or at such rate as is legally permitted under 
applicable law, until paid. No dividends or other distributions, other than 
dividends payable solely in shares of Common Stock or other capital stock of 
the Corporation ranking junior as to dividends to the Series B-1 Convertible 
Preferred Stock (collectively, the "Junior Dividend Stock"), shall be paid or 
set apart for payment on any shares of Junior Dividend Stock, and no 
purchase, redemption, or other acquisition shall be made by the Corporation 
of any shares of Junior Dividend Stock unless and until all accrued and 
unpaid dividends on the Series B-1 Convertible Preferred Stock and interest 
on dividends in arrears at the rate specified herein shall have been paid or 
declared and set apart for payment.

          If at any time any dividend on any capital stock of the Corporation 
ranking senior as to dividends to the Series B-1 Convertible Preferred Stock 
(the "Senior Dividend Stock") shall be in default, in whole or in part, no 
dividend shall be paid or declared and set apart for payment on the Series 
B-1 Convertible Preferred Stock unless and until all accrued and unpaid 
dividends with respect to the Senior Dividend Stock, including the full 
dividends for the then current dividend period, shall have been paid or 
declared and set apart for payment, without interest. No full dividends shall 
be paid or declared and set apart for payment on any class or series or the 
Corporation's capital stock ranking, as to dividends, on a parity with the 
Series B-1 Convertible Preferred Stock (the "Parity Dividend Stock") for any 
period unless all accrued but unpaid dividends (and interest on dividends in 
arrears at the rate specified herein) have been, or contemporaneously are, 
paid or declared and set apart for such payment on the Series B-1 Convertible 
Preferred Stock. No full dividends shall be paid or declared and set apart 
for payment on the the Series B-1 Convertible Preferred Stock for any period 
unless all accrued but unpaid dividends have been, or contemporaneously are, 
paid or declared and set apart for payment on the Parity Dividend Stock for all 
dividend periods terminating on or prior to the date of payment of such full 
dividends. When dividends are not paid in full upon the Series B-1 
Convertible Preferred Stock and Parity Dividend Stock, all dividends paid or 
declared and set apart for payment upon shares of Series B-1 Convertible 
Preferred Stock (and interest on dividends in arrears at the rate specified 
herein) and the Parity Dividend Stock shall be paid or declared and set apart 
for payment pro rata, so that the amount of dividends paid or declared and 
set apart for payment per share on the Series B-1 Convertible Preferred Stock 
and the Parity Dividend Stock shall in all cases bear to each other the same 
ratio that accrued and unpaid dividends per share on the shares of Series B-1 
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.

          Any references to "distribution" contained in this Section 4 shall 
not be deemed to include any stock dividend or distributions made in 
connection with any liquidation, dissolution, or winding up of the 
Corporation, whether voluntary or involuntary.

          (b)  If the Corporation elects to exercise of its sole discretion 
to issue shares of Common Stock in payment of dividends on the Series B-1 
Convertible Preferred Stock, the Corporation shall issue and dispatch, or 
cause to be issued and dispatched, to each holder of such shares a 
certificate representing the number of whole shares of Common Stock arrived 
at by dividing the per share Computed Price of such shares of Common Stock 
into the total amount of cash dividends such holder would be entitled to 
receive if the aggregate dividends on the Series B-1 Convertible Preferred 
Stock held by such holder which are being paid in shares of Common Stock were 
being paid in cash; PROVIDED, HOWEVER, that if certificates representing 
shares of Common Stock are issued and dispatched to holders of Series B-1 
Convertible Preferred Stock subsequent to the third trading day after a 
dividend payment date, the percentage used to

                               A-2 

<PAGE>

calculate the Computed Price will be reduced by one percent for each trading 
day after the third trading day following such dividend payment date to the 
date of dispatch of shares of Stock. No fractional shares of Common Stock 
shall be issued in payment of dividends. In lieu thereof, the Corporation may 
issue a number of shares of Common Stock to each holder which reflects a 
rounding to the nearest whole number of shares of Common Stock or may pay 
cash. The Corporation shall not exercise its right to issue shares of Common 
Stock in payment of dividends on Series B-1 Convertible Preferred Stock if:

          (i)   the number of shares of Common Stock at the time authorized, 
     unissued and unreserved for all purposes, or held in the Corporation's 
     treasury, is insufficient to pay the portion of such dividends to be 
     paid in shares of Common Stock;

          (ii)  the issuance or delivery of shares of Common Stock as a 
     dividend payment would require registration with or approval of any 
     governmental authority under any law or regulation, and such 
     registration or approval has not been effected or obtained;

          (iii) the shares of Common Stock to be issued as a dividend payment 
     have not been authorized for listing, upon official notice of issuance, on 
     any securities exchange or market on which the Common Stock is then 
     listed; or have not been approved for quotation if the Common Stock is 
     traded in the over-the-counter market;

          (iv)  the Computed Price (determined without regard to the 
     proviso to the definition thereof) is less than the par value of the 
     shares of Common Stock;

          (v)   the shares of Common Stock (A) cannot be sold or transferred 
     without restriction by unaffiliated holders who receive such shares of 
     Common Stock as a dividend payment or (B) are no longer listed on a 
     national securities exchange, on the Nasdaq National Market or the 
     Nasdaq SmallCap Market; or

          (vi)  the issuance of shares of Common Stock in payment of 
     dividends on Series B-1 Convertible Preferred Stock held by any 
     Restricted Person (as defined in Section 9(a) hereof) would result in 
     any Restricted Person beneficially owning more than 4.9% of the Common 
     Stock, determined as provided in the proviso to the second sentence of 
     Section 9(a) hereof.

          Shares of Common Stock issued in payment of dividends on Series B-1 
Convertible Preferred Stock pursuant to this Section shall be, and for all 
purposes shall be deemed to be, validly issued, fully paid and nonassessable 
shares of Common Stock of the Corporation; the issuance and delivery thereof 
is hereby authorized; and the dispatch thereof will be, and for all purposes 
shall be deemed to be, payment in full of the cumulative dividends to which 
holders are entitled on the applicable dividend payment date.

          "Computed Price" of shares of Common Stock on any date means 100 
percent of the arithmetic average of the per share Closing Price (as defined 
in Section 9(b)) of the Common Stock on the five consecutive trading days 
ending on the fifth trading day preceding the applicable dividend payment 
date.

          SECTION 5.  LIQUIDATION PREFERENCE.  In the event of a liquidation, 
dissolution, or winding up of the Corporation, whether voluntary or 
involuntary, the holders of Series B-1 Convertible Preferred Stock shall be 
entitled to receive out of the assets of the Corporation, whether such assets 
constitute stated capital or surplus of any nature, an amount per share of 
Series B-1 Convertible Preferred Stock equal to the sum of (i) all dividends 
accrued and unpaid thereon to the date of final distribution to such holders, 
(ii) accrued and unpaid interest on dividends in arrears to the date of 
distribution at the rate specified in Section 4(a), and (iii)

                               A-3 

<PAGE>

$1,000.00 (collectively, "the Liquidation Preference"), and no more, before 
any payment shall be made or any assets distributed to the holders of Common 
Stock or any other class or series of the Corporation's capital stock ranking 
junior as to liquidation rights to the Series B-1 Convertible Preferred Stock 
(collectively, the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that such 
rights shall accrue to the holders of Series B-1 Convertible Preferred Stock 
only in the event that the Corporation's payments with respect to the 
liquidation preference of the holders of capital stock of the Corporation 
ranking senior as to liquidation rights to the Series B-1 Convertible 
Preferred Stock (the "Senior Liquidation Stock") are fully met. After the 
liquidation preferences of the Senior Liquidation Stock are fully met, the 
entire assets of the Corporation available for distribution shall be 
distributed ratably among the holders of the Series B-1 Convertible Preferred 
Stock and any other class or series of the Corporation's capital stock having 
parity as to liquidation rights with the Series B-1 Convertible Preferred 
Stock (the "Parity Liquidation Stock") in proportion to the respective 
preferential amounts to which each is entitled (but only to the extent of 
such preferential amounts). After payment in full of the liquidation price of 
the shares of the Series B-1 Convertible Preferred Stock and the Parity 
Liquidation Stock, the holders of such shares shall not be entitled to any 
further participation in any distribution of assets by the Corporation. 
Neither a consolidation or merger of the Corporation with another corporation 
nor a sale or transfer of all or part of the Corporation's assets for cash, 
securities, or other property in and of itself will be considered a 
liquidation, dissolution, or winding up of the Corporation.

          SECTION 6.  NO MANDATORY REDEMPTION.  The shares of Series B-1 
Convertible Preferred Stock shall not be subject to mandatory redemption by 
the Corporation.

          SECTION 7.  NO SINKING FUND.  The shares of Series B-1 Convertible 
Preferred Stock shall not be subject to the operating of a purchase, 
retirement, or sinking fund.

          SECTION 8.  OPTIONAL REDEMPTION.  So long as the Corporation is in 
compliance in all material respects with its obligations to the holders of 
shares of Series B-1 Convertible Preferred Stock (including, without 
limitation, its obligations under the Registration Rights Agreement between 
the Corporation and the original holder of the Series B-1 Convertible 
Preferred Stock (the "Registration Rights Agreement") and the provisions of 
this Certificate of Designations), the Corporation shall have the right, 
exercisable on not less than 15 days or more than 20 days written notice to 
the holders of record of the shares of Series B-1 Convertible Preferred Stock 
to be redeemed, at any time on or after the date of initial issuance of 
shares of Series X Convertible Preferred Stock (the "Issuance Date") to 
redeem at any time all, and from time to time any part of the Series B-1 
Convertible Preferred Stock in accordance with this Section 8. Any notice of 
redemption (a "Notice of Redemption") under this Section shall be delivered 
to the holders of the shares of Series B-1 Convertible Preferred Stock at 
their addresses appearing on the records of the Corporation; PROVIDED, 
HOWEVER, that any failure or defect in the giving of notice to any such 
holder shall not affect the validity of notice to or the redemption of shares 
of Series B-1 Convertible Preferred Stock of any other holder. Any Notice of 
Redemption shall state (1) that the Corporation is exercising its right to 
redeem all or a portion of the outstanding shares of Series B-1 Convertible 
Preferred Stock pursuant to this Section 8, (2) the number of shares of 
Series B-1 Convertible Preferred Stock held by such holder which are to be 
redeemed, (3) the Redemption Price (as hereinafter defined) per share of 
Series B-1 Convertible Preferred Stock to be redeemed, determined in 
accordance with this Section and (4) the date of redemption of such shares of 
Series B-1 Convertible Preferred Stock, determined in accordance with this 
Section (the "Redemption Date"). On the Redemption Date, the Corporation 
shall make payment of the applicable Redemption Price (as hereinafter 
defined) to each holder of shares of Series B-1 Convertible Preferred Stock 
to be redeemed to or upon the order of such holder as specified by such 
holder in writing to the Corporation at least one business day prior to the 
Redemption Date. If the Corporation exercises its right to redeem all or a 
portion of the outstanding shares of Series B-1 Convertible Preferred Stock 
the Corporation shall make

                               A-4

<PAGE>

payment to the holders of the shares of Series B-1 Convertible Preferred 
Stock to be redeemed in respect of each share of Series B-1 Convertible 
Preferred Stock to be redeemed of an amount equal to the greater of (a) 
$1,150, plus all accrued but unpaid dividends to the Redemption Date on the 
share of Series B-1 Convertible Preferred Stock being redeemed and accrued 
but unpaid interest on the dividends on the share of Series B-1 Convertible 
Preferred Stock being redeemed in arrears to the Redemption Date and (b) an 
equal amount to the product obtained by multiplying (x) the number of shares 
of Common Stock which would, but for the redemption pursuant to this Section 
8, be issuable on conversion in accordance with Section 9(a) of one share of 
Series B-1 Convertible Preferred Stock, and any accrued and unpaid dividends 
thereon and any accrued and unpaid interest on dividends thereon in arrears 
if a Conversion Notice were given by the holder of such Series B-1 
Convertible Preferred Stock on the Redemption Date (determined without regard 
to any limitation on conversion contained in Section 9(a)) TIMES (y) the 
arithmetic average of the Closing Price (as defined in Section 9(b)) of the 
Common Stock for the five consecutive trading days ending one trading day 
prior to the Redemption Date (such amount being referred to herein as the 
"Redemption Price"). Upon redemption of less than all of the shares of Series 
B-1 Convertible Preferred Stock evidenced by a particular certificate, 
promptly, but in no event later than three business days after surrender of 
such certificate to the Corporation, the Corporation shall issue a 
replacement certificate for the shares of Series B-1 Convertible Preferred 
Stock which have not been redeemed. Only whole shares of Series B-1 
Convertible Preferred Stock may be redeemed. If the Corporation exercises its 
right to redeem less than all outstanding shares of Series B-1 Convertible 
Preferred Stock, then such redemption shall be made, as nearly as practical, 
pro rata among the holders of record of the Series B-1 Convertible Preferred 
Stock. No share of Series B-1 Convertible Preferred Stock as to which the 
holder exercises the right of conversion pursuant to Section 9 hereof may be 
redeemed by the Corporation pursuant to this Section 8 on or after the date 
of exercise of such conversion right regardless of whether the Notice of 
Redemption shall have been given prior to the date of exercise of such 
conversion right.

          SECTION 9.  CONVERSION.

          (a)  CONVERSION AT OPTION OF HOLDER.  The holders of the Series B-1 
Convertible Preferred Stock may, at any time after the earlier of (x) 
July 31, 1997 and (y) the date on which the Registration Statement is first 
declared effective by the SEC and on or before two (2) years after the 
Issuance Date, upon surrender of the certificates therefor, convert any or 
all of their shares of Series B-1 Convertible Preferred Stock into fully paid 
and nonassessable shares of Common Stock and such other securities and 
property as hereinafter provided. Commencing on the date which is 90 days 
after the Issuance Date, and at any time thereafter, each share of Series B-1 
Convertible Preferred Stock may be converted at the principal executive 
offices of the Corporation, the office of any transfer agent for the Series 
B-1 Convertible Preferred Stock, if any, the office of any transfer agent for 
the Common Stock or at such other office or offices, if any, as the Board of 
Directors may designate, initially into such number of fully paid and 
nonassessable shares of Common Stock (calculated as to each conversion to the 
nearest 1/100th of a share) determined by dividing (x) the sum of (i) the 
Conversion Amount, (ii) accrued but unpaid dividends to the Conversion Date 
on the share of Series B-1 Convertible Preferred Stock being converted, and 
(iii) accrued but unpaid interest on the dividends on the share of Series B-1 
Convertible Preferred Stock being converted in arrears to the Conversion Date 
by (y) the lower of (1) the product of (A) the Conversion Percentage TIMES 
(B) the arithmetic average of the Closing Price of the Common Stock on the 
five consecutive trading days immediately preceding the Conversion Date or 
(2) the product of (A) $5.50 (subject to equitable adjustments for stock 
splits, stock dividends, combinations, recapitalizations, reclassifications 
and similar events occurring on or after the date of filing of this 
Certificate of Designations with the Secretary of State of the State of 
Delaware) TIMES (B) the Conversion Percentage, in each case subject to 
adjustment as hereinafter provided (the "Conversion Rate"); PROVIDED, 
HOWEVER, that in no event shall any holder be entitled to convert any shares 
of Series B-

                               A-5

<PAGE>

1 Convertible Preferred Stock in excess of that number of shares of Series 
B-1 Convertible Preferred Stock upon conversion of which the sum of (1) the 
number of shares of Common Stock beneficially owned by such holder and any 
person whose beneficial ownership of shares of Common Stock would be 
aggregated with such holder's beneficial ownership of shares of Common Stock 
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as 
amended (the "Exchange Act"), and Regulation 13D-G thereunder (each a 
"Restricted Person" and collectively, the "Restricted Persons") (other than 
shares of Common Stock deemed beneficially owned through the ownership of 
unconverted shares of Series B-1 Convertible Preferred Stock) and (2) the 
number of shares of Common Stock issuable upon the conversion of the number 
of shares of Series B-1 Convertible Preferred Stock with respect to which the 
determination in this proviso is being made, would result in beneficial 
ownership by any Restricted Person of more than 4.9% of the outstanding 
shares of Common Stock. For purposes of the proviso to the immediately 
preceding sentence, beneficial ownership shall be determined in accordance 
with Section 13(d) of the Exchange Act and Regulation 13D-G thereunder, 
except as otherwise provided in clause (1) of the proviso to the immediately 
preceding sentence. The "Conversion Price" shall be equal to the Conversion 
Amount dividend by the Conversion Rate.

          (b)  CERTAIN DEFINITIONS.

          As used herein, the "Closing Price" of any security on any date 
shall mean the closing bid price of such security on such date on the 
principal securities exchange on which such security is traded.

          As used herein, "Computation Date" means

          (1)  if the Registration Statement is not filed by the      
Corporation with the SEC on or before April 30, 1997:

          (A)  May 7, 1997, if the Corporation has not filed the      
Registration Statement with the SEC on or before such date;

          (B)  each date which is seven days subsequent to May 7,      1997, 
in each such case if the Corporation has not filed the      Registration 
Statement with the SEC on or before such      subsequent date; and

          (C)  the date on which the Corporation files the      Registration 
Statement with the SEC; and

          (2)  if the Registration Statement has not been      declared 
effective by the SEC on or before July 31, 1997:

          (A)  August 7, 1997, unless the Registration Statement has been 
declared effective by the SEC on or before August 7, 1997;

          (B)  each date which is seven days subsequent to August 7, 1997, in 
each such case unless the Registration Statement has not been declared 
effective by the SEC on or before such subsequent date; and

          (C)  the date on which the Registration Statement is declared 
effective by the SEC;

PROVIDED, HOWEVER, that if more than one event which could give rise to a 
Computation Date during any period shall have occurred, only one of such 
events shall be deemed to result in a Computation Date so that the 
adjustments in the Conversion Percentage provided herein by

                               A-6

<PAGE>

reason of the occurrence of a Computation Date shall be made only once in 
respect of any period of time and then in the maximum amount based on all 
such Computation Dates.

          As used herein, "Conversion Amount" initially shall be equal to 
$1,000.00, subject to adjustment as hereinafter provided.

          As used herein, "Conversion Date" shall mean the date on which the 
notice of conversion is actually received by the Corporation, in case of a 
conversion at the option of the holder pursuant to Section 9(a).

          As used herein, "Conversion Percentage" shall mean with respect to 
a Conversion Date or a dividend payment date 80%; PROVIDED, HOWEVER, that 
notwithstanding any other provision hereof (1) if (x) the Corporation shall 
fail to file the Registration Statement with the SEC on or before April 30, 
1997, or (y) the Registration Statement is not ordered effective by the SEC 
on or before July 31, 1997, and in any such case the Corporation shall fail 
to make cash payment on a timely basis in the amount specified in Section 
2(c) of the Registration Rights Agreement, then in each such case the 
applicable percentage stated above in this paragraph shall be reduced by one 
percentage point on each Computation Date (pro rated in the case of any 
Computation Date which is less than seven days after a Computation Date) and 
(2) the Conversion Percentage applicable to a particular conversion shall be 
subject to reduction as provided in Section 9(c)(6); PROVIDED FURTHER, 
HOWEVER, that no adjustment pursuant to clause (1) of the first proviso to 
this definition shall be made after the date on which the shares of Common 
Stock issued or issuable upon conversion of shares of Series B Convertible 
Preferred Stock may be sold by all holders thereof pursuant to Rule 144 under 
the Securities Act of 1933, as amended, in a period of 90 consecutive days 
(in which case the Conversion Percentage shall be adjusted to such date as if 
such date were a Computation Date).

          As used herein, "Registration Effective Date" shall mean, with 
respect to any shares of Series B-1 Convertible Preferred Stock, the date on 
which the Registration Statement if first ordered effective by the SEC.

          As used herein, "Registration Statement" shall mean the 
Registration Statement required to be filed by the Corporation with the SEC 
pursuant to Section 2(a) of the Registration Rights Agreement.

          As used herein, "SEC" shall mean the United States Securities and 
Exchange Commission.

          (c)  OTHER PROVISIONS.  (1) Notwithstanding anything in this 
Section 9(c) to the contrary, no change in the Conversion Amount pursuant to 
Section 9(c) shall actually be made until the cumulative effect of the 
adjustments called for by this Section 9(c) since the date of the last change 
in the Conversion Amount would change the Conversion Amount by more than 1%. 
However, once the cumulative effect would result in such a change, then the 
Conversion Rate shall actually be changed to reflect all adjustments called 
for by this Section 9(c) and not previously made. Notwithstanding anything in 
this Section 9(c), no change in the Conversion Amount shall be made that 
would result in a Conversion Price of less than the par value of the Common 
Stock into which shares of Series B-1 Convertible Preferred Stock are at the 
time convertible.

          (2)  The holders of shares of Series B-1 Convertible Preferred 
Stock at the close of business on the record date for any dividend payment to 
holders of Series B-1 Convertible Preferred Stock shall be entitled to 
receive the dividend payable on such shares on

                               A-7

<PAGE>

the corresponding dividend payment date notwithstanding the conversion 
thereof after such dividend payment record date or the Corporation's default 
in payment of the dividend due on such dividend payment date; PROVIDED, 
HOWEVER, that the holder of shares of Series B-1 Convertible Preferred Stock 
surrendered for conversion during the period between the close of business on 
any record date for a dividend payment and the opening of business on the 
corresponding dividend payment date must pay to the Corporation, within five 
days after receipt by such holder, an amount equal to the dividend payable on 
such shares on such dividend payment date if such dividend is paid by the 
Corporation to such holder. A holder of shares of Series B-1 Convertible 
Preferred Stock on a record date for a dividend payment who (or whose 
transferee) tenders any of such shares for conversion into shares of Common 
Stock on or after such dividend payment date will receive the dividend 
payable by the Corporation on such shares of Series B-1 Convertible Preferred 
Stock on such date, and the converting holder need not make any payment of 
the amount of such dividend in connection with such conversion of shares of 
Series B-1 Convertible Preferred Stock. Except as provided above, no 
adjustment shall be made in respect of cash dividends on Common Stock or 
Series B-1 Convertible Preferred Stock that may be accrued and unpaid at the 
date of surrender of shares of Series B-1 Convertible Preferred Stock.

          (3)  The right of the holders of Series B-1 Convertible Preferred 
Stock to convert their shares shall be exercised by delivering (which may be 
done by telephone line facsimile transmission) to the Conversion agent, as 
provided above, a written notice, duly signed by or on behalf of the holder, 
stating the number of shares of Series B-1 Convertible Preferred Stock to be 
converted in the form specified in the Subscription Agreements (the 
"Conversion Notice"). If a holder of Series B-1 Convertible Preferred Stock 
elects to convert any shares of Series B-1 Convertible Preferred Stock in 
accordance with Section 9(a), such holder shall not be required to physically 
surrender the certificate(s) representing such shares of Series B-1 
Convertible Preferred Stock to the Corporation unless all of the shares of 
Series B-1 Convertible Preferred Stock represented thereby are so converted. 
Each holder of shares of Series B-1 Convertible Preferred Stock and the 
Corporation shall maintain records showing the number of shares so converted 
and the dates of such conversions or shall use such other method, 
satisfactory to such holder and the Corporation, so as to not require 
physical surrender of such certificates upon each such conversion. In the 
event of any dispute or discrepancy, such records of the Corporation shall be 
controlling and determinative in the absence of manifest error. 
Notwithstanding the foregoing, if any shares of Series B-1 Convertible 
Preferred Stock evidenced by a particular certificate therefor are converted 
as aforesaid, the holder of Series B-1 Convertible Preferred Stock may not 
transfer the certificate(s) representing such shares of Series B-1 
Convertible Preferred Stock unless such holder first physically surrenders 
such certificate(s) to the Corporation, whereupon the Corporation will 
forthwith issue and deliver upon the order of such holder of shares of Series 
B-1 Convertible Preferred Stock new certificate(s) of like tenor, registered 
as such holder of shares of Series B-1 Convertible Preferred Stock (upon 
payment by such holder of shares of Series B-1 Convertible Preferred Stock of 
any applicable transfer taxes) may request, representing in the aggregate the 
remaining number of shares of Series B-1 Convertible Preferred Stock 
represented by such certificate(s). Each holder of shares of Series B-1 
Convertible Preferred Stock, by acceptance of a certificate for such shares, 
acknowledges and agrees that (1) by reason of the provisions of this 
paragraph and Section 8, following conversion of any shares of Series B-1 
Convertible Preferred Stock represented by such certificate, the number of 
shares of Series B-1 Convertible Preferred Stock represented by such 
certificate may be less than the number of shares stated on such certificate 
and the number of shares of Common Stock from the Maximum Share Amount 
allocated to the shares of Series B-1 Convertible Preferred Stock represented 
by such certificate for purposes of conversion of such shares may be less 
than the number thereof on such certificate and (2) the Corporation may place 
a legend on the certificates for shares of Series B-1 Convertible Preferred 
Stock which refers to or describes the provisions of this paragraph. The 
Corporation shall pay any tax arising in connection with any conversion of 
shares of Series B-1 Convertible Preferred Stock except that

                               A-8

<PAGE>

the Corporation shall not, however, be required to pay any tax which may be 
payable in respect of any transfer involved in the issue and delivery upon 
conversion of shares of Common Stock or other securities or property in a 
name other than that of the holder of the shares of the Series B-1 
Convertible Preferred Stock being converted, and the Corporation shall not be 
required to issue or deliver any such shares or other securities or property 
unless and until the person or persons requesting the issuance thereof shall 
have paid to the Corporation the amount of any such tax or shall have 
established to the satisfaction of the Corporation that such tax has been 
paid. The number of shares of Common Stock to be issued upon each conversion 
of shares of Series C Convertible Preferred Stock shall be the number set 
forth in the applicable Conversion Notice which number shall be conclusive 
absent manifest error. The Corporation shall notify a holder who has given a 
Conversion Notice of any claim of manifest error within one business day 
after such holder gives such Conversion Notice and no such claim of error 
shall limit or delay performance of the Corporation's obligation to issue 
upon such conversion the number of shares of Common Stock which are not in 
dispute. A Conversion Notice shall be deemed for all purposes to be in proper 
form unless the Corporation notifies a holder of shares of Series B-1 
Convertible Preferred Stock being converted within one business day after a 
Conversion Notice has been given (which notice shall specify all defects in 
the Conversion Notice) and any Conversion Notice containing any such defect 
shall nonetheless be effective on the date given if the converting holder 
promptly undertakes in writing to correct all such defects.

          (4)  The Corporation (and any successor corporation) shall take all 
action necessary so that a number of shares of the authorized but unissued 
Common Stock (or common stock in the case of any successor corporation) 
sufficient to provide for the conversion of the Series B-1 Convertible 
Preferred Stock outstanding upon the basis hereinbefore provided are at all 
times reserved by the Corporation (or any successor corporation), free from 
preemptive rights, for such conversion, subject to the provisions of the next 
succeeding paragraph. If the Corporation shall issue any securities or make 
any change in its capital structure which would change the number of shares 
of Common Stock into which each share of the Series B-1 Convertible Preferred 
Stock shall be convertible as herein provided, the Corporation shall at the 
same time also make proper provisions so that thereafter there shall be a 
sufficient number of shares of Common Stock authorized and reserved, free 
from preemptive rights, for conversion of the outstanding Series B-1 
Convertible Preferred Stock on the new basis. If at any time the number of 
authorized but unissued shares of Common Stock shall not be sufficient to 
effect the conversion of all of the outstanding shares of Series B-1 
Convertible Preferred Stock, the Corporation promptly shall seek such 
corporate action as may, in the opinion of its counsel, be necessary to 
increase its authorized but unissued shares of Common Stock to such number of 
shares as shall be sufficient for such purpose.

          (5)  In case of any consolidation or merger of the Corporation with 
any other corporation (other than a wholly-owned subsidiary of the 
Corporation) in which the Corporation is not the surviving corporation, or in 
case of any sale or transfer of all or substantially all of the assets of the 
Corporation, or in the case of any share exchange pursuant to which all of 
the outstanding shares of Common Stock are converted into other securities or 
property, the Corporation shall make appropriate provision or cause 
appropriate provision to be made so that each holder of shares of Series B-1 
Convertible Preferred Stock then outstanding shall have the right thereafter 
to convert such shares of Series B-1 Convertible Preferred Stock into the 
kind of shares of stock and other securities and property receivable upon 
such consolidation, merger, sale, transfer, or share exchange by a holder of 
shares of Common Stock into which such shares of Series B-1 Convertible 
Preferred Stock could have been converted immediately prior to the effective 
date of such consolidation, merger, sale, transfer, or share exchange and on 
a basis which preserves the economic benefits of the conversion rights of the 
holders of shares of Series B-1 Convertible Preferred Stock on a basis as 
nearly as practical as such rights exist hereunder prior thereto. If, in 
connection with any such consolidation, merger, sale, transfer, or share 
exchange, each holder of shares of Common Stock is entitled to elect to 
receive securities, cash,

                               A-9

<PAGE>

or other assets upon completion of such transaction, the Corporation shall 
provide or cause to be provided to each holder of Series B-1 Convertible 
Preferred Stock the right to elect the securities, cash, or other assets into 
which the Series B-1 Convertible Preferred Stock held by such holder shall be 
convertible after completion of any such transaction on the same terms and 
subject to the same conditions applicable to holders of the Common Stock 
(including, without limitation, notice of the right to elect, limitations on 
the period in which such election shall be made, and the effect of failing to 
exercise the election). The Corporation shall not effect any such transaction 
unless the provisions of this paragraph have been complied with. The above 
provisions shall similarly apply to successive consolidations, mergers, 
sales, transfers, or share exchanges.

          (6)  If a holder shall have given a Conversion Notice for shares of 
Series B-1 Convertible Preferred Stock, the Corporation shall issue and 
deliver to such person certificates for the Common Stock issuable upon such 
conversion within three business days after such Conversion Notice is given 
and the person converting shall be deemed to be the holder of record of the 
Common Stock issuable upon such conversion, and all rights with respect to 
the shares surrendered shall forthwith terminate except the right to receive 
the Common Stock or other securities, cash, or other assets as herein 
provided. If a holder shall have given a Conversion Notice as provided 
herein, the Corporation's obligation to issue and deliver the certificates 
for Common Stock shall be absolute and unconditional, irrespective of any 
action or inaction by the converting holder to enforce the same, any waiver 
or consent with respect to any provision thereof, the recovery of any 
judgment against any person or any action to enforce the same, any failure or 
delay in the enforcement of any other obligation of the Corporation to the 
holder of record, or any setoff, counterclaim, recoupment, limitation or 
termination, or any breach or alleged breach by the holder of any obligation 
to the Corporation, and irrespective of any other circumstance which might 
otherwise limit such obligation of the Corporation to the holder in 
connection with such conversion. If the Corporation fails to issue and 
deliver the certificates for the Common Stock to the holder converting shares 
of Series B-1 Convertible Preferred Stock pursuant to the first sentence of 
this paragraph as and when required to do so, in addition to any other 
liabilities the Corporation may have hereunder and under applicable law (1) 
the Corporation shall pay or reimburse such holder on demand for all 
out-of-pocket expenses including, without limitation, fees and expenses of 
legal counsel incurred by such holder as a result of such failure, (2) the 
Conversion Percentage applicable to such conversion shall be reduced by 
two-and-one-half percentage points from the Conversion Percentage applicable 
to such conversion and (3) such holder may by written notice (which may be 
given by mail, courier, personal service or telephone line facsimile 
transmission) or oral notice (promptly confirmed in writing) given at any 
time prior to delivery to such holder of the certificates for the shares of 
Common Stock issuable upon such conversion of shares of Series B-1 
Convertible Preferred Stock, rescind such conversion, whereupon such holder 
shall have the right to convert such shares of Series B-1 Convertible 
Preferred Stock thereafter in accordance herewith.

          (7)  No fractional shares of Common Stock shall be issued upon 
conversion of Series B-1 Convertible Preferred Stock but, in lieu of any 
fraction of a share of Common Stock to purchase fractional shares of Common 
Stock which would otherwise be issuable in respect of the aggregate number of 
such shares surrendered for conversion at one time by the same holder, the 
Corporation at its option (a) may pay in cash an amount equal to the product 
of (i) the arithmetic average of the Closing Price of a share of Common Stock 
on the three consecutive trading days ending on the trading day immediately 
preceding the Conversion Date and (ii) such fraction of a share or (b) may 
issue an additional share of Common Stock.

          (8)  The Conversion Amount shall be adjusted from time to time 
under certain circumstances, subject to the provisions of the first three 
sentences of Section 9(c)(1), as follows;

          (i)  In case the Corporation shall issue rights or warrants on a 
pro rata basis to all holders of the Common Stock entitling such holders to 
subscribe for or purchase Common Stock

                              A-10

<PAGE>

on the record date referred to below at a price per share less than the 
average daily Closing Prices of the Common Stock on the 30 consecutive 
business days commencing 45 business days before the record date (the 
"Current Market Price") excluding, however, any rights issued pursuant to the 
Rights Agreement, then in each such case the Conversion Amount in effect on 
such record date shall be adjusted in accordance with the formula

     C1 = C x O + N
              -----
          O + N x P
              -----
                M

where

     C1 = the adjusted Conversion Amount

     C  = the current Conversion Amount

     O  = the number of shares of Common Stock outstanding on the record date.

     N  = the number of additional shares of Common Stock issuable pursuant 
to the exercise of such rights or warrants.

     P  = the offering price per share of the additional shares (which amount 
shall include amounts received by the Corporation in respect of the 
issuance and the exercise of such rights or warrants).

     M  = the Current Market Price per share of Common Stock on the record 
date.

Such adjustment shall become effective immediately after the record date for 
the determination of stockholders entitled to receive such rights or 
warrants. If any or all such rights or warrants are not so issued or expire 
or terminate before being exercised, the Conversion Amount then in effect 
shall be readjusted appropriately.

          (ii)  In case the Corporation shall, by dividend or otherwise, 
distribute to all holders of its Junior Stock (as hereinafter defined) 
evidences of its indebtedness or assets (including securities, but excluding 
any warrants or subscription rights referred to in subparagraph (i) above and 
any dividend or distribution paid in cash out of the retained earnings of the 
Corporation), then in each such case the Conversion Amount then in effect 
shall be adjusted in accordance with the formula

     C1 = C x  M
              ---
          M - F

where

     C1 = the adjusted Conversion Amount

     C  = the current Conversion Amount

     M  = the Current Market Price per share of Common Stock on the record 
date mentioned below.

                              A-11
<PAGE>

     F  = the aggregate amount of such cash dividend and/or the fair market 
value on the record date of the assets or securities to be distributed 
divided by the number of shares of Common Stock outstanding on the record 
date. The Board of Directors shall determine such fair market value, which 
determination shall be conclusive.

Such adjustment shall become effective immediately after the record date for 
the determination of stockholders entitled to receive such dividend or 
distribution. For purposes of this subparagraph (ii), "Junior Stock" shall 
include any class of capital stock ranking junior as to dividends or upon 
liquidation to the Series B-1 Convertible Preferred Stock.

          (iii)     All calculations hereunder shall be made to the nearest 
cent or to the nearest 1/100 of a share, as the case may be.

          (iv) If at any time as a result of an adjustment made pursuant to 
Section 9(c)(5), the holder of any Series B-1 Convertible Preferred Stock 
thereafter surrendered for conversion shall become entitled to receive 
securities, cash, or assets other than Common Stock, the number or amount of 
such securities or property so receivable upon conversion shall be subject to 
adjustment from time to time in a manner and on terms nearly equivalent as 
practicable to the provisions with respect to the Common Stock contained in 
subparagraphs (i) to (iii) above.

          (9)  Except as otherwise provided above in this Section 9, no 
adjustment in the Conversion Amount shall be made in respect of any 
conversion for share distributions or dividends theretofore declared and paid 
or payable on the Common Stock.

          (10) Whenever the Conversion Amount is adjusted as herein provided, 
the Corporation shall send to each transfer agent, if any, for the Series B-1 
Convertible Preferred Stock and the Common Stock, and to the principal 
securities exchange, if any, on which the Series B-1 Convertible Preferred 
Stock and the Common Stock is traded, or the Nasdaq National Market if the 
Series B-1 Convertible Preferred Stock or Common Stock is admitted for a 
quotation thereon, a statement signed by the Chairman of the Board, the 
President, or any Vice President of the Corporation and by its Treasurer or 
its Secretary or an Assistant Secretary stating the adjusted Conversion 
Amount determined as provided in this Section 9, and any adjustment so 
evidenced, given in good faith, shall be binding upon all stockholders and 
upon the Corporation. Whenever the Conversion Amount is adjusted, the 
Corporation shall given notice by mail to the holders of record of Series B-1 
Convertible Preferred Stock, which notice shall be made within 15 days after 
the effective date of such adjustment and shall state the adjustment and 
Conversion Amount. Notwithstanding the foregoing notice provisions, failure 
by the Corporation to give such notice or a defect in such notice shall not 
affect the binding nature of such corporate action of the Corporation.

          (11) Whenever the Corporation shall propose to take any of the 
actions specified in Section 9(c)(5) or in subparagraphs (i) or (ii) of 
Section 9(c)(8) which would result in any adjustment in the Conversion Amount 
under this Section 9(c), the Corporation shall cause a notice to be mailed at 
least 20 days prior to the date on which the books of the Corporation will 
close or on which a record will be taken for such action, to the holders of 
record of the outstanding Series B-1 Convertible Preferred Stock on the date 
of such notice. Such notice shall specify the action proposed to be taken by 
the Corporation and the date as of which holders of record of the Common 
Stock shall participate in any such actions or be entitled to exchange their 
Common Stock for securities or other property, as the case may be. Failure by 
the Corporation to mail the notice or any defect in such notice shall not 
affect the validity of the transaction.

          (12) Notwithstanding any other provision of this Section 9, no 
adjustment in the Conversion Amount need be made (a) for a transaction 
referred to in subparagraphs (i) or (ii) of Section 9(c)(8) if holders of 
Series B-1 Convertible Preferred Stock are to participate in the

                              A-12
<PAGE>

transaction or distribution on a basis and with notice that the Board of 
Directors determines such transaction to be fair to the holders of the Series 
B-1 Convertible Preferred Stock and appropriate in light of the basis on 
which holders of the Common Stock or, in the case of a transaction referred 
to in said subparagraph (ii), holders of Junior Stock participate in the 
transaction; (b) for sales of Common Stock pursuant to a plan for 
reinvestment of dividends and interest, PROVIDED that the purchase price in 
any such sale is at least equal to the fair market value of the Common Stock 
at the time of such purchase, or pursuant to any plan adopted by the 
Corporation for the benefit of its employees, directors, or consultants; or 
(c) after such time as a holder of shares of Series B-1 Convertible Preferred 
Stock becomes entitled to receive only cash upon conversion of such shares 
(in which case no interest shall accrue on the amount of such cash for any 
period prior to the date which is three business days after surrender of the 
certificates for such shares for conversion).

          (d)  MANDATORY CONVERSION.  So long as the Corporation shall be in 
compliance in all material respects with its obligations to the holders of 
the Series B-1 Convertible Preferred Stock (including its obligations under 
the Registration Rights Agreement and the provisions of this Certificate of 
Designations) and so long as the Registration Statement shall be effective, 
(1) on the date the Registration Statement is first declared effective by the 
SEC or on any date within five business days thereafter the Corporation may, 
by notice to the holders of the shares of Series B-1, require all of the 
outstanding shares of Series B-1 Convertible Preferred Stock to be converted 
and (2) on the date which is 730 days after the Registration Effective Date 
(the "Mandatory Conversion Date") all of the shares of Series B-1 Convertible 
Preferred Stock then outstanding shall be converted, in either such case, in 
accordance with the provisions, and subject to the limitations, of Section 
9(a), into shares of Common Stock to the extent the same are at such time 
convertible into shares of Common Stock. On the Mandatory Conversion Date, 
the Corporation shall mail by first class mail or otherwise deliver to each 
holder of Series B-1 Convertible Preferred Stock a notice (a "Section 9(d) 
Notice"), which shall state (1) the number of shares of Series B-1 
Convertible Preferred Stock held by such holder which have been converted 
into shares of Common Stock in accordance with this Section 9(d) and (2) the 
Mandatory Conversion Date. If the Corporation shall give a Section 9(d) 
Notice, then, unless theretofore converted by the holder in accordance 
herewith or redeemed by the Corporation, and so long as the Registration 
Statement shall remain effective on the Mandatory Conversion Date and the 
Corporation shall be in compliance in all material respects with its 
obligations to the Holders of the Series B-1 Convertible Preferred Stock 
(including its obligations under the Registration Rights Agreements and the 
provisions of this Certificate of Designations) on the Mandatory Conversion 
Date, then on the Mandatory Conversion Date properly set forth therein, all 
shares of Series B-1 Convertible Preferred Stock which, on the Mandatory 
Conversion Date are convertible in accordance with Section 9(a) hereof, shall 
be converted into such number of shares of Common Stock as shall be 
determined pursuant to this Section 9 as if the conversion of such number of 
shares of Series B-1 Convertible Preferred Stock were made by the holders 
thereof in accordance herewith and as if the Mandatory Conversion Date were 
the Conversion Date. Upon the surrender of certificates for shares of Series 
B-1 Convertible Preferred Stock by the holder after a Section 9(d) Notice is 
given, the Corporation shall issue and, within three trading days after such 
surrender, deliver to or upon the order of such holder that number of shares 
of Common Stock as shall be issuable in respect to the conversion of the 
number of shares of Series B-1 Convertible Preferred Stock converted, 
together with accrued and unpaid dividends thereon to the date of conversion 
and accrued and unpaid interest on dividends on such shares which are in 
arrears, into Common Stock as shall be determined in accordance herewith.

          (e)  LIMITATION ON NUMBER OF SHARES ISSUED ON CONVERSION; MANDATORY 
REDEMPTION.  (1) Notwithstanding any other provision herein, unless the 
Stockholder Approval (or waiver from the National Association of Securities 
Dealers, Inc.) has been obtained, the Corporation shall not be required to 
issue upon conversion of shares of Series B-1 Convertible

                              A-13
<PAGE>

Preferred Stock, more than 321,391 shares of Common Stock, such amount to be 
subject to adjustment from time to time for stock splits, stock dividends, 
combinations, capital reorganizations and similar events relating to the 
Common Stock occurring after the date of filing of this Certificate of 
Designations with the Secretary of State of the State of Delaware, upon 
conversion of shares of Series B-1 Convertible Preferred Stock (the "Maximum 
Share Amount"). The Maximum Share Amount shall be allocated pro rata among 
the initial holders of the Series B-1 Convertible Preferred Stock in the 
ratio that the respective number of shares of Series B-1 Convertible 
Preferred Stock issued to each holder bears to 250 shares and each 
certificate for such shares initially issued shall bear a notation to that 
effect. Upon each surrender of a certificate for conversion of a portion of 
the shares of Series B-1 Convertible Preferred Stock represented thereby 
shall bear a notation as to the remaining portion of the Maximum Shares 
Amount allocated to the shares of Series B-1 Convertible Preferred Stock 
represented by such a certificate. Upon any split up of a certificate for 
outstanding shares of Series B-1 Convertible Preferred Stock into two or more 
certificates for shares of Series A Convertible Preferred Stock (including, 
without limitation, in connection with a transfer thereof), each new 
certificate shall bear a notation as to the portion of Maximum Share Amount 
allocated to conversions of the shares of Series B-1 Convertible Preferred 
Stock represented by such new certificate (which shall be determined as a pro 
rata portion of the portion of the Maximum Share Amount represented by the 
certificate so split up).

          (2)  The Corporation shall promptly, but in no event later than 
five business days after the occurrence, give notice to each holder (by first 
class mail, postage prepaid, at such holder's address as the same appears on 
the stock books of the Corporation) if on any date the Corporation would not 
have been required to convert shares of Series B-1 Convertible Preferred 
Stock as a consequence of the limitation set forth in Section 9(e)(1) had all 
outstanding shares of Series B-1 Convertible Preferred Stock been surrendered 
for conversion into Common Stock on such date. If the Corporation shall have 
given or been required to give any such notice, the Corporation shall 
promptly, but in no event later than fifteen business days thereafter, 
redeem, out of funds legally available for such redemption, all or such 
portion of the outstanding shares of Series B-1 Convertible Preferred Stock 
as shall not, on the business day prior to the date of giving notice of such 
redemption, be convertible into shares of Common Stock by reason of the 
limitations set forth in Section 9(e)(1), at a redemption price per share 
equal to the Redemption Price which would be payable on the date such share 
is redeemed pursuant to this Section if such share were redeemed on such date 
pursuant to Section 8 (the "Special Redemption Price"). The Corporation shall 
not have the right to delay or to defer any redemption required by this 
Section 9(e)(2) in order to seek the Shareholder Approval unless consented to 
by the holders of all outstanding shares of Series B-1 Convertible Preferred 
Stock.

          (3)  The provisions of Section 9(e)(2) shall continue to apply 
notwithstanding the giving of any notice or any redemption of shares of 
Series B-1 Convertible Preferred Stock pursuant thereto on any particular 
occasion.

          (4)  Any notice of redemption (a "Section 9(e) Notice") under this 
Section 9(e) shall be delivered to the holders of the shares of Series B-1 
Convertible Preferred Stock at their addresses appearing on the records of 
the Corporation; PROVIDED, HOWEVER, that any failure or defect in the giving 
of notice to any such holder shall not affect the validity of notice to, or 
the redemption of shares of Series B-1 Convertible Preferred Stock of, any 
other holder. Any Section 9(e) Notice shall state (1) that the Corporation is 
redeeming all or a portion of the outstanding shares of Series B-1 Convertible 
Preferred Stock pursuant to this Section 9(e), (2) the number of shares of 
Series B-1 Convertible Preferred Stock held by such holder which are to be 
redeemed, (3) that the shares are to be redeemed at the Special Redemption 
Price per share of Series B-1 Convertible Preferred Stock, determined in 
accordance with this Section 9(e), and (4) the date of redemption of such 
shares of Series B-1 Convertible Preferred Stock; determined in accordance 
with this Section 9(e) (the "Special Redemption Date"). On the Special 
Redemption

                              A-14
<PAGE>

Date, the Corporation shall make payment in immediately available funds, out 
of funds legally available for such redemption, of the Special Redemption 
Price to each holder of shares of Series B-1 Convertible Preferred Stock to 
be redeemed to or upon the order of such holder as specified by such holder 
in writing to the Corporation at least two business days prior to the Special 
Redemption Date. Upon redemption of less than all of the shares of Series B-1 
Convertible Preferred Stock evidenced by a particular certificate, promptly, 
but in no event later than three business days after surrender of such 
certificate to the Corporation, the Corporation shall issue a replacement 
certificate for the shares of Series B-1 Convertible Preferred Stock which 
have not been redeemed. Only whole shares of Series B-1 Convertible Preferred 
Stock may be redeemed. If the Corporation is required to redeem less than all 
outstanding shares of Series B-1 Convertible Preferred Stock, then such 
redemption shall be made, as nearly as practical, pro rata among the holders 
of record of the Series B-1 Convertible Preferred Stock. Notwithstanding any 
other provision of this Certificate of Designations or any Section 9(e) 
Notice, no share of Series B-1 Convertible Preferred Stock as to which the 
holder has exercised at any time prior to the applicable Special Redemption 
Date the right of conversion pursuant to Section 9 hereof may be redeemed by 
the Corporation on or after the date of exercise of such conversion right 
(whether such conversion right is exercised prior to, on or after the giving 
of a Section 9(e) Notice).

          (5)  As used in this Section 9(e), "Stockholder Approval" means the 
approval by a majority of the votes cast by the holders of shares of Common 
Stock (in person or by proxy) at a meeting of the shareholders of the 
Corporation (duly convened at which a quorum was present), or a written 
consent of holders of shares of Common Stock entitled to such number of votes 
given without a meeting of the issuance by the Corporation of 20% or more of 
the outstanding Common Stock of the Corporation for less than the greater of 
the book or market value of such Common Stock on conversion of the Series B-1 
Convertible Preferred Stock, as and to the extent required under Section 
4460(i)(1)(D) of the rules of the National Association of Securities Dealers, 
Inc. (or any successor or replacement provisions thereof).

          SECTION 10.  VOTING RIGHTS.  Except as otherwise required by law or 
expressly provided herein, shares of Series B-1 Convertible Preferred Stock 
shall not be entitled to vote on any matter.

          The affirmative vote or consent of the holders of a majority of the 
outstanding shares of the Series B-1 Convertible Preferred Stock, voting 
separately as a class, will be required for (1) any amendment, alteration, or 
repeal, whether by merger or consolidation or otherwise, of the Corporation's 
Certificate of Incorporation if the amendment, alteration, or repeal 
materially and adversely affects the powers, preferences, or special rights 
of the Series B-1 Convertible Preferred Stock, or (2) the creation and 
issuance of any Senior Dividend Stock or Senior Liquidation Stock; PROVIDED, 
HOWEVER, that any increase in the authorized preferred stock of the 
Corporation or the creation and issuance of any stock which is both Junior 
Dividend Stock and Junior Liquidation Stock or any other capital stock of the 
Corporation ranking on a parity with the Series B-1 Convertible Preferred 
Stock shall not be deemed to affect materially and adversely such powers, 
preferences, or special rights.

          SECTION 11.  OUTSTANDING SHARES.  For purposes of this Certificate 
of Designations, all shares of Series B-1 Convertible Preferred Stock shall 
be deemed outstanding except (i) from the date of surrender of certificates 
representing shares of Series B-1 Convertible Preferred Stock for conversion 
into Common Stock, all shares of Series B-1 Convertible Preferred Stock 
converted into Common Stock; (ii) from the date of registration of transfer, 
all shares of Series B-1 Convertible Preferred Stock held of record by the 
Corporation or any subsidiary or Affiliate (as defined herein) of the 
Corporation and (iii) from the Redemption Date, all shares of Series B-1 
Convertible Preferred Stock which are redeemed, so long as in each case the 
Redemption Price of such shares of Series B-1 Convertible Preferred Stock 
shall have been paid by the Corporation as and when required hereby. For the 
purposes of this Certificate of

                              A-15
<PAGE>

Designations, "Affiliate" means any person directly or indirectly controlling 
or controlled by or under direct or indirect common control with the 
Corporation. "Control" is the power to direct the management and policies of 
a person, directly or through one or more intermediaries, whether through the 
ownership of voting securities, by contract, or otherwise.

                              A-16

<PAGE>

                                                        Annex II              
                                              to                              
                           Exchange                                           
              Agreement

                    JOINT ESCROW INSTRUCTIONS

                              Dated as of the date of the                     
          Subscription Agreement to Which                               These 
Joint Escrow Instructions Are                               Attached

Law Offices of Brian W. Pusch,   as Escrow Agent Penthouse Suite 29 West 57th 
Street New York, New York 10019

Attention:  Brian W. Pusch, Esq.

Dear Sir or Madam:

          As Escrow Agent for both Monterey Pasta Company, a Delaware 
corporation (the "Company"), and the holder of shares (the "Series B 
Preferred Shares") of Series B Convertible Preferred Stock of the Company 
(the "Buyer"), who is named in the Subscription Agreement between the Company 
and the Buyer to which a copy of these Joint Escrow Instructions is attached 
as ANNEX II (the "Agreement"), the Escrow Agent is hereby authorized and 
directed to hold the documents and the funds (together with any interest 
thereon, the "Escrow Funds") delivered to the Escrow Agent pursuant to the 
terms of the Agreement, in accordance with the following instructions:

          1.   After receipt of written or oral notice from the Company and 
the Buyer to the Escrow Agent that their respective conditions precedent to 
the exchange of the Preferred Shares for shares (the "Series B Preferred 
Shares") of Series B-1 Convertible Preferred Stock of the Company have been 
satisfied or waived by the Company and the Buyer, the Escrow Agent shall, 
after deduction of the amount referred to in the next succeeding sentence, 
release the certificates for the Series B Preferred Shares to or upon the 
order of the Company and shall release the certificate for the Series B-1 
Preferred Shares and the Escrow Funds to the Buyer. After receipt of such 
notices, a portion of the Escrow Funds shall be released to or upon the order 
of the Buyer in payment of the expenses of the Buyer payable by the Company 
in accordance with Section 4(e) of the Agreement in such amount as shall be 
specified in writing by the Buyer to the Escrow Agent prior to release of the 
Escrow Funds (the "Expense Amount"). If Escrow Funds are released to or upon 
the order of the Company, the amount thereof shall be reduced by all wire 
transfer fees in respect of release of the Escrow Funds. If the Company or 
the Buyer notifies the Escrow Agent that on the Closing Date (as defined in 
the Agreement), the conditions precedent to the obligations of the Company or 
the Buyer, as the case may be, under the Agreement were not satisfied or 
waived, then the Escrow Agent shall, after deducting an amount equal to the 
Expense Amount, release the Escrow Funds and the certificates for the Series 
B-1 Preferred Shares to the Company and shall release the certificates for 
the Series B Preferred Shares and an amount equal to the Expense Amount to or 
upon the order of the Buyer. The Escrow Agent shall deposit all funds 
received hereunder in the Escrow Agent's attorney escrow account at Citibank, 
N.A. and as promptly as practicable after receipt of such funds deposit the 
same in an interest-bearing account. The Escrow Agent shall not be liable for 
interest on the Escrow Funds (other than such interest as shall be paid to 
the Escrow Agent by its depository

                              II-1

<PAGE>

bank for the Escrow Funds) for any reason, including by reason of any delay 
or mistake in delivery of the Escrow Funds or any other funds held by the 
Escrow Agent hereunder.

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

          3.   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 Escrow Agent while acting in good faith, and any act done or omitted by 
the Escrow Agent pursuant to the advice of the Escrow Agent's 
attorneys-at-law shall be conclusive evidence of such good faith. In no event 
shall the Escrow Agent incur any liability or be held responsible, if any 
certificate for Series B Preferred Shares of Series B-1 Preferred Shares, 
once released from escrow hereunder, shall become lost, stolen, destroyed, 
mutilated or misplaced while in transit to any person, provided the Escrow 
Agent shall have dispatched the same by a means customarily used by the 
Escrow Agent.

          4.   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, firm 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.

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

          6.   The Escrow Agent shall not be liable for the outlawing of any 
rights under the Statute of Limitations with respect to these Joint Escrow 
Instructions or any documents or Escrow Funds deposited with or held by the 
Escrow Agent.

          7.   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 obligations 
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 Buyer in connection with the transactions contemplated by the 
Agreement and may continue to act as legal counsel for the Buyer 
notwithstanding its duties as Escrow Agent hereunder.

          8.   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 Buyer. In the event of any such resignation, the Buyer shall 
appoint a successor Escrow Agent.

          9.   If the Escrow Agent reasonably requires other or further 
instruments in connection with these Joint Escrow Instructions or obligations 
in respect thereto, the necessary parties hereto shall join in furnishing 
such instruments.

          10.  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 Escrow Funds held by

                              II-2

<PAGE>

the Escrow Agent hereunder, the Escrow Agent is authorized and directed, in 
its sole discretion (a) to retain in the Escrow Agent's possession without 
liability to anyone all or any part of said documents or Escrow Funds until 
such disputes shall have been settled either by mutual written agreement of 
the parties concerned or by a final order, decree or judgment of 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 (b) at any time, to deposit the 
documents or Escrow Funds with any court of competent jurisdiction in the 
state of New York, in which event the Escrow Agent shall give notice thereof 
to the Buyer and the Company and shall thereupon be relieved and discharged 
from all further obligations hereunder.

          11.  The Company and the Buyer jointly and severally agree to 
indemnify and hold harmless the Escrow Agent from any and all claims, 
liabilities, costs or expenses in any way arising from or relating to the 
duties or performance of the Escrow Agent hereunder 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.

          12.  Any notice required or permitted hereunder shall be given in 
writing (unless otherwise specified herein) and shall be deemed effectively 
given upon personal delivery or transmission by telephone line facsimile 
transmission or three business days after deposit in the United States Postal 
Service, by registered or certified mail with postage and fees prepaid, 
addressed to each of the other parties thereunto entitled at the following 
addresses, or at such other addresses as a party may designate by ten days 
advance written notice to each of the other parties hereto.

CORPORATION:                  At the address set forth in the                 
              introductory paragraph of the                               
Agreement

                              Attention:  Chief Financial Officer

                              Facsimile No. (510) 736-5832

BUYER:                        At the address set forth in the Agreement

                              Facsimile No. (914) 533-2222

ESCROW AGENT:                 Law Offices of Brian W. Pusch                   
            Penthouse Suite                               29 West 57th Street 
                              New York, New York 10019

                              Facsimile No. (212) 980-7055

          13.  By signing these Joint Escrow Instructions, the Escrow Agent 
becomes a party hereto only for the purpose of these Joint Escrow 
Instructions; the Escrow Agent does not become a party to the Agreement. The 
Company and the Buyer have become parties hereto by their execution and 
delivery of the Agreement, as provided therein.

          14.  This instrument shall be binding upon and inure to the benefit 
of the parties hereto, and their respective successors and permitted assigns 
and shall be governed by the laws of the State of New York.

                              II-3

<PAGE>

          15.  Capitalized terms used herein and not otherwise defined herein 
shall have the respective meanings provided in the Agreement.

ACCEPTED BY ESCROW AGENT:

/s/ Brian W. Pusch 
----------------------------------
Brian W. Pusch, as Escrow Agent


                              II-4

<PAGE>                                                        Annex III       
                                                     to                       
                                  Exchange                                    
                     Agreement

                    TRANSFER AGENT AGREEMENT

          THIS TRANSFER AGENT AGREEMENT, dated as of April ____, 1997, by and 
among MONTEREY COMPANY, a Delaware corporation (the "Company"), CORPORATE 
STOCK TRANSFER, as Transfer Agent and Registrar (the "Transfer Agent"), and 
PANGAEA FUND LIMITED, a British Virgin Islands corporation (the "Holder").

                      W I T N E S S E T H:                       - - - - - - 
- - - --

          WHEREAS, pursuant to an Exchange Agreement, dated as of March __, 
1997, by and between the Company and the Holder (the "Exchange Agreement"), 
the Holder ha s acquired or will acquire shares (the "Preferred Shares") of 
Series B-1 Convertible Preferred Stock, $.001 par value (the "Series B-1 
Preferred Stock"), of the Company, and

          WHEREAS, as a condition precedent to the obligation of the Holder 
to acquire the Preferred Shares, the Holder requires the execution and 
delivery of this Agreement by the Company and the Transfer Agent to assure 
that the Holder and each other holder of shares of Series B-1 Preferred Stock 
will be assured of the timely issuance and receipt of shares of Common Stock, 
$.001 par value (the "Common Stock"), of the Company upon conversion of 
shares of Series B-1 Preferred Stock;

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

          1.   DELIVERIES BY THE COMPANY.  Contemporaneously with the 
execution and delivery of this Agreement, the Company is delivering to the 
Transfer Agent the following:

          (a)  a list showing the name and address of each holder      of 
record of shares of Series B-1 Preferred Stock and the      certificate 
number, date of issuance and number of shares of      Series B-1 Preferred 
Stock for each such holder;

          (b)  an opinion of Gray Cary Ware & Freidenrich,      counsel to 
the Company, as to the due authorization,      validity of issuance and 
fully-paid and non-assessable      nature of the shares (the "Common Shares") 
of Common Stock      issuable upon conversion of shares of Series B-1 
Preferred      Stock and to the effect that the shares of Series B-1      
Preferred Stock have been or will be, and the Common Shares      may be, 
issued to the Investors without registration under      the Securities Act of 
1933, as amended (the "Securities      Act"); and

          (c)  the form of Notice of Conversion of Convertible      Preferred 
Stock (the "Conversion Notice") relating to the      Series B-1 Preferred 
Stock.

          2.   ISSUANCE OF COMMON SHARES.  (a) The Transfer Agent hereby 
agrees to act as conversion agent for the Series B-1 Preferred Stock. The 
Company hereby irrevocably instructs the Transfer Agent to issue the Common 
Shares upon conversion of shares of Series B-1 Preferred Stock from time to 
time upon receipt of a Conversion Notice. A Conversion Notice may be given by 
telephone line facsimile transmission to the Transfer Agent or otherwise 
given to the Transfer Agent, in each such case at the address and in the 
manner provided in Section 6(g). The

<PAGE>

certificates for shares of Series B-1 Preferred Stock need not be surrendered 
in connection with the conversion thereof by the holder thereof.

          (b)  The certificates for Common Shares issued prior to receipt by 
the Transfer Agent of an opinion of Gray Cary Ware & Freidenrich, Law Offices 
of Brian W. Pusch or other counsel (who may be counsel to the Holder) 
reasonably acceptable to the Company, that a registration statement under the 
Securities Act relating to the resale of Common Shares has been declared 
effective by the Securities and Exchange Commission (the "SEC") shall bear 
the following legend:

     "The securities represented by this certificate have not      been 
registered under the Securities Act of 1933, as      amended. The securities 
have been acquired for investment      and may not be sold, transferred or 
assigned in the absence      of an effective registration statement for the 
securities      under the Securities Act of 1933, as amended, or an opinion   
   of counsel that registration is not required under said      Act."

Once the Transfer Agent receives such opinion of counsel, thereafter (1) upon 
surrender of the certificate for Common Shares issued prior to the date the 
Transfer Agent receives such opinion of counsel and upon request of the 
Holder, the Transfer Agent will prepare and issue within three business days 
after such surrender and request substitute certificates without any 
restrictive legend for any certificates for Common Shares issued prior to the 
date the Transfer Agent receives such opinion of counsel and shall 
immediately remove any stop-transfer restriction against such Common Shares 
and (2) neither the Company nor the Transfer Agent shall place any 
restrictive legend or stop-transfer restriction against Common Shares issued 
after the Transfer Agent receives such opinion of counsel.

          (c)  If the Transfer Agent receives an opinion of counsel (who may 
be counsel to the Holder), which counsel shall be reasonably acceptable to 
the Transfer Agent, to the effect that the Common Shares may be resold or 
otherwise transferred by the holder thereof without registration under the 
Securities Act and that no restrictive legend is required by the Securities 
ct to appear on the certificates for the Common Shares so sold or 
transferred, then upon the sale or other transfer such of Common Shares, upon 
surrender of the certificates for Common Shares to be sold or otherwise 
transferred and upon request of the Holder, the Transfer Agent will prepare 
and issue, within three business days after such surrender and request, 
certificates without any restrictive legend and not subject to any 
stop-transfer restriction.

          3.   CONVERSION AND EXERCISE OBLIGATIONS ABSOLUTE; NO CONTRARY 
INSTRUCTIONS.  (a) If a holder shall have given a conversion of shares of 
Series B-1 Convertible Preferred Stock in accordance with Section 2, the 
Company shall be obligated to issue and deliver as stated in such Conversion 
Notice, and the Transfer Agent hereby agrees to issue and deliver as stated 
in such Conversion Notice, the Common Shares issuable upon such conversion 
within three business days after such Conversion Notice is given and the 
person converting shall be deemed to be the holder of record of the Common 
Shares issuable upon such conversion, and all rights with respect to the 
shares of Series B-1 Preferred Stock so converted shall forthwith terminate 
except the right to receive the Common Shares or other securities, cash, or 
other assets as provided in the Certificate of Designations of the Series B-1 
Preferred Stock (the "Certificate of Designations"). The Transfer Agent 
acknowledges and agrees that, if a holder shall have given a Conversion 
Notice as provided herein, the Company's obligation to issue and deliver the 
certificates for Common Shares upon such conversion shall be absolute and 
unconditional, irrespective of any action or inaction by the converting 
holder to enforce the same, any waiver or consent with respect to any 
provision thereof, the recovery of any judgment against any person or any 
action to enforce the same, any failure or delay in the enforcement of any 
other obligation of the Company to the holder of record, or any set off, 
counterclaim, recoupment, limitation or termination, or any breach or alleged 
breach by the holder of any obligation to the Company, and

                               -2-

<PAGE>

irrespective of any other circumstance with might otherwise limit such 
obligation of the Company to the holder in connection with such conversion or 
exercise.

          (b)  The Company agrees not to give any instruction to the Transfer 
Agent which is contrary to this Agreement. The Transfer Agent hereby agrees 
that it will disregard any request, instruction or other communication from 
or on behalf of the Company which is contrary to or inconsistent with this 
Agreement. The Company shall not appoint any transfer agent (other than the 
Transfer Agent) or registrar for its Common Stock unless at the time of such 
appointment any such successor enters into an agreement of like tenor with 
this Agreement.

          (c)  As set forth in Section 9(c)(3) of the Certificate of 
Designations, the number of Common Shares to be issued in connection with a 
particular conversion of shares of Series B-1 Preferred Stock is, absent 
manifest error, conclusively the number of Common Shares stated in the 
applicable Conversion Notice. If in connection with a particular conversion 
of shares of Series B-1 Preferred Stock the Company determines that manifest 
error has been made by virtue of the conversion price or other information 
set forth in the applicable Conversion Notice, the Company shall have the 
right immediately to notify the Transfer Agent of such error, which notice 
shall state the number of Common Shares in dispute, and, notwithstanding such 
notice from the Company, the Transfer Agent shall issue and deliver the 
number of Common Shares not in dispute as and when required by this 
Agreement. If the Company shall have notified the Transfer Agent of any such 
manifest error, the Company shall on the date such notice is given submit the 
dispute to BDO Seidman, LLP or another firm of independent public accountants 
of recognized national standing (the "Auditors") for determination and shall 
instruct the Auditors to resolve such dispute and to notify the Company, the 
Transfer Agent and the converting holder of shares of Series B-1 Convertible 
Preferred Stock within one business day after such dispute is submitted to 
the Auditors. Immediately after receipt of timely notice of the Auditor's 
determination (but in any event within three business days after the 
applicable Notice of Conversion is given to the Transfer Agent), the Transfer 
Agent shall issue to the converting holder any additional Common Shares to 
which such holder is entitled based on the determination of the Auditor. The 
Transfer Agent is authorized and directed to rely on the Auditor's 
determination. If the Auditors shall fail to notify the Transfer Agent of 
their determination within three business days after the applicable 
Conversion Notice is given to the Transfer Agent, then the Transfer Agent 
shall, within three business days after receipt of the applicable Notice of 
Conversion, issue to the converting holder any additional shares of Common 
Stock to which the holder is entitled based on the applicable Conversion 
Notice. Such immediate and prompt action shall be taken by all the parties 
hereto in order to assure that there shall be full compliance with the 
Company's unqualified obligation that all Common Shares issuable upon such 
conversion be issued by the due date therefor as provided herein and in the 
Certificate of Designations.

          4.   TRANSFER AGENT DUTIES.  The obligations and duties of the 
Transfer Agent under this Agreement are at all times and in all respects 
subject to the requirements of the Securities Exchange Act of 1934, as 
amended (the "Exchange Act"), and the rules and regulations of the SEC 
thereunder applicable to transfer agents registered with the SEC.

          5.   INDEMNIFICATION.  The Company agrees to indemnify and hold 
harmless the Transfer Agent, each officer, director, employee and agent of 
the Transfer Agent, and each person, if any, who controls the Transfer Agent 
within the meaning of the Securities Act or the Exchange Act against any 
losses, claims, damages or liabilities, joint or several, to which it, they 
or any of them, or such controlling person, may become subject, under the 
Securities Act, the Exchange Act or otherwise, insofar as such losses, 
claims, damages or liabilities (or actions in respect thereof) arise out of 
or are based upon the performance by the Transfer Agent of its duties 
pursuant to this Agreement; and will reimburse the Transfer Agent, and each 
officer, director, employee and agent of the Transfer Agent, and each such 
controlling person for any legal or other expenses reasonably incurred by it 
or any of them in connection with investigating or defending

                               -3-

<PAGE>

any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that 
the Company will not be liable in any case if such loss, claim, damage or 
liability arises out of or is based upon any action not taken in good faith, 
or any action omission that constitutes gross negligence or willful 
misconduct. Promptly after receipt by an indemnified party under this Section 
of notice of the commencement of any action, such indemnified party will, if 
a claim in respect thereof is to be made against the Company under this 
Section, notify in writing the Company of the commencement thereof, and 
failure so to notify the Company will relieve the Company from any liability 
under this Section as to the particular item for which indemnification is 
then being sought if such failure shall have materially prejudiced the 
Company's right to defend or contest such action, but not from any other 
liability which it may have to any indemnified party. In case any such action 
is brought against any indemnified party, and it notifies the Company of the 
commencement thereof, the Company will be entitled to participate with any 
other indemnifying party, similarly notified, to assume the defense thereof, 
with counsel who shall be to the reasonable satisfaction of such indemnified 
party, and after notice from indemnifying party to such indemnified party 
under this Section for any legal or other expenses subsequently incurred by 
such indemnified party in connection with the defense thereof other than 
reasonably costs of investigation. The Company shall not be liable to any 
such indemnified party on account of any settlement of any claim of action 
effected without the consent of the Company.

          6.   MISCELLANEOUS.

          (a)  This Agreement shall be governed by and interpreted in 
accordance with the laws of the State of California.

          (b)  This Agreement may be executed in counterparts and by the 
parties hereto on separate counterparts, all of which together shall 
constitute one and the same instrument. A facsimile transmission of this 
Agreement bearing a signature on behalf of a party hereto shall be legal and 
binding on such party.

          (c)  The headings of this Agreement are for convenience of 
reference and shall not form part of, or affect the interpretation of, this 
Agreement.

          (d)  If any provision of this Agreement shall be invalid or 
unenforceable in any jurisdiction, such invalidity or unenforceability shall 
not affect the validity or enforceability of the remainder of this Agreement 
or the validity or enforceability of this Agreement in any other jurisdiction.

          (e)  No failure or delay by any party in exercising any right or 
remedy under this Agreement or otherwise, and no course of dealing between 
the parties, shall operate as a waiver thereof or amendment of this 
Agreement, nor shall any single or partial exercise of any such right or 
power, or any abandonment or discontinuance of steps to enforce such a right 
or power, preclude any other or further exercise thereof or exercise of any 
other right or power.

          (f)  Neither this Agreement nor any term thereof (including this 
paragraph) may be amended, changed, waived, discharged or terminated unless 
such amendment, change, waiver, discharge or termination is in writing signed 
by the party to be charged with enforcement.

          (g)  Any notices required or permitted to be given under the terms 
of this Agreement shall be sent by mail or delivered personally (which shall 
include telephone line facsimile transmission) or by courier and shall be 
effective five days after being placed in the mail, if mailed, or upon 
receipt, if delivered personally or by courier, in each case addressed to a 
party as follows:

                               -4-

<PAGE>

     if to the Company:

     Monterey Pasta Company      1528 Moffat Street      Salinas, California 
93905

     Attention: Chief Financial Officer

     Facsimile No.: (714) 833-3990

     if to the Transfer Agent:

     Corporate Stock Transfer,        as Transfer Agent and Registrar      
370 17th Street, Suite 2350      Denver, Colorado 80202-4612

     Attention: Carylyn Bell

     Facsimile No.: (303) 592-8821

     if to the Holder:

     Pangaea Fund Limited      c/o MeesPierson Fund Services (Bahamas) 
Limited      Windermere House      404 East Bay Street      Nassau, Bahamas

     Facsimile No.: (809) 393-8777

     with a copy to:

     Pangaea Asset Management, Inc.      250 Kitchawan Road      South Salem, 
New York 10590

     Facsimile No.: (914) 533-5124

or such other address as a party shall have provided by notice to the other 
party in accordance with this provision.

          (h)  This Agreement is expressly made for the benefit of the 
holders of record from time to time of the Preferred Shares and the Common 
Shares and may not be changed, amended or modified to diminish or adversely 
affect the rights of such holders hereunder without the prior written consent 
of all such holders so affected.

                               -5-

<PAGE>

          IN WITNESS WHEREOF, this Agreement has been duly executed by the 
parties hereto by their respective officers or other representatives 
thereunto duly authorized as of the date first set forth above.

                              MONTEREY PASTA COMPANY

                              By_____________________
                              Name:
                              Title:

                              CORPORATE STOCK TRANSFER,
                              as Transfer Agent and Registrar

                              By______________________ 
                              Name:
                              Title:

                              PANGAEA FUND LIMITED

                              By_______________________ 
                              Name:
                              Title:

                               -6-

<PAGE>

                                                        Annex IV              
                                              to                              
                           Exchange                                           
              Agreement

                      NOTICE OF CONVERSION                  OF CONVERTIBLE 
PREFERRED STOCK

             SERIES B-1 CONVERTIBLE PREFERRED STOCK                     OF 
MONTEREY PASTA COMPANY

TO:  Corporate Stock Transfer, as Conversion Agent      370 17th Street      
Suite 2350      Denver, Colorado 80202-4612

     Attention:___________

     Facsimile No.: (303) _____________

          (1)  Pursuant to the terms of the Series B-1 Convertible Preferred 
Stock (the "Preferred Stock"), the undersigned hereby elects to convert 
________ shares of the Preferred Stock together with accrued and unpaid 
dividends thereon in the amount of $_________ and interest on dividends in 
arrears in the amount of $________ into shares of Common Stock, $.001 par 
value (the "Common Stock"), of Monterey Pasta Company, a Delaware corporation 
(the "Company"), or such other securities into which the Preferred Stock is 
currently convertible. Capitalized terms used in this Notice and not defined 
herein have the respective meanings provided in the Certificate of 
Designations for the Preferred Stock.

          (2)  Please issue certificates for the number of shares of Common 
Stock or other securities into which such number of shares of Preferred Stock 
is convertible in the name(s) specified immediately below of, if additional 
space is necessary, on an attachment hereto:

               _________________             _________________                
Name                     Name

               _________________             _________________                
Address                  Address

               _________________             _________________                
SS or Tax ID Number      SS or Tax ID Number

          (3)  The Conversion Date is __________.  Check and complete one of 
the following:

     _____          The undersigned elects to convert based on                
     the five-day arithmetic average of the                     Closing Price 
of the Common Stock. The                     Closing Price of the Common 
Stock on the five                     consecutive trading days preceding the  
                   Conversion Date and the arithmetic average                 
    thereof are as follows:

                              IV-1

<PAGE>

                    Date                          Closing Price               
      ----                          -------------

               __________________ ________________________

               __________________ ________________________

               __________________ ________________________

               __________________ ________________________

               __________________ ________________________

               Arithmetic Average:  $______

               OR

     _____          The undersigned elects to convert based on                
     the fixed price of the Common Stock of                     $__________ 
applicable to conversions of                     Preferred Stock.

          (4)  The number of shares of Common Stock issuable upon the 
conversion to which this Notice relates is _________.

          (5)  If the shares of Common Stock issuable upon conversion of the 
Preferred Stock have not been registered under the Securities Act of 1933, as 
amended (the "Act"), the undersigned represents and warrants that (i) the 
shares of Common Stock not so registered are being acquired for the account 
of the undersigned for investment, and not with a view to, or for resale in 
connection with, the public distribution thereof other than pursuant to 
registration under the Act, and that the undersigned has no present intention 
of distributing or reselling the shares of Common Stock not so registered 
other than pursuant to registration under the Act and (ii) the undersigned is 
an "accredited investor" as defined in Regulation D under the Act. The 
undersigned further agrees that (A) the shares of Common Stock not so 
registered shall not be sold or transferred unless either (i) they first 
shall have been registered under the Act and applicable state securities laws 
or (ii) the Company first shall have been furnished with an opinion of legal 
counsel reasonably satisfactory to the Company to the effect that such sale 
or transfer is exempt from the registration requirements of the Act and (B) 
the Company may place a legend on the certificate(s) for the shares of Common 
Stock not so registered to that effect and place a stop-transfer restriction 
in its records relating to the shares of Common Stock not so registered, all 
in accordance with the Exchange Act, dated as of April ____, 1997.

Date______________________ ______________________________________             
                       Signature of Holder (Must be                           
         signed exactly as name appears                                    on 
the Preferred Stock                                    Certificate.)

                              IV-2

<PAGE>

                                                         Annex V              
                                               to                             
                             Exchange                                         
                Agreement

                [LETTERHEAD OF COMPANY COUNSEL.]

                        [Date of Closing]

Pangaea Fund Limited c/o MeesPierson Fund Services   (Bahamas) Limited 
Windemere House 404 East Bay Street P.O. Box 55-6258 Nassau, The Bahamas

                     MONTEREY PASTA COMPANY

Ladies and Gentlemen:

          We have acted as counsel to Monterey Pasta Company, a Delaware 
corporation (the "Company"), in connection with the preparation, execution 
and delivery of the Exchange Agreement, dated as of March ____, 1997 (the 
"Agreement"), between the Company and Pangaea Fund Limited, a British Virgin 
Islands corporation. All capitalized terms used herein shall, unless 
otherwise defined herein or the context otherwise requires, have the 
respective meanings assigned to such terms in the Agreement.

          
[Other introductory statements acceptable to the Buyer may be included]

          Based upon and subject to the foregoing, we are of the opinion that:

          (1)  The Company is a corporation duly organized, validly existing 
and in good standing under the laws of the State of Delaware and has all 
requisite corporate power and authority to conduct its business as currently 
conducted;

          (2)  The Company has all requisite corporate power and authority to 
enter into the Agreement and the Transfer Agent Agreement and to consummate 
the transactions contemplated thereby. The execution, delivery and 
performance by the Company of the Agreement and the Transfer Agent Agreement 
and the consummation of the transactions contemplated thereby have been duly 
authorized by all necessary corporate action on the part of the Company. The 
Agreement and the Transfer Agent Agreement have been duly executed and 
delivered by the Company and constitute legal, valid and binding obligations 
of the Company, enforceable against the Company in accordance with their 
respective terms;

          (3)  The Preferred Shares have been duly authorized and, when 
issued and paid for in accordance with the Agreement, will be validly issued, 
fully paid and non-assessable;

          (4)  The Common Shares have been duly authorized and, when issued 
upon conversion of the Preferred Shares in accordance with the terms thereof 
will be validly issued, fully-paid and non-assessable;

                               V-1

<PAGE>

report or document other than a closing memorandum relating to the subject 
transaction or (iii) furnished (the original or copies thereof) to any party 
except in connection with the enforcement of the Agreement or in connection 
with the closing of the transactions contemplated by the Agreement.

                              Very truly yours,

cc:  Corporate Stock Transfer

                               V-3