Document:

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                                                                    EXHIBIT 10.1

                            ASSET PURCHASE AGREEMENT

         THIS PURCHASE AGREEMENT ("Agreement") is entered into as of December
31, 1999, by and among ALPHA MICROSYSTEMS, a California corporation doing
business as AlphaServ.com (the "Seller") and R.E. MAHMARIAN ENTERPRISES, LLC, a
California limited liability company (the "Buyer").

                                R E C I T A L S :

         WHEREAS, among the business operations of Seller are the following: (i)
multi-vendor computer hardware and software maintenance and repair services
throughout the United States and Canada via a network of field offices linked to
a national dispatch and advisory center through its "Alpha Micro Services
Division" ("AMSO"); and (ii) the manufacture and sale of computer hardware,
including hardware based upon its proprietary Alpha Micro Operating System
("AMOS") through a network of value added resellers (the "VAR Business") (AMSO,
AMOS and the VAR Business being collectively referred to herein as the
"Business").

         WHEREAS, Seller desires to sell and Buyer desires to purchase certain
of the assets associated with the Business, and Seller desires to assign and
delegate to Buyer and Buyer will be willing to assume certain of the liabilities
and obligations associated with the Business, all upon the terms and conditions
set forth herein. The sale of such assets, and the assignment and assumption of
such liabilities and obligations, are hereinafter together referred to as the
"Acquisition."

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

                                   ARTICLE I
                PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES

SECTION 1.01. PURCHASE AND SALE OF ASSETS.

         (a) Agreement to Purchase and Sell. On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from Seller and Seller
agrees to sell, transfer, convey and deliver to Buyer, all of the Acquired
Assets at the Closing for the consideration specified herein.

         (b) Acquired Assets and Retained Assets. Other than the "Retained
Assets" set forth under separate headings with respect to Seller on Schedule
1.01-A, the term "Acquired Assets" shall mean all right, title and interest in
and to all of the tangible and

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intangible assets of the Business owned as of the Closing Date by Seller which
are set forth on the following Schedules which have been prepared under separate
headings to list or describe the Acquired Assets as of the date hereof, and
which Schedules, together with every other Schedule referred to in this
Agreement, shall be updated as of the Closing Date:

                  (i) Personal Property. The tangible and intangible personal
         property owned by Seller, arising out of or in connection with the
         ownership, marketing, sale and/or operation of the Business
         (collectively, "Personal Property"), a list of all such items of
         tangible Personal Property being transferred pursuant to this Agreement
         is set forth on Schedule 1.01-B and a list of all such items of
         intangible Personal Property being transferred pursuant to this
         Agreement is set forth on Schedule 1.01-C.

                  (ii) Permits and Licenses. To the extent assignable or
         transferable by Seller, the authorizations, approvals, variances,
         permits, licenses in connection with the management or operation of the
         Business, issued by or in favor of any federal, state, local, municipal
         or other governmental, quasi-governmental, or private authorities,
         districts or jurisdictions (including the applications and/or documents
         filed, and/or fees paid, in connection therewith) (collectively,
         "Permits and Licenses"), a list and description of which Permits and
         Licenses is set forth on Schedule 1.01-D.

                  (iii) Leases. Seller's interests with respect to the Business
         as lessor, master lessor, lessee or sublessee in, to and under leases,
         subleases, occupancy agreements, concessions and licenses to which
         Seller is a party, together with any and all guaranties of Seller's
         interest as a tenant or subtenant under any such leases and all rents,
         rentals and security deposits (collectively, the "Leases"), a list of
         which Leases being transferred pursuant to this Agreement is set forth
         on Schedule 1.01-E.

                  (iv) Contracts. The (A) personal property leases and equipment
         leases, (B) maintenance contracts, (C) labor union contracts,
         employment agreements and management agreements, and (D) other
         contracts and agreements to which Seller is a party or by which the
         Acquired Assets are bound (collectively, "Contracts"), a list of which
         Contracts being transferred pursuant to this Agreement is set forth on
         Schedule 1.01-F.

                  (v) Accounts Receivable and Other Assets. The outstanding
         receivables, security and utility deposits, prepaid expenses and other
         assets of the Business as of the Closing Date that are set forth on
         Schedule 1.01-G.

         SECTION 1.02. ASSUMPTION OF LIABILITIES. Upon the terms and subject to
the conditions contained herein, effective on the Closing Date, Buyer will
assume all of the obligations and liabilities of Seller which are related to the
Business and the Acquired Assets, including those obligations and liabilities
set forth on Schedule 1.02. The obligations and liabilities set forth on
Schedule 1.02 together with the obligations and liabilities otherwise assumed by
Buyer pursuant

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to this Agreement are collectively referred to as the "Assumed Liabilities".
Buyer shall not assume any obligations or liabilities of the Seller other than
those specifically described in this Section 1.02 and otherwise assumed by Buyer
pursuant to this Agreement.

         SECTION 1.03. PURCHASE PRICE. As and in consideration of the sale,
transfer, assignment, conveyance and delivery of the Acquired Assets and the
promises and agreements made by Seller on the Closing Date, Buyer shall deliver
to or for the benefit or for the account of the Seller the following:

                  (a) Accounts Receivable. The accounts receivable in the amount
         set forth on Schedule 1.01A which have been retained by Seller.

                  (b) Assumption of Liabilities. Assumption documents with
         respect to the Assumed Liabilities.

                  (c) Contingent Payment.

                           (i) In the event that Buyer, at any time following
                  the Closing Date, engages in any transaction or series of
                  transactions involving (A) the sale of all or substantially
                  all of the Business or Acquired Assets, (B) a public offering
                  of any of the securities of Buyer or any affiliate of Buyer,
                  (C) the merger, acquisition, joint venture, business
                  partnering of Buyer or any affiliate with any other person or
                  entity as a result of which Buyer or the Managing Member of
                  Buyer is not in control of the entity that survives any such
                  merger or acquisition or is not in control of the entity that
                  controls such joint venture of the partnering relationship, or
                  (D) any sale/lease-back transactions involving all or
                  substantially all of the Business or the Acquired Assets, or
                  (E) any financings of all or substantially all of the Business
                  or the Acquired Assets that are non-recourse to Buyer (each a
                  "Triggering Event"), then Buyer shall pay to Seller an amount
                  (the "Contingent Payment") equal to the greater of Five
                  Hundred Thousand Dollars ($500,000) or ten percent (10%) of
                  the gross cash proceeds and ten percent (10%) "in kind" of any
                  noncash proceeds received by Buyer in connection with any such
                  Triggering Event. The Contingent Payment shall only be payable
                  with respect to the first of any such Triggering Event to
                  occur.

                           (ii) Buyer shall provide Seller with prompt written
                  notice of its intention to engage in any activity reasonably
                  calculated to result in a Triggering Event and shall, during
                  the pendency of closing any such Triggering Event, deliver to
                  Seller such information, financial or otherwise, as Seller may
                  reasonably request in order to assess the Triggering Event and
                  to calculate the amount of the Contingent Payment to be paid
                  to Seller upon the closing of such Triggering Event.

         SECTION 1.04. ALLOCATION OF PURCHASE PRICE. The Buyer and Seller agree
to report this transaction for tax purposes in accordance with the allocation of
the Purchase Price set forth on Schedule 1.04 which shall be attached to this
Agreement or the Closing Date, and to execute IRS Form 8594 reflecting the same,
which form shall be appropriately filed with the Internal

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Revenue Service as soon as practicable thereafter and in any event by the date
the same is due. If the Buyer and Seller are, however, unable to agree on such
allocations, each party shall be free to make such allocations as it reasonably
determines to be appropriate.

                                   ARTICLE II
                                   THE CLOSING

         SECTION 2.01. THE CLOSING. The closing of the transactions contemplated
by this Agreement ("Closing") shall occur on or before January 31, 2000 (or such
earlier date as the third party consents are obtained), unless a later date is
agreed to by Buyer and Seller ("Closing Date"). At least two (2) Business Days
prior to the Closing Date, Seller shall deliver all of the updated Schedules to
Buyer. The Closing shall take place at the offices of Allen Matkins Leck Gamble
& Mallory LLC, 18400 Von Karman, Third Floor, Irvine, California 92612,
commencing at 5:00 p.m. California time on the Closing Date.

         SECTION 2.02. ACTIONS TO BE TAKEN AT CLOSING. The following actions
shall be taken by the respective parties at the Closing:

                  (a) Actions to be Taken by Seller. Seller shall take the
         following actions and deliver the following to Buyer:

                           (i) Bills of Sale. Duly executed bills of sale with
                  respect to all of the Personal Property.

                           (ii) Assignment of Leases. Duly executed assignments
                  of all Leases in form and substance reasonably satisfactory to
                  Buyer, together with the originals of all Leases; provided,
                  however, that with respect to any Lease that is not assigned
                  to Buyer on the Closing Date, Seller shall maintain, until the
                  expiration of the term of such Lease, the contractual
                  relationship established therein, to the extent reasonably
                  practicable.

                           (iii) Assignments of Contracts. Duly executed
                  assignments of the Contracts in form and substance reasonably
                  satisfactory to Buyer; provided, however, that with respect to
                  any Contract that is not assigned to Buyer on the Closing Date
                  and which Contract is not a contract for service or
                  maintenance, Seller shall maintain until the expiration of the
                  term of such Contract, the contractual relationship
                  established therein, to the extent reasonably practicable and,
                  with respect to any Contract that is a contract for service or
                  maintenance, Seller shall maintain to the extent reasonably
                  practicable, the contractual relationship established therein
                  for a one (1) year period following the Closing Date unless
                  such Contract expires earlier in accordance with its terms or
                  is otherwise terminated other than by Seller.

                           (iv) Consents. All of the governmental or third-party
                  notices, consents, waivers and approvals set forth on Schedule
                  2.02, which are required for the valid transfer of the
                  Acquired Assets.

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                           (v) Books and Records. All of Seller's books, records
                  and files relating to the Acquired Assets and the Business;
                  provided, however, that such books and records shall be
                  jointly held by Buyer and Seller until such time as Seller
                  shall have filed its Annual Report on Form 10-K with the
                  Securities Exchange Commission and thereafter Seller shall
                  have continuing access to such books and records with respect
                  to its financial reporting/accounting and tax requirements.

                           (vi) License Agreement. A license agreement
                  substantially in the form attached hereto as Exhibit A
                  ("License Agreement") providing Buyer with the right to use
                  the AlphaCONNECT technology as currently being utilized by the
                  Business, solely for Buyer's internal use in the continuing
                  operation of the Business (but not to provide for resale or
                  distribution) for a term of up to five (5) years at a license
                  fee of $2,000 per month.

                           (vii) Licenses and Permits. Originals or copies of
                  all Licenses and Permits related to the Business.

                           (viii) Sublease. An agreement, substantially in the
                  form of Exhibit B attached hereto, to sublease the space
                  presently occupied by the Business as 2722 South Fairview
                  Street, Santa Ana, CA 92704 for a term expiring on December
                  31, 2000 which shall provide for free rent during the three
                  (3) month period following the Closing Date, and thereafter
                  shall provide for Buyer to pay an amount of rent determined on
                  the basis of the pro rata amount of space utilized by Buyer,
                  which space shall constitute at least 60% of available square
                  footage.

                           (ix) Updated Schedules. Revised copies of each of the
                  Schedules prepared by Seller and delivered on the date of this
                  Agreement, which Schedules shall be updated to the Closing
                  Date.

                           (x) Tradename and Other Licenses. Subject only to the
                  Seller's right to use and the currently existing rights of
                  others, Buyer shall receive an exclusive, fully paid,
                  perpetual, world wide license to use the name Alpha
                  Microsystems (and all associated logos, marks and trade dress
                  related to the Business) in all forms of business.

                  (b) Actions to be Taken by Buyer. Buyer shall take the
         following actions:

                           (i) Assumption Agreement. Deliver to Seller duly
                  executed Assumption Agreements with respect to the Assumed
                  Liabilities substantially in the form attached hereto as
                  Exhibit C.

                           (ii) Updated Schedules. Revised copies of each of the
                  Schedules prepared by Buyer and delivered on the date of this
                  Agreement, which Schedules shall be updated to the Closing
                  Date.

                  (c) Actions to be Taken by Buyer and Seller with Respect to
         Employees. Those persons who are employed by Seller as of the Closing
         Date as employees of the

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         Business (which persons shall be set forth on Schedule 2.02(c) as
         prepared by Buyer and delivered to Seller prior to the Closing Date)
         shall be terminated as employees of record of Seller and shall be
         simultaneously hired as employees of record of Buyer under comparable
         compensation, terms and conditions of employment, including credit for
         time of service with Seller for purposes of future severance, vacation
         and sick pay accrual. Seller shall be responsible for all applicable
         accrued wage and bonus obligations to employees up to the Closing Date
         when such employees are terminated by Seller and simultaneously
         employed by Buyer. Buyer shall be responsible for all wages, vacation,
         bonuses, sick pay and severance obligations to employees of Buyer
         accruing with respect to periods following their employment by Buyer on
         the Closing Date and shall be responsible for all of Seller's accrued
         vacation, sick pay and severance obligations with respect to such
         employees for all periods up to the Closing Date.

                  (d) Actions to Be Taken by Both Buyer and Seller. Buyer and
         Seller each shall do or cause to be done such other matters and things,
         including the execution and delivery of additional documents of
         assignment and assumption, as shall be necessary or reasonably
         expeditious to close the transactions contemplated herein in the manner
         contemplated herein. To the extent that a form of any document to be
         delivered hereunder is not attached as a schedule hereto, the
         instrument shall be in form and substance, and shall be executed and
         delivered in a manner, reasonably satisfactory to the Buyer and Seller.

         SECTION 2.03. CONDITIONS TO OBLIGATION OF BUYER. The obligation of
Buyer to consummate the Closing shall be subject to satisfaction of the
following conditions (any one or more of which may be waived by Buyer, but only
in a writing signed by Buyer):

                  (a) Accuracy of Representations and Warranties. The
         representations and warranties set forth in Article III shall be true
         and correct in all material respects at and as of the Closing Date with
         the same force and effect as if they had been made on the Closing Date.

                  (b) Compliance with Covenants. Seller shall have performed and
         complied with all of its covenants hereunder in all material respects
         through the period ending on the Closing Date.

                  (c) Legal Restraint. No action, suit, or proceeding shall be
         pending or threatened before any court or quasi-judicial or
         administrative agency of any federal, state, commonwealth, local, or
         foreign jurisdiction wherein an unfavorable judgment, order, decree,
         stipulation, injunction, or charge would (i) prevent consummation of
         any of the transactions contemplated by this Agreement, (ii) cause any
         of the transactions contemplated by this Agreement to be rescinded
         following consummation, or (iii) affect adversely the right of Buyer to
         own any material portion of the Acquired Assets (and no such judgment,
         order, decree, stipulation, injunction, or charge shall be in effect).

                  (d) Compliance Certificate. Seller shall have delivered to
         Buyer a certificate executed by Seller's Chief Executive Officer and
         Chief Financial Officer to the effect that

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         the conditions specified above in subsections (a)-(c) are satisfied in
         all respects to their knowledge after reasonable inquiry.

                  (e) Consents. Seller shall have procured all of the
         third-party consents set forth on Schedule 2.02, provided, however,
         that with respect to any Contract that is not consented to on the
         Closing Date and which contract is not a contract for service or
         maintenance, Seller shall maintain until the expiration of the term of
         such Contract, the contractual relationship established therein, to the
         extent reasonably practicable and, with respect to any Contract that is
         a contract for service or maintenance, Seller shall maintain to the
         extent reasonably practicable, the contractual relationship established
         therein for a one (1) year period following the Closing Date unless
         such Contract expires earlier in accordance with its terms or is
         otherwise terminated other than by Seller.

                  (f) Illegality. No statute, rule, regulation, executive order
         or decree shall have been enacted, promulgated or enforced (and not
         repealed, superseded or otherwise made inapplicable) by any
         governmental authority or private person or entity which prohibits the
         consummation of the transactions contemplated by this Agreement or
         which would prohibit or impair the acquisition of the Acquired Assets.

                  (g) Sale and Transfer of Assets. Seller shall have delivered
         to Buyer good and sufficient bills of sale, which shall be in form and
         substance satisfactory to Buyer, selling, delivering and transferring
         to Buyer all of Seller's right, title and interest to the Acquired
         Assets.

                  (h) Assignments of Agreements. Seller shall have delivered to
         Buyer good and sufficient assignments of the Leases and Contracts;
         provided, however, that with respect to any Contact that is not
         assigned to Buyer on the Closing Date and which Contract is not a
         contract for service or maintenance, Seller shall maintain until the
         expiration of the term of such Contract, the contractual relationship
         established therein, to the extent reasonably practicable and, with
         respect to any Contract that is a contract for service or maintenance,
         Seller shall maintain to the extent reasonably practicable, the
         contractual relationship for a one (1) year period following the
         Closing Date unless such Contract expires earlier in accordance with
         its terms or is otherwise terminated other than by Seller.

                  (i) Other Assignment and Transfer Documentation. Seller shall
         have delivered to Buyer such other separate instruments of sale,
         assignment or transfer that Seller and Buyer may reasonably deem
         necessary or appropriate in order to perfect, confirm or evidence in
         Buyer title to all or any part of the Acquired Assets.

                  (j) Certified Board Resolutions. Seller shall have delivered
         to Buyer copies of the resolutions adopted by Seller's board of
         directors approving the execution of this Agreement and the
         consummation of the transactions contemplated hereby, which resolutions
         shall be certified by the Secretary of Seller.

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                  (k) Actions Taken at Closing. Seller shall have taken all of
         the actions contemplated by Section 2.02(a) at the Closing and all
         actions required of Seller at the Closing under Section 2.02(c).

         SECTION 2.04. CONDITIONS TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the Closing shall be subject to satisfaction of the
following conditions (any one or more of which may be waived by Seller, but only
in a writing signed by Seller):

                  (a) Accuracy of Representations and Warranties. The
         representations and warranties set forth in Article IV shall be true
         and correct in all material respects at and as of the Closing Date with
         the same force and effect as if they had been made on the Closing Date.

                  (b) Compliance with Covenants. Buyer shall have performed and
         complied with all of its covenants hereunder in all material respects
         through the period ending on the Closing Date.

                  (c) Legal Restraint. No action, suit, or proceeding shall be
         pending or overtly threatened before any court or quasi-judicial or
         administrative agency of any federal, state, commonwealth, local, or
         foreign jurisdiction wherein an unfavorable judgment, order, decree,
         stipulation, injunction, or charge would (i) prevent consummation of
         any of the transactions contemplated by this Agreement or (ii) cause
         any of the transactions contemplated by this Agreement to be rescinded
         following consummation (and no such judgment, order, decree,
         stipulation, injunction, or charge shall be in effect).

                  (d) Compliance Certificate. Buyer shall have delivered to
         Seller a certificate executed by Buyer's Managing Member to the effect
         that the conditions specified above in subsections (a)-(c) are
         satisfied in all respects.

                  (e) Illegality. No statute, rule, regulation, executive order
         or decree shall have been enacted, promulgated or enforced (and not
         repealed, superseded or otherwise made inapplicable) by any
         governmental authority which prohibits the consummation of the
         transactions contemplated by this Agreement.

                  (f) Assumption of Liability. Buyer shall have delivered to
         Seller such instruments of assumption that Seller may reasonably deem
         necessary or appropriate in order to perfect, confirm or evidence the
         assumption by Buyer of the Assumed Liabilities.

                  (g) Certified Consents and Actions. Buyer shall have delivered
         to Seller copies of the Buyer's Managing Member consents and any other
         actions approving the execution of this Agreement and the consummation
         of the transactions contemplated hereby.

                  (h) Actions Taken at Closing. Buyer shall have taken all of
         the actions contemplated by Section 2.02(b) at the Closing and all
         actions required of Buyer under Section 2.02(c).

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                  (i) Fairness Opinion. Seller shall have received a fairness
         opinion (the "Fairness Opinion") from an investment banking firm chosen
         by Seller, which Fairness Opinion shall state that the terms of the
         transactions contemplated by this Agreement are fair, from a financial
         point of view, and which Fairness Opinion shall be in form and
         substance reasonably satisfactory to Seller.

                  (j) Lender and Preferred Shareholder Consent. Seller shall
         have received the written consent of each of Imperial Bank and
         Hampshire Equity Partners with respect to the sale of the Business and
         the Acquired Assets, in form and substance reasonably satisfactory to
         Seller.

                                  ARTICLE III
                    REPRESENTATIONS AND WARRANTIES OF SELLER

         Seller represents and warrants to Buyer that the statements contained
in this Article III are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Article III), except as set forth in the disclosure schedule
accompanying this Agreement which shall be prepared by Seller and delivered to
Buyer prior to the Closing Date hereof ("Disclosure Schedule III"). Disclosure
Schedule III will be arranged in paragraphs corresponding to the Section numbers
contained in this Article III.

         SECTION 3.01. DUE ORGANIZATION, AUTHORIZATION, ETC. Seller is a
corporation, duly organized and validly existing and in good standing under the
laws of the State of California. Seller is qualified to do business and is in
good standing under the laws of each state where such qualification is necessary
in connection with the Business. Seller has the right, power and authority to
make and perform its obligations under this Agreement, and the execution,
delivery and performance of this Agreement does not violate the articles of
incorporation or bylaws of Seller or any material contract, agreement or
commitment to which Seller is a party or by which the Business or the Acquired
Assets are bound. The execution and delivery of this Agreement and the
performance by Seller of its obligations hereunder have been duly authorized by
all necessary action on the part of Seller. This Agreement constitutes the valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization and other similar laws of general applicability relating to
creditors' rights and to general equity principles. No consent, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency, commission, regulatory authority or other governmental
authority or instrumentality, whether domestic or foreign (each a "Governmental
Entity"), is required by or with respect to Seller in connection with the
execution, delivery and performance of this Agreement which has not been
obtained prior to execution of this Agreement.

         SECTION 3.02. NO CONFLICT OR DEFAULT. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will violate any statute, regulation or ordinance of any
governmental authority, or conflict with or result in the breach of any
provision of the articles of incorporation or bylaws of Seller, of any material
agreement, contract, writ, order, decree or instrument to which Seller is a
party or by which Seller, the Business or the Acquired Assets are bound, or
constitute a default (or an event which,

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with the lapse of time or the giving of notice, or both, would constitute a
default) thereunder, or result in the creation or imposition of any lien, charge
or encumbrance, or restriction of any nature whatsoever with respect to the
Business or the Acquired Assets or give to others any rights of termination,
acceleration or cancellation in or with respect to the Business or the Acquired
Assets.

         SECTION 3.03. COMPLIANCE WITH LAW. As of the date of this Agreement,
there has been no order issued, investigation or proceeding pending, or to the
knowledge of Seller, threatened, or notice served with respect to any violation
of any law, ordinance, order, writ, decree, injunction, judgment, rule,
regulation, decision or requirement applicable to the Business or the Acquired
Assets.

         SECTION 3.04. TAXES. The Business and the Acquired Assets have no Tax
(as defined below), deficiency or claim outstanding or assessed against any of
them, or, to the knowledge of Seller, proposed to be assessed against them, and,
to the knowledge of Seller, there is no basis for any such deficiency or claim,
which is reasonably likely to result in the imposition of any lien, claim or
encumbrance on the Acquired Assets or Business or against Buyer. For purposes of
this Agreement, "Tax" shall mean any federal, state, local, commonwealth, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax, exaction fee, assessment or charge of any kind whatsoever, or any
payment in lieu thereof, including any interest, penalty, or addition thereto,
whether disputed or not.

         SECTION 3.05. LITIGATION. There is no material litigation, arbitration,
action, suit or proceeding, administrative or judicial, pending or, to the
knowledge of Seller, threatened against the Business or the Acquired Assets, at
law or in equity except as may be set forth on Schedule 3.05 which shall also
set forth a true, correct and complete list of material contingent liabilities
affecting the Business and the Acquired Assets, including, without limitation, a
description of any such material contingent liability made against or known to
Seller with respect to the Business or the Acquired Assets.

         SECTION 3.06. TANGIBLE ASSETS. Seller owns good and marketable title to
all tangible assets included within the Acquired Assets.

         SECTION 3.07. ABSENCE OF DEFAULTS. Seller is not in material default of
any material obligations or liabilities pertaining to the Acquired Assets or the
Business, nor is there any state of facts or circumstances or condition or event
known to Seller which, after notice or lapse of time or both, would constitute
or result in any such material default.

         SECTION 3.08. TITLE TO AND CONDITION OF ACQUIRED ASSETS.

                  (a) The Acquired Assets include all assets of Seller that are
         material to the ownership and operation of the Business, except for the
         Retained Assets.

                  (b) Seller has good and marketable title to, or, in the case
         of leased properties and assets, valid leasehold interests in, all of
         the Acquired Assets free and clear of any

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         Liens, except for such imperfections of title and encumbrances, if any,
         which are not substantial in character, amount or extent, and which do
         not materially detract from the value, or materially interfere with the
         present use or contemplated development, marketing and use of the
         property subject thereto or affected thereby. For purposes of this
         Agreement, the term "Lien" means, with respect to any asset, any
         mortgage, lien, pledge, charge, security interest or encumbrance of any
         kind in respect of such asset. Seller has possession (either directly
         or through employees, agents, or consultants) of all of the Acquired
         Assets, except for such portions thereof which, considered in the
         aggregate, do not represent a material portion of Acquired Assets,
         considered as a whole, the absence of which, disappearance of which, or
         failure to have or otherwise possess which do not materially interfere
         with the conduct, development or marketing of the Business, except as
         the Business may relate to the Retained Assets.

         SECTION 3.09. SUBSEQUENT CHANGES. Seller will promptly give Buyer
notice of any event or occurrence which would cause any of Seller's above
representations and warranties to cease to be true or correct in any respect
prior to the Closing Date.

         SECTION 3.10. FINANCIAL STATEMENTS. Seller has delivered to Buyer the
financial statements and information and the reports requested by Buyer which
are listed on Schedule 3.10.

         SECTION 3.11. NO INFRINGEMENT. To Seller's knowledge, there is no
infringement by Seller upon the trademarks, trade names, patents, service marks,
trade secrets, copyrights or other intellectual property rights of others, and
no claim with respect thereto is pending or, to the knowledge of Seller,
threatened against Seller.

         SECTION 3.12. EMPLOYEES AND LABOR RELATIONS.

                  (a) Schedule 3.12-A lists the name of each employee of Seller
         whose time is dedicated primarily to the Business and their positions
         and present compensation levels, exclusive of bonuses and benefits.

                  (b) Except with respect to unemployment compensation claims
         and except as provided on Schedule 3.12-B, with respect to the
         Business, there are no pending or, to the knowledge of Seller,
         threatened claims against Seller by any employee or former employee,
         and there are no material labor controversies pending or, to the
         knowledge of Seller, threatened between Seller and any of the employees
         of Seller or any labor union or other collective bargaining unit
         representing any of such employees, and Seller is not aware of any
         basis for such controversies.

                  (c) Seller is not a party to any collective bargaining or
         union contract in connection with its operation of the Business; and,
         except as provided on Schedule 3.12-C, Seller is not a party to or
         bound by any consulting or employment contracts with any of the persons
         employed by the Business.

         SECTION 3.13. EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule
3.13, with respect to the Business, Seller has not established, does not
maintain and is not obligated to make contributions to or under, or to otherwise
participate in: (i) any bonus or other type of incentive

                                       11
<PAGE>   12

compensation plan or arrangement; (ii) any pension, profit sharing, retirement
or other plan, program or arrangements; or (iii) any other employee benefit plan
program, including, but not limited to, those plans or programs described in
Section (3)of ERISA (collectively, the "Employee Benefit Plan(s)") with respect
to those Employee Benefit Plans listed on Schedule 3.13 hereto:

                  (a) Each such Employee Benefit Plan (and related trust,
         insurance contract or fund) complies in form and to the knowledge of
         Seller, in operation in all respects with the applicable requirements
         of ERISA and the Internal Review Code of 1986, as amended (the "Code"),
         except where the failure to comply would not have a material adverse
         effect on the Seller.

                  (b) With respect to each Employee Benefit Plan that Seller
         maintains or has ever maintained or to which it contributes, ever has
         contributed or ever has been required to contribute:

                           (i) Except as set forth in Schedule 3.13, no such
                  Employee Benefit Plan is now or was ever subject to Title IV
                  of ERISA.

                           (ii) No action, suit, proceeding, hearing or
                  investigation with respect to the administration or the
                  investment of assets of any Employee Pension Plan (other than
                  routine claims for benefits) is pending or, to the knowledge
                  of the Seller threatened, except where the action, suit,
                  proceeding, hearing or investigation would not have a material
                  adverse effect on Seller.

                  (c) Seller does not contribute to and has not contributed to
         and has not been required to contribute to any Multiemployer Plan as
         defined in Section 3(37)(A) of ERISA, and has no liability (including
         withdrawal liability) under any Multiemployer Plan.

                  (d) Seller does not have any obligation to provide health or
         other welfare benefits to former, retired or terminated employees,
         except as specifically required under Section 4980B of the Code. With
         respect to all of its past and present employees, Seller has complied
         in all material respects with the notice and continuation requirements
         of Part 6 of Subtitle B of Title I of ERISA and of Section 4980B of the
         Code.

         SECTION 3.14. BROKERS, FINDERS. The transactions contemplated hereby
were not submitted to Seller by any broker, finder or other person entitled to a
commission, fee or like payment thereon, and the actions of Seller have not
given rise to any claim by any person against Buyer, the Acquired Assets or the
Business for a commission, fee or like payment.

                                   ARTICLE IV
                     REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer represents and warrants to Seller that the statements contained
in this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV).

                                       12
<PAGE>   13

         SECTION 4.01. ORGANIZATION OF BUYER. Buyer is a limited liability
company duly organized and validly existing, and in good standing under the laws
of the state of California.

         SECTION 4.02. AUTHORITY. Buyer has full power and authority to enter
into this Agreement, perform its obligations hereunder and consummate the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered and constitutes the valid and binding obligations of
Buyer, enforceable against Buyer in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
other similar laws of general applicability relating to creditors' rights and to
general equity principles. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Buyer in connection with the execution, delivery and
performance of this Agreement.

         SECTION 4.03. NO CONFLICT OR DEFAULT. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby and thereby, will violate any statute, regulation or
ordinance of any governmental authority, or conflict with or result in the
breach of any provision of the charter or bylaws of Buyer or of any material
agreement, deed, contract, mortgage, indenture, writ, order, decree or
instrument to which Buyer is a party or by which it is bound, or constitute a
default (or an event which, with the lapse of time or the giving of notice, or
both, would constitute a default) thereunder.

         SECTION 4.04. LITIGATION. There is no claim, litigation, action, suit
or other administrative or judicial proceeding pending, and, to the knowledge of
Buyer, there is no material litigation, action, suit, or other administrative or
judicial proceeding threatened, against Buyer that would in any manner impair
Buyer's ability to close the Acquisition, acquire the Acquired Assets, assume
the Assumed Liabilities, or that in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated hereby.

         SECTION 4.05. NO RELIANCE. Buyer possesses the level of sophistication
requisite to its determination to enter into the transactions contemplated by
this Agreement and has based such determination upon its own independent
investigation as to the financial and other merits of such transactions and not
in reliance upon the accuracy or completeness of any financial information,
documents or other information, written or oral, other than the representations
and warranties contained in Article III hereof. Buyer has sought the advice of
its legal counsel, tax advisors and business and investment advisors in
analyzing the merits and risks of the transactions contemplated by this
Agreement.

         SECTION 4.06. NO IMPLIED WARRANTIES. Buyer understands, agrees and
acknowledges that the Acquired Assets are being purchased and sold on an "AS IS,
WHERE IS" basis. ALL IMPLIED WARRANTIES EXISTING UNDER ANY APPLICABLE LAW WITH
RESPECT TO THE ACQUIRED ASSETS OR TO THE SALE THEREOF ARE HEREBY EXPRESSLY
DISCLAIMED AND NEGATED BY SELLER. PARTICULARLY, BUT WITHOUT LIMITING THE
FOREGOING, SELLER HEREBY NEGATES AND DISCLAIMS ANY IMPLIED WARRANTY OF
MERCHANTABILITY AND ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE AND
ANY IMPLIED WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MODELS. BUYER AND
SELLER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE

                                       13
<PAGE>   14

DISCLAIMERS OF IMPLIED WARRANTIES CONTAINED IN THIS SECTION ARE "CONSPICUOUS"
DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW, RULE OR ORDER.

         SECTION 4.07. BROKERS, FINDERS. The transactions contemplated hereby
were not submitted to Buyer by any broker, finder or other person entitled to a
commission, fee or like payment thereon, and the actions of Buyer have not given
rise to any claim by any person against Seller for a commission, fee or like
payment.

                                    ARTICLE V
                              PRE-CLOSING COVENANTS

         The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:

         SECTION 5.01. GENERAL. Each of the parties will use its reasonable good
faith efforts to take all action and to do all things consistent with the
provisions of this Agreement that are necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Article II).

         SECTION 5.02. NOTICES AND CONSENTS.

                  (a) The parties will give any notices to third parties and
         governmental authorities, and the parties will use their commercially
         reasonable efforts, without cost or liability to such parties, to
         obtain any third-party and governmental consents, that may be required
         in connection with the consummation of the Acquisition; except to the
         extent that such party is otherwise maintaining the contractual
         relationship to which such notice or consent relates, in accordance
         with the provisions of this Agreement relating thereto.

                  (b) Each of the parties will take any additional action,
         consistent with the provisions of this Agreement and without cost or
         liability to such parties, that may be reasonably necessary, proper or
         advisable in connection with any other notices to, filings with, and
         authorizations, consents and approvals of governments, governmental
         agencies and third parties that it may be required to give, make or
         obtain.

         SECTION 5.03. PRE-CLOSING OPERATION OF THE BUSINESS. Seller shall
operate the Business in the ordinary course consistent with Seller's past
practice and maintain the Acquired Assets in normal operating condition and
repair in a manner consistent with Seller's past practice, with only such
material deviations as shall be approved by Buyer, which approval shall not be
unreasonably withheld. Without limiting the generality of the foregoing, during
said period Seller shall not do any of the following, unless otherwise consented
to by Buyer in writing, which consent shall not be unreasonably withheld:

                  (a) Transfer any of the Acquired Assets or create or, except
         as existing on the date hereof, permit or suffer to exist on any of the
         Acquired Assets any Liens, except in each case in the ordinary course
         of business consistent with Seller's past practice.

                                       14
<PAGE>   15

                  (b) Enter into, extend or renew any material Contracts or any
         other contracts or other commitments regarding the Acquired Assets or
         the Assumed Liabilities of the type that would be required to be
         disclosed under this Agreement in a Schedule, other than in the
         ordinary course of business consistent with Seller's past practice.

         SECTION 5.04. NOTICE OF DEVELOPMENTS. Seller shall give prompt written
notice to Buyer of any material development affecting the Acquired Assets or
Assumed Liabilities or affecting the business, financial condition, operations,
results of operations or future prospects of the Business. Each party will give
prompt written notice to the others of any material development affecting the
ability of the parties to consummate the transactions contemplated by this
Agreement.

         SECTION 5.05. CONFIDENTIALITY. After the date hereof and prior to the
Closing, no party to this Agreement will directly or indirectly make or cause to
be made any public announcement or disclosure, or issue any notice with respect
to this Agreement or the transactions contemplated hereby without advising the
other parties hereto and providing such parties with a reasonable opportunity to
comment thereon.

                                   ARTICLE VI
                             POST-CLOSING COVENANTS

         The parties agree as follows with respect to the period following the
Closing:

         SECTION 6.01. FURTHER ASSURANCES. In case at any time after the Closing
any further action is necessary or desirable to carry out the intent of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as the other
party reasonably may request, all at the cost and expense of the requesting
party (unless the action requested is made the obligation of the requested party
pursuant to another provision of this Agreement); provided that nothing
contained in this Section 6.01 is intended to negate, impair, or diminish any
indemnification right or obligation under Article VII. In addition, after the
Closing Buyer and Seller shall provide notice of the Acquisition to parties with
whom Seller has contractual relationships regarding the Business advising them
of the Acquisition and of appropriate addresses for future notices to Seller and
to Buyer.

         SECTION 6.02. SHARING OF CONTRACT RIGHTS. The parties recognize that
certain of Seller's existing contracts, agreements and arrangements will relate
directly or indirectly to both Acquired Assets and Retained Assets. Accordingly,
the parties agree that they shall cooperate in good faith in the post-Closing
administration of such contracts, agreements and understandings with a view
toward allocating those rights and obligations thereunder relating to the
Acquired Assets to Buyer and allocating those rights and obligations thereunder
relating to the Retained Assets to Seller.

         SECTION 6.03. EMPLOYMENT MATTERS. Buyer covenants and agrees that it
shall (i) maintain the employment of Seller's former employees set forth on
Schedule 2.02(c) at sufficient levels for at least ninety (90) days following
the Closing Date, in order that no notice or other obligations are created under
the WARN Act; (ii) comply with any and all state or

                                       15
<PAGE>   16

federal laws and/or notice obligations (including under the WARN Act) which
arise from any acts or omissions of Buyer after the Closing Date; and (iii)
assume all liability under Section 4980(B) of the Code including liability for
continuation coverage for those employees of Seller terminated by Seller prior
to the Closing Date.

         SECTION 6.04. ACCESS TO BOOKS AND RECORDS. Buyer shall provide to
Seller after the Closing Date such access to the books, records and files
transferred to Buyer hereunder as Seller shall reasonably request.

         SECTION 6.05. PERIODIC FINANCIAL STATEMENTS. From the Closing Date and
until such time as a Triggering Event has occurred, Buyer shall provide Seller
with copies of all of Buyer's consolidated periodic financial statements and
reports on a monthly basis until the first anniversary of this Agreement and
thereafter on a quarterly basis.

         SECTION 6.06. DIVIDEND RESTRICTION. For the twelve (12) month period
following the closing Date, Buyer shall not make any dividend or other
distribution to any member or to any holder of its securities and shall not pay
excessive compensation to the extent it would be a "deemed distribution" under
the Code.

                                  ARTICLE VII
                                 INDEMNIFICATION

         SECTION 7.01. SURVIVAL. All of the representations, warranties and
covenants of Buyer and Seller contained in this Agreement (other than the
provisions of Sections 1.03(c), 7.02 and 7.03(b)-(d), which shall survive and
operate in accordance with their respective terms) shall survive the Closing and
continue in full force and effect until the first anniversary of the Closing
Date (the "Expiration Date").

         SECTION 7.02. INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER. In the
event Seller breaches any of its representations, warranties, and covenants
contained in this Agreement, and provided that Buyer makes a written claim for
indemnification against Seller on or prior to the Expiration Date, then Seller
agrees to indemnify Buyer up to an aggregate ceiling amount of $1,000,000 from
and against the entirety of any Damages Buyer may suffer through and after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach; provided, however, that the
amount of such Damages either on a per occurrence basis or in the aggregate for
multiple occurrences is greater than or equal to $25,000. For purposes of this
Agreement, "Damages" shall mean all out-of-pocket charges, complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, losses, damages, punitive damages,
treble damages, dues, deficiencies, penalties, fines, costs, amounts paid in
settlement, liabilities, obligations, taxes, liens, losses, expenses, interests,
and fees, including but not limited to, all fees, disbursements and expenses of
counsel, experts and consultants and court costs in defending against any
complaint, claim or action.

         SECTION 7.03. INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER.

                  (a) In the event Buyer breaches any of its representations,
         warranties, and covenants contained in this Agreement, and provided
         that Seller makes a written claim

                                       16
<PAGE>   17

         for indemnification against Buyer on or prior to the Expiration Date,
         then Buyer agrees to indemnify Seller from and against the entirety of
         any Damages Seller may suffer through and after the date of the claim
         for indemnification resulting from, arising out of, relating to, in the
         nature of, or caused by the breach; provided, however, that the amount
         of such Damages either on a per occurrence basis or in the aggregate
         for multiple occurrences is greater than or equal to $25,000.

                  (b) Buyer agrees to indemnify Seller from and against any and
         all Damages Seller may suffer resulting from, arising out of, relating
         to, in the nature of, or caused by any Assumed Liability; it being
         understood and agreed by Buyer that Seller shall have no
         responsibility, liability or obligation of any kind whatsoever with
         respect to any of the Assumed Liabilities after the Closing Date.

                  (c) Buyer agrees to indemnify Seller from and against any and
         all Damages Seller may suffer resulting from, arising out of, relating
         to, in the nature of, or caused by any act or omission or strict
         liability relating to the Business or the Acquired Assets occurring
         after the Closing Date.

                  (d) Buyer agrees to indemnify Seller from and against any and
         all Damages Seller may suffer resulting from, arising out of, relating
         to, in the nature of, or caused by any act or omission or strict
         liability relating to the termination or employment by Buyer of any of
         the Seller's prior employees, Buyer's failure to employ any of Seller's
         prior employees and/or Buyer's employment of any other employees after
         the Closing Date.

                  (e) The aggregate ceiling amount of Buyer's indemnification
         pursuant to this Section 7.03 shall be $1,000,000.

         SECTION 7.04. MATTERS INVOLVING THIRD PARTIES.

                  (a) If any third party shall notify any party hereto (the
         "Indemnified Party") with respect to any matter which may give rise to
         a claim for indemnification against the other party hereto (the
         "Indemnifying Party") under this Article VII, then the Indemnified
         Party shall notify the Indemnifying Party thereof promptly; provided,
         however, that no delay on the part of the Indemnified Party in
         notifying the Indemnifying Party shall relieve the Indemnifying Party
         from any liability or obligation hereunder unless (and then solely to
         the extent) the Indemnifying Party thereby is damaged. In the event the
         Indemnifying Party notifies the Indemnified Party within 15 days after
         the Indemnified Party has given notice of the matter that the
         Indemnifying Party is assuming the defense thereof, (i) the
         Indemnifying Party will defend the Indemnified Party against the matter
         with counsel of the Indemnifying Party's choice reasonably satisfactory
         to the Indemnified Party, (ii) the Indemnified Party may retain
         separate co-counsel at its sole cost and expense (except that the
         Indemnifying Party will be responsible for the fees and expenses of the
         separate co-counsel to the extent the Indemnified Party reasonably
         concludes that the counsel the Indemnifying Party has selected has a
         conflict of interest), (iii) the Indemnified Party will not consent to
         the entry of any judgment or enter into any settlement with respect to
         the matter without the written consent of the Indemnifying Party (not
         to be withheld unreasonably), and (iv) the Indemnifying Party will not
         consent

                                       17
<PAGE>   18

         to the entry of any judgment with respect to the matter, or enter into
         any settlement which does not include a provision whereby the plaintiff
         or claimant in the matter releases the Indemnified Party from all
         liability with respect thereto, without the written consent of the
         Indemnified Party (not to be withheld unreasonably). In the event the
         Indemnifying Party fails to notify the Indemnified Party within 15 days
         after the Indemnified Party has given notice of the matter that the
         Indemnifying Party is assuming the defense thereof, the Indemnified
         Party may defend against, or enter into any settlement with respect to,
         the matter in any manner it reasonably may deem appropriate.

                  (b) With respect to those third party claims referred to in
         Section 7.04(a) above, Seller and Buyer agree that they shall work
         together to coordinate their defense efforts; provided, however, that
         such agreement shall in no way restrict the ability of Buyer to take
         any necessary action to cause Seller to be added as a co-defendant to
         any legal action. If Damages shall at any time be assessed against
         Buyer in connection with any such third-party claim and as a result
         thereof Seller shall make an indemnification payment to Buyer pursuant
         to Section 7.02 above, then Buyer agrees that it shall take all
         necessary action to cause Seller to be subrogated to Buyer's rights as
         against third parties with respect to such claim, including rights to
         equitable contribution, up to an amount equal to the amount of the
         indemnification payment actually made by Seller.

                                  ARTICLE VIII
                                   TERMINATION

         SECTION 8.01. TERMINATION OF AGREEMENT. This Agreement may be
terminated prior to Closing in the manner provided below:

                  (i) Buyer and Seller may terminate this Agreement by mutual
         written consent at any time prior to the Closing.

                  (ii) If Buyer is not in material breach of its obligations
         under this Agreement, Buyer may terminate this Agreement by giving
         written notice to Seller at any time prior to the Closing in the event
         that Seller is in breach of any material representation, warranty or
         covenant contained in this Agreement in any material respect and such
         breach has not been promptly cured after such notice has been
         delivered, which notice shall be in reasonable detail.

                  (iii) If Seller is not in material breach of its obligations
         under this Agreement, Seller may terminate this Agreement by giving
         written notice to Buyer at any time prior to Closing in the event that
         Buyer is in breach of any material representation, warranty or covenant
         contained in this Agreement in any material respect and such breach has
         not been promptly cured after such notice has been delivered, which
         notice shall be in reasonable detail.

                  (iv) Seller may terminate this Agreement at any time prior to
         the Closing Date if it does not receive the Fairness Opinion or the
         consent of either of Imperial Bank or Hampshire Equity Partners.

                                       18
<PAGE>   19

In the event this Agreement is terminated by Buyer pursuant to Section 8.01(ii)
or by Seller pursuant to Section 8.01(iv), Seller shall pay Buyer a termination
fee in the amount of $50,000. In the event this Agreement is terminated by
Seller pursuant to Section 8.01(iii) or by Buyer other than pursuant to Section
8.01(ii), Buyer shall pay Seller a termination fee in the amount of $200,000.

         SECTION 8.02. EFFECT OF TERMINATION. If any party shall terminate this
Agreement pursuant to Section 8.01 above, all obligations of the parties
hereunder shall terminate, except as set forth in Section 5.05. Notwithstanding
the foregoing, in the event of a breach of this Agreement by any party hereto,
nothing herein shall limit the remedies at law or in equity of the other parties
with respect thereto.

                                   ARTICLE IX
                                  MISCELLANEOUS

         SECTION 9.01. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person or entity other than the actual
parties hereto, and their respective successors and permitted assigns.

         SECTION 9.02. ENTIRE AGREEMENT. This Agreement (together with the
Schedules hereto) constitutes the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect hereto.

         SECTION 9.03. SUCCESSION AND ASSIGNMENT. Buyer shall not assign their
rights under this Agreement without Seller's prior written consent, which Seller
shall not unreasonably withhold as to an assignment to a wholly owned subsidiary
of Buyer, provided that no such assignment shall relieve Buyer of any obligation
hereunder and Buyer shall continue to be fully liable and responsible therefor.
Seller shall not assign its respective rights and obligations under this
Agreement without Buyer's prior written consent. Any other attempted transfer or
assignment of this Agreement shall be null and void.

         SECTION 9.04. HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.

         SECTION 9.05. NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if it is sent by
registered or certified mail, postage prepaid, or sent by prepaid overnight
courier or confirmed telecopier, and addressed to the intended recipient as set
forth below:

                                       19
<PAGE>   20

         If to Seller:      Alpha Microsystems
                            2722 South Fairview St.
                            Santa Ana, California  92704
                            (Ph)  714-957-8500
                            (Fax)  714-957-8705
                            Attn:  Douglas Tullio
                                   Chief Executive Officer

         with copy to:      Allen Matkins Leck Gamble & Mallory LLP
                            18400 Von Karman, 4th Floor
                            Irvine, California  92612
                            (Ph)  949-553-1313
                            (Fax)  949-553-8354
                            Attn:  Gregory W. Preston, Esq.

         If to Buyer:       R.E. Mahmarian Enterprises LLC
                            21 Caballeros Road
                            Rolling Hills, California  90274
                            Attn:  Richard E. Mahmarian
                                   Managing Member

         with copy to:      Williams & Kilkowski
                            1900 Avenue of the Stars, 25th Floor
                            Los Angeles, California  90067-4506
                            (Ph)  310-282-8995
                            (Fax)  310-282-8930
                            Attn:  Lee D. Williams, Esq.

Such communications shall be effective when they are received by the addressee
thereof. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth.

         SECTION 9.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of California.

         SECTION 9.07. AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyer and Seller. No waiver by any party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.

         SECTION 9.08. SEVERABILITY. Any provision of this Agreement which is
found by a court of competent jurisdiction to be illegal, invalid or
unenforceable shall be deemed severed from the Agreement and shall not affect
the continuing legality, validity or enforceability of the remaining terms and
provisions.

                                       20
<PAGE>   21

         SECTION 9.09. CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party. Any
reference to any federal, state, commonwealth, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Nothing in the Schedules
attached to and made part of this Agreement shall be deemed adequate to disclose
an exception to a representation or warranty made herein unless a reasonable
person would conclude that the particular Schedule relating to such warranty or
representation identifies the exception with sufficient detail and particularity
to give reasonable notice thereof or, if the disclosure is made in a different
Schedule and not in the particular Schedule relating to such warranty or
representation, such Schedule identifies such exception with sufficient
particularity so that a reasonable person reading this Agreement and Schedules
with the keen interest that could normally be attributed to someone making a
commitment as substantial as that the Buyer will be making by closing based on
the terms of this Agreement and Schedules hereto would recognize the matter as
an exception to such warranty and representation. The parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance.

         SECTION 9.10. TRANSFER TAXES. Seller shall pay, or cause to be paid,
all sales, use, transfer, stamp, duties, recording and similar taxes, if any,
required to be paid in connection with the sale of the Acquired Assets pursuant
to this Agreement.

         SECTION 9.11. INCORPORATION OF SCHEDULES. The Schedules identified in
this Agreement are incorporated herein by reference and made part hereof.

         SECTION 9.12. TIME OF THE ESSENCE. Time is of the essence of every
provision of this Agreement.

         SECTION 9.13. ATTORNEYS' FEES. In the event of any litigation between
Buyer and Seller arising under or relating to this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and court costs incurred, including but not limited
to attorneys' fees after the award, and prior to the payment, of any judgment or
other settlement.

         SECTION 9.14. BUSINESS DAY. The term "Business Day" shall mean any day
other than a Saturday, Sunday or day on which banks in California are authorized
to be closed for business.

         SECTION 9.15. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

         SECTION 9.16. FAX SIGNATURES. This Agreement may be executed by the
Seller's and Buyer's signatures transmitted by facsimile ("fax"), and copies of
this Agreement executed and delivered by means of faxed signatures shall have
the same force and effect as copies hereof executed and delivered with original
signatures. Seller and Buyer may rely upon faxed signatures as if such
signatures were originals. Seller and Buyer executing and delivering this
Agreement by fax shall promptly thereafter deliver a counterpart signature page
of this

                                       21
<PAGE>   22

Agreement containing any such party's original signature. Seller and Buyer agree
that a faxed signature page may be introduced into evidence in any proceeding
arising out of or related to this Agreement as if it were an original signature
page.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

                                     SELLER:

                                     ALPHA MICROSYSTEMS,
                                     A CALIFORNIA CORPORATION

                                     By:
                                           -------------------------------------
                                           Douglas Tullio
                                           Chief Executive Officer

                                     BUYER:

                                     R.E. MAHMARIAN ENTERPRISES, LLC
                                     A CALIFORNIA LIMITED LIABILITY COMPANY

                                     By:
                                           -------------------------------------
                                           Richard E. Mahmarian
                                           Managing Member

                                       22EXHIBIT 10.1
------------

                            PURCHASE AGREEMENT
                            ------------------

            THIS PURCHASE AGREEMENT ("Agreement") is made as of the 11th
day of January, 2000 by and between Sunrise Technologies International,
Inc., a corporation organized under the laws of Delaware, with headquarters
located at 3400 West Warren Avenue, Fremont, California 94538 (the
"Company"), and the persons listed as investors on the signature page
hereof (collectively, the "Investors").

                                 RECITALS
                                 --------

          A.      The Company and the Investors are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by the provisions of the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended;

          B.      The Investors wish to purchase, and the Company wishes to
sell and issue to the Investors, upon the terms and conditions stated in
this Agreement, an aggregate of up to $13 million in principal amount of
the Company's 7% Convertible Debentures due June 30, 2002 in the form
attached hereto as Exhibit A (the "Debentures") and warrants to acquire
shares of Common Stock; and

          C.      Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement, in the form attached hereto as Exhibit B (the
"Registration Rights Agreement"), pursuant to which the Company has agreed
to provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and
applicable state securities laws;

            In consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:

     1.     Definitions.  In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Agreement, the
following terms shall have the meanings here set forth:

          1.1     "Affiliate" means, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person.

          1.2     "Agreements" means this Agreement, the Registration
Rights Agreement, the Debentures and the Warrants.

          1.3     "A Warrants" means warrants to acquire shares of Common
Stock with an exercise price equal to 115% of the Conversion Price and
exercisable from the date of issuance until the fifth (5th) anniversary
thereafter, in the form attached hereto as Exhibit C-1.

          1.4     "B Warrants" means warrants to acquire shares of Common
Stock with an exercise price equal to 115% of the Conversion Price and
exercisable from the date of issuance until the second (2nd) anniversary
thereafter, in the form attached hereto as Exhibit C-2.

          1.5     "Closing" means the consummation of the transactions
contemplated by this Agreement, and "Closing Date" means the date of such
Closing.

<PAGE>

          1.6     "Common Stock" means the Company's common stock, par
value $.001 per share.

          1.7     "Control" means the possession , direct or indirect, of
the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise.

          1.8     "Conversion Price" means:

                  (A)  for the period after February 29, 2000, 75% of the
average of the ten (10) lowest Market Prices during the month of February
2000; provided, that such Conversion Price shall not be less than $3.00 or
more than $13.67;

                  (B) for the period from the tenth (10th) trading day in
February 2000 until the end of February 2000, the Conversion Price shall be
75% of  the average of the ten (10) lowest Market Prices during February
2000 up until the applicable conversion date; and

                  (C)  for the period prior to the 10th trading day in
February 2000, the Conversion Price shall be $13.67.

          1.9     "Market Price" means the closing bid price of the Common
Stock on a trading day as reported by NASDAQ National Market (the "Nasdaq
Stock Market") or other principal exchange or market on which the Common
Stock is listed.

          1.10    "Material Adverse Effect" means a material adverse effect
on the  (i) condition (financial or otherwise), business, assets, or
results of operations of the Company and its subsidiaries, taken as a
whole; (ii) ability of the Company to perform any of its material
obligations under the Agreements; or (iii) rights and remedies of any
Investor under the Agreements.

          1.11    "Person" means an individual, corporation, partnership,
trust, business trust, association, joint stock company, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.

          1.12    "SEC Filings" has the meaning set forth in Section 4.6.

          1.13    "Securities" means the Debentures, the Warrants, the
Underlying Shares and the Warrant Shares (defined below).

          1.14    "Shares" means the Underlying Shares and Warrant Shares.

          1.15    "Underlying Shares" means the shares of Common Stock
issuable upon conversion of, as payment for interest under, or otherwise
pursuant to the Debentures.

          1.16    "Warrants" means collectively the A Warrants and B
Warrants.

          1.17    "Warrant Shares" means the shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Warrants.

          1.18    "1933 Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.

          1.19    "1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

<PAGE>

     2.     Purchase and Sale of the Shares and Warrants.  Subject to the
terms and conditions of this Agreement, each Investor hereby severally (and
not jointly) agrees to purchase, and the Company hereby agrees to sell and
issue to such Investor:

               (a)      The principal amount of Debentures set forth on
such Investor's signature page attached hereto (with respect to such
Investor, the "Purchase Price);

               (b)      A Warrants to purchase such number of shares of
Common Stock equal to 25% of the sum of the Underlying Shares (i) issued
prior to March 1, 2000 and (ii) issuable on March 1, 2000, in each case
upon conversion of the Debentures purchased by such Investor hereunder and
without considering any limitations or restrictions contained in Section
3(i) of the Debentures; and

               (c)      B Warrants to purchase such number of shares of
Common Stock equal to 25% of the sum of the Underlying Shares (i) issued
prior to March 1, 2000 and (ii) issuable on March 1, 2000, in each case
upon conversion of the Debentures purchased by such Investor hereunder and
without considering any limitations or restrictions contained in Section
3(i) of the Debentures.

            The Company agrees that within ten (10) business days after
March 1, 2000, it shall deliver to each Investor (or then holder of
Securities) new Debentures and Warrants in substitution of the Debentures
and Warrants issued on the Closing Date which are identical in all respects
except that the then fixed Conversion Price shall be appropriately
specified in the Debentures, the then fixed exercise price under the
Warrants shall be appropriately specified in the Warrants, and the Warrants
shall specify the fixed number of Warrant Shares into which the Warrants
are then exercisable.  Such changes are intended not as amendments to the
Debentures or Warrants but only as clarification of the foregoing numbers
for convenience purposes, and such changes shall not affect any provisions
concerning adjustments to the Conversion Price, exercise price or number of
Warrant Shares contained therein.

            The Debentures shall be callable by the Company at any time
after the second anniversary of the issuance date thereof at a price
consisting of (i) cash equal to 130% of the outstanding Principal Amount
and accrued but unpaid interest thereunder, and (ii) additional A Warrants
to purchase such number of shares of Common Stock equal to 30% of the
Underlying Shares which would have been issued or issuable upon conversion
of the portion of the outstanding Principal Amount called.  The B Warrants
shall be callable by the Company for $.01 per Warrant Share issuable under
such called B Warrants if the Market Price of the Common Stock is more that
125% of the then applicable exercise price for the B Warrants for twenty
(20) consecutive trading days (the "Pre-Call Period").

            Notwithstanding the foregoing, to execute either of the
foregoing call rights, (i) the Company must exercise its rights pro rata
among all Investors; (ii) the Company must give each Investor at least
thirty (30) business days prior written notice of the call date (the period
from the Notice to the call date being referred to as the "Post-Call
Period"); (iii) during the entire Post-Call Period and, in the case of B
Warrants, the entire Pre-Call Period, and in the case of Debentures, the
entire twenty (20) consecutive trading day period immediately preceding the
call notice, the Underlying Shares and Warrant Shares must either be (A)
covered by an effective registration statement under the 1933 Act and a
deliverable prospectus or (B) freely tradeable under Rule 144(k) thereunder
and (iv) the Underlying Shares and Warrant Shares must be listed and traded
on the Nasdaq Stock Market or another acceptable exchange or market.

<PAGE>

     3.     Closing.  The Company shall promptly deliver to Kleinberg,
Kaplan, Wolff & Cohen, P.C. ("KKWC"), on the date hereof, in trust, (i) the
Warrants and Debentures registered in such name or names as the Investors
may designate, representing all of the Warrants and Debentures, and (ii)
payment in full of the fees and expenses referred to in Section 10.5(c)
below, with instructions that such Debentures, Warrants and dollar amounts
are to be held for release only upon payment of the Purchase Price
pertaining thereto to the Company.  Upon receipt by KKWC of such
Debentures, Warrants and dollar amounts, such Investor shall promptly cause
wire transfers in same day funds to be sent to the account of the Company
as instructed in writing by the Company, in amounts representing each
Investor's aggregate Purchase Price.  On the date the Company receives each
such wire transfer it shall immediately notify KKWC, and the Debentures and
the Warrants pertaining to such wire transfers shall be released to the
applicable Investor(s) and the dollar amounts shall be released to the
payee as contemplated by Sections 10.5 (c) (and the first such date shall
be deemed the "Closing Date").  The portion of the dollar amounts due under
Section 10.5(c) below upon execution hereof shall be paid directly to the
payee herein or, if same is paid to KKWC, may be immediately released to
such payee.

     4.     Representations and Warranties of the Company.  The Company
hereby represents and warrants to each Investor that:

          4.1     Organization, Good Standing and Qualification.  The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware and has all requisite power and
authority to carry on its business and own its properties as now conducted
and owned.  The Company is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property makes
such qualification or licensing necessary unless the failure to so qualify
or be licensed would not have a Material Adverse Effect.  Schedule 4.1
lists all subsidiaries of the Company.  Except when the context otherwise
requires, representations and warranties in this Section 4 by the Company
shall be deemed to include representations and warranties as to its
subsidiaries as well.

          4.2     Authorization.  The Company has full power and authority
and has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of the Agreements, (ii) the performance of all
obligations of the Company hereunder or thereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities.  The Agreements constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.

          4.3     Capitalization.  Set forth on Schedule 4.3 hereto is (a)
the authorized capital stock of the Company on the date hereof; (b) the
number of shares of capital stock issued and outstanding; (c) the number of
shares of capital stock issuable pursuant to the Company's stock plans; and
(d) the number of shares of capital stock issuable and reserved for
issuance pursuant to securities (other than the Shares) exercisable for, or
convertible into or exchangeable for any shares of capital stock.  All of
the issued and outstanding shares of the Company's capital stock have been
duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights.  Except as set forth on Schedule 4.3, no Person
is entitled to preemptive or similar statutory or contractual rights with
respect to any securities of the Company, including the Securities.  Except
as set forth on Schedule 4.3, there are no outstanding warrants, options,
convertible securities or other rights, agreements or arrangements of any
character under which the Company is or may be obligated to issue any
equity securities of any kind, or to transfer any equity securities of any

<PAGE>

kind, and except as contemplated by this Agreement, the Company does not
have any present plan or intention to issue any equity securities of any
kind, or to transfer any equity securities of any kind owned by it.  Except
as set forth on Schedule 4.3, the Company does not know of any voting
agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among any of the securityholders
of the Company relating to the securities held by them.  Except as set
forth on Schedule 4.3, the Company has not granted any Person the right to
require the Company to register any securities of the Company under the
1933 Act, whether on a demand basis or in connection with the registration
of securities of the Company for its own account or for the account of any
other Person.

          4.4     Valid Issuance.  The Company has reserved a sufficient
number of shares of Common Stock for issuance upon conversion of, as
payment for interest on and otherwise pursuant to the Debentures, and upon
exercise of the Warrants.  The Company will take such steps as may be
necessary to reserve sufficient additional shares for issuance pursuant to
Section 7 below when such issuance is determinable (if not already
reserved).  The Debentures and Warrants are duly authorized, and such
Securities, along with the Underlying Shares and the Warrant Shares when
issued in accordance herewith and with the terms of the Debentures and
Warrants, will be duly authorized, validly issued, fully paid, non-
assessable and free and clear of all encumbrances and restrictions, except
for restrictions on transfer imposed by applicable securities laws.

          4.5     Consents.  The execution, delivery and performance by the
Company of the Agreements and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing
with, any Person, governmental body, agency, or official other than
(i) filings that have been made pursuant to applicable state securities
laws and the requirements of the Nasdaq Stock Market and (ii) post-sale
filings pursuant to applicable state and federal securities laws and the
requirements of the Nasdaq Stock Market which the Company undertakes to
file within the applicable time periods.

          4.6     Delivery of SEC Filings; Business.  The Company has
provided each Investor with copies of the Company's most recent Annual
Report on Form 10K for the fiscal year ended December 31, 1998, and all
other reports filed by the Company pursuant to the 1934 Act since the
filing of the Annual Report on Form 10K (collectively, the "SEC Filings").
The Company is engaged only in the business described in the SEC Filings
and the SEC Filings contain a complete and accurate description of the
business of the Company.  The Company has not provided to the Investors (i)
any information required to be filed under the 1934 Act that has not been
so filed or (ii) any non-public information.

          4.7     Use of Proceeds.  The proceeds of the sale of the
Securities hereunder shall be used by the Company for working capital and
general corporate purposes.

          4.8     No Material Adverse Change.  Since the filing of the
Company's most recent Annual Report on Form 10K or as otherwise identified
and described in subsequent reports filed by the Company pursuant to the
1934 Act, there has not been:

               (i)      any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected
in the financial statements included in the Company's most recent Report on
Form 10Q, except changes in the ordinary course of business which have not
had, in the aggregate, a Material Adverse Effect;

               (ii)     any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock
of the Company, or any redemption or repurchase of any securities of the
Company;

<PAGE>

               (iii)    any material damage, destruction or loss, whether
or not covered by insurance to any assets or properties of the Company or
any of its subsidiaries;

               (iv)     any waiver by the Company of a valuable right or of
a material debt owed to it;

               (v)      any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the
Company taken as a whole (as such business is presently conducted and as it
is proposed to be conducted);

               (vi)     any material change or amendment to a material
contract or arrangement by which the Company or any of its assets or
properties is bound or subject;

               (vii)    any labor difficulties or labor union organizing
activities with respect to employees of the Company;

               (viii)   any transaction entered into by the Company other
than in the ordinary course of business; or

               (ix)     any other event or condition of any character that
might have a Material Adverse Effect.

          4.9     SEC Filings; Material Contracts.

               (a)      As of its filing date, each report filed by the
Company with the SEC pursuant to the 1934 Act, complied as to form in all
material respects with the requirements of the 1934 Act and did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

               (b)      Each registration statement and any amendment
thereto filed by the Company pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act
and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and each prospectus filed pursuant to Rule 424(b)
under the 1933 Act, as of its issue date and as of the closing of any sale
of securities pursuant thereto did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which
they were made, not misleading.

               (c)      Except as set forth on Schedule 4.3 hereto, there
are no agreements or instruments currently in force and effect that
constitute a warrant, option, convertible security or other right,
agreement or arrangement of any character under which the Company is or may
be obligated to issue any material amounts of any equity security of any
kind, or to transfer any material amounts of any equity security of any
kind.

          4.10    Form S-3 Eligibility.

            The Company is currently eligible to register the resale of its
Common Stock on a registration statement on Form S-3 under the 1933 Act.

<PAGE>

          4.11    No Conflict, Breach, Violation or Default.  (a)  The
execution, delivery and performance of the Agreements by the Company and
the issuance and sale of the Securities will not conflict with or result in
a breach or violation of any of the terms and provisions of, or constitute
a default under (i) the Company's Certificate of Incorporation ("Articles")
or Bylaws, each as in effect on the date hereof, or (ii) except where it
would not have a Material Adverse Effect, (a) any statute, rule, regulation
or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company or any of its properties, or
(b) any agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the properties of the Company are
subject.

                  (b)   Except as set forth on Schedule 4.11 hereto, or
where it would not have a Material Adverse Effect, the Company (i) is not
in violation of any statute, rule or regulation applicable to the Company
or its assets, (ii) is not in violation of any judgment, order or decree
applicable to the Company or its assets; and (iii) is not in breach or
violation of any agreement, note or instrument to which it or its assets
are a party or are bound.  The Company has not received notice from any
Person of any claim or investigation that, if adversely determined, would
render the preceding sentence untrue or incomplete.

          4.12    Tax Matters.  The Company has correctly and timely
prepared and filed or timely obtained extensions for, all tax returns
required to have been filed by it with all appropriate governmental
agencies and timely paid all taxes owed by it.  The charges, accruals and
reserves on the books of the Company in respect of taxes for all fiscal
periods are adequate in all material respects, and there are no material
unpaid assessments of the Company nor, to the knowledge of the Company, any
basis for the assessment of any additional taxes, penalties or interest for
any fiscal period or audits by any federal, state or local taxing authority
except such as which are not material.  All material taxes and other
assessments and levies that the Company is required to withhold or to
collect for payment have been duly withheld and collected and paid to the
proper governmental entity or third party.  There are no tax liens or
claims pending or threatened against the Company or any of its assets or
property.  There are no outstanding tax sharing agreements or other such
arrangements between the Company and any other corporation or entity.

          4.13    Title to Properties.  Except as disclosed in the SEC
Filings, the Company has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to
be made thereof by them; and except as disclosed in the SEC Filings, the
Company holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with
the use made or currently planned to be made thereof by them.

          4.14    Certificates, Authorities and Permits.  The Company
possesses adequate certificates, authorizations or permits issued by
appropriate governmental agencies or bodies necessary to conduct its
business as presently operated and has not received any written notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse
Effect.

          4.15    No Labor Disputes.  No labor dispute with the employees
of the Company or any subsidiary exists or, to the knowledge of the
Company, is imminent.

<PAGE>

          4.16    Intellectual Property.  The Company owns or possesses
adequate trademarks and trade names and have all other rights to
inventions, know-how, patents, copyrights, trademarks, trade names,
confidential information and other intellectual property (collectively,
"Intellectual Property Rights"), free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims,
necessary to conduct the business now operated by it, or presently employed
by it, and presently contemplated to be operated by it, and has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any Intellectual Property Rights.  Schedule 4.16
sets forth a list by serial number and title of the patents and/or patent
applications owned or possessed by the Company.  No proprietary technology
of any Person was used in the design or development by the Company of (or
otherwise with respect to) any of the Intellectual Property Rights, which
technology was not properly acquired by the Company from such Person.

          4.17    Environmental Matters.  The Company is not in violation
of any statute, rule, regulation, decision or order of any governmental
agency or body or any court, U.S. or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "Environmental Laws"), does not own or operate
any real property contaminated with any substance that is subject to any
Environmental Laws, is not liable for any off-site disposal or
contamination pursuant to any Environmental Laws, and is not subject to any
claim relating to any Environmental Laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and the Company is not aware of any pending investigation
that might lead to such a claim.

          4.18    Litigation.  Except as disclosed in the SEC Filings,
there are no pending actions, suits or proceedings against or affecting the
Company, or any of its properties that, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse
Effect or would materially and adversely affect the ability of the Company
to perform its obligations under the Agreements, or which are otherwise
material in the context of the sale of the Securities; and to the Company's
knowledge, no such actions, suits or proceedings are threatened or
contemplated.

          4.19    Financial Statements.  The financial statements included
in each SEC Filing present fairly and accurately the consolidated financial
position of the Company as of the dates shown and its results of operations
and cash flows for the periods shown, and such financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis.  Except as set forth on Schedule 4.19 or in
the financial statements of the Company included in the SEC Filings filed
prior to the date hereof, the Company has no liabilities, contingent or
otherwise, except those which individually or in the aggregate are not
material to the financial condition or operating results of the Company.

          4.20    Insurance Coverage.  The Company maintains in full force
and effect insurance coverage that is customary for comparably situated
companies for the business being conducted, and properties owned or leased,
by the Company, and the Company reasonably believes such insurance coverage
to be adequate against all liabilities, claims and risks against which it
is customary for comparably situated companies to insure.

          4.21    Compliance with Nasdaq Continued Listing Requirements.
The Company is in compliance with all applicable Nasdaq continued listing
requirements for the Nasdaq Stock Market.  There are no proceedings pending
or, to the Company's knowledge, threatened against the Company relating to
the continued listing of the Company's Common Stock on the Nasdaq Stock
Market and the Company has not received any notice of, nor to the knowledge
of the Company is there any basis for, the delisting of the Common Stock
from the Nasdaq Stock Market.

<PAGE>

          4.22    Acknowledgement of  Dilution.  The number of shares of
Common Stock issuable pursuant to the Debentures and Warrants may increase
significantly.  The Company's executive officers and directors have studied
and fully understand the nature of the transactions being contemplated
hereunder and recognize that they have a potential dilutive effect.

          4.23    Brokers and Finders.  The Investors shall have no
liability or responsibility for the payment of any commission or finder's
fee to any third party in connection with or resulting from this agreement
or the transactions contemplated by this Agreement by virtue of any
agreement made by the Company to a third party, and except as set forth in
Section 10.5 below, the Company shall have no such liability or
responsibility for any such commission or finder's fee.

          4.24    No Directed Selling Efforts or General Solicitation.
Neither the Company nor, to its knowledge, any Person acting on its behalf
has conducted any general solicitation or general advertising (as those
terms are used in Regulation D) in connection with the offer or sale of any
of the Securities.

          4.25    No Integrated Offering.  Neither the Company nor any of
its Affiliates, nor any Person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration
for the transactions contemplated hereby or would require registration of
the Securities under the 1933 Act; or would require the integration of this
offering with any other offering of securities for purposes of determining
the need to obtain shareholder approval of the transactions contemplated
hereby under the rules of the Nasdaq Stock Market.

          4.26    Disclosures.  No representation or warranty made under
any Section hereof and no information furnished by the Company pursuant
hereto, or in any other document, certificate or statement furnished by the
Company to the Investor or any authorized representative of the Investor,
pursuant to the Agreements or in connection therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the respective statements contained herein or therein, in light of the
circumstances under which the statements were made, not misleading.

     5.     Representations and Warranties of the Investors.  Each Investor
hereby severally represents and warrants to the Company as to itself only
that:

          5.1     Organization and Existence.  The Investor is a validly
existing company and has all requisite corporate, partnership or limited
liability company power and authority to invest in the Securities pursuant
to this Agreement.

          5.2     Authorization.  The execution, delivery and performance
by the Investor of the Agreements have been duly authorized and the
Agreements will each constitute the valid and legally binding obligation of
the Investor, enforceable against the Investor in accordance with their
terms.

          5.3     Purchase Entirely for Own Account.  The Securities to be
received by the Investor hereunder will be acquired for the Investor's own
account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of securities laws, and the
Investor has no present intention of selling, granting any participation
in, or otherwise distributing the same in violation of securities laws.
The Investor is not a registered broker dealer or an entity engaged in the
business of being a broker dealer.

<PAGE>

          5.4     Investment Experience.  The Investor acknowledges that it
can bear the economic risk and complete loss of its investment in the
Securities and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
investment contemplated hereby.

          5.5     Disclosure of Information.  The Investor has had an
opportunity to receive documents related to the Company and to ask
questions of and receive answers from the Company regarding the Company,
its business and the terms and conditions of the offering of the
Securities.  Neither such inquiries nor any other due diligence
investigation conducted by the Investor shall modify, amend or affect the
Investor's right to rely on the Company's representations and warranties
contained in this Agreement or made pursuant to this Agreement.

          5.6     Restricted Securities.  The Investor understands that the
Securities are characterized as "restricted securities" under the U.S.
federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the 1933 Act only in certain limited circumstances.

          5.7     Legends.  It is understood that, until registration for
resale pursuant to the Registration Rights Agreement or until sales under
Rule 144 are permitted, certificates evidencing the Securities will bear
one or all of the following legends or legends substantially similar
thereto:

            "These securities have not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not be offered, sold, pledged,
hypothecated, assigned or transferred except (i) pursuant to a registration
statement under the Act which has become effective and is current with
respect to these securities, or (ii) pursuant to a specific exemption from
registration under the Act but only upon a holder hereof first having
obtained the written opinion of counsel to the Corporation, or other
counsel reasonably acceptable to the Corporation, that the proposed
disposition is consistent with all applicable provisions of the Act."

            Upon registration for resale pursuant to the Registration
Rights Agreement, or when sales under Rule 144 are permitted, the Company
shall promptly cause certificates evidencing the Shares previously issued
hereunder to be replaced with certificates which do not bear such
restrictive legends.  Upon conversion of the Debentures, exercise of the
Warrants, and payment of interest on the Debentures in Common Stock, the
Company shall promptly cause certificates evidencing the Shares issued
thereunder to be delivered to the holder thereof without any restrictive
legends thereon, so long as such Shares have been registered for resale
under the 1933 Act or sales of such Shares are permitted under Rule 144.

          5.8     Accredited Investor.  The Investor is an accredited
investor as defined in Rule 501(a) of Regulation D, as amended, under the
1933 Act.

          5.9     No General Solicitation.  The Investor did not learn of
the investment in the Securities as a result of any public advertising or
general solicitation.

     6.     Registration Rights Agreement.  The parties acknowledge and
agree that part of the inducement for the Investors to enter into this
Agreement is the Company's execution and delivery of the Registration
Rights Agreement.  The parties acknowledge and agree that simultaneously
with the execution hereof, the Registration Rights Agreement is being duly
executed and delivered by the parties thereto.

<PAGE>

     7.     Covenants and Agreements of the Company.

          7.1     Subsequent Sale at Lower Price.

               (a)      Required Adjustments.  If during the period ending
on the later of (i) thirty (30) months following the Closing Date or (ii)
twenty-seven (27) months following the effective date of the Registration
Statement contemplated by the Registration Rights Agreement (the "MFN
Period"), the Company sells any shares of its Common Stock at a per share
selling price ("Per Share Selling Price") lower than the Conversion Price
per share set forth in the definition hereof, then (1) the Conversion Price
per share under the Debentures shall be adjusted downward to equal such
lower Per Share Selling Price, and (2) the then exercise price under the
Warrants shall be adjusted downward to equal such lower Per Share Selling
Price, as set forth in the Debentures and Warrants, respectively; provided,
however, that this provision shall not apply to (w) any issuances or sales
of securities pursuant to employee or director option plans of the Company
approved by shareholders or pursuant to contracts currently in effect and
disclosed to Investors, (x) any issuances of securities in connection with
any acquisition, merger or licensing arrangement for products or
intellectual property, (y) any issuances to consultants as reasonable
consideration for services rendered, or (z) any issuances of securities to
liquidate royalty interests, so long as all such issuances under this
clause (z) in the aggregate do not cause a dilution of greater than 5% of
the Investors' equity ownership in the Company during the one year period
following the Closing Date (for clarification purposes, such 5% dilution
provision shall apply only to this clause (z) and shall not affect any
other provisions of this Section 7.1(a)).  If such dilution is greater than
5% at any time or from time to time during the one year period following
the Closing Date, then (1) the Conversion Price per share under the
Debentures shall be adjusted downward, and (2) the then exercise price
under the Warrants shall be adjusted downward, to the extent necessary such
that the Investors shall be entitled to receive in the aggregate, upon
conversion and exercise thereof in full, such additional number of shares
of Common Stock as is necessary to eliminate such dilution over 5% without
any additional consideration therefor.  For purposes of the preceding
sentence and clause (z) above, any issuances of Common Stock to third
parties shall be deemed to have occurred upon the issuance of "derivative
securities" as set forth in Section 7.1(b)(i) below, and dilution
calculations shall be computed as if all the Debenture and Warrants issued
on the date hereof were already converted and exercised in full and any
"derivative securities" were already converted, exchanged and exercised in
full.

               (b)      Definitions.

                        (i)   For the purposes of adjustments contained in
the Debentures and Warrants as described in Section 7.1(a) above, the term
"Per Share Selling Price" shall include the amount actually paid by third
parties for each share of Common Stock; in the event a fee is paid by the
Company in connection with the transaction, any such fee shall be deducted
from the selling price pro rata to all shares sold in the transaction to
arrive at the Per Share Selling Price.  A sale of shares of Common Stock
shall include the sale or issuance of rights, options, warrants or
convertible securities ("derivative securities") under which the Company is
or may become obligated to issue shares of Common Stock, and in such
circumstances the sale of Common Stock shall be deemed to have occurred at
the time of the issuance of the derivative securities and the Per Share
Selling Price of the Common Stock covered thereby shall also include the
exercise or conversion price thereof (in addition to the consideration per
underlying share of Common Stock received by the Company upon such sale or

<PAGE>

issuance of the derivative security, less the fee amount as provided
above).  In case of any such security issued within the MFN Period in a
"Variable Rate Transaction" or an "MFN Transaction" (each as defined
below), the Per Share Selling Price shall be deemed to be the lowest
conversion or exercise price at which such securities are converted or
exercised or might have been converted or exercised in the case of a
Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction.  If shares are issued for a consideration other than cash,
the per share selling price shall be the fair value of such consideration
as determined in good faith by the Board of Directors of the Company.

                  (ii)  The term "Variable Rate Transaction" shall mean a
transaction in which the Company issues or sells (a) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (x)
at a conversion, exercise or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the Common
Stock at any time after the initial issuance of such debt or equity
securities, or (y) with a fixed conversion, exercise or exchange price that
is subject to being reset at some future date after the initial issuance of
such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the
Company or the market for the Common Stock (but excluding standard stock
split anti-dilution provisions), or (b) any securities of the Company
pursuant to an "equity line" structure which provides for the sale, from
time to time, of securities of the Company which are registered for resale
pursuant to the 1933 Act.

                  (iii) The term "MFN Transaction" shall mean a transaction
in which the Company issues or sells any securities in a capital raising
transaction or series of related transactions (the "New Offering") which
grants to an investor (the "New Investor") the right to receive additional
shares (including without limitation as a result of a lower conversion,
exchange or exercise price) based upon subsequent transactions of the
Company on terms more favorable than those granted to such New Investor in
such New Offering.

                  (iv)  The term "MFN Period" shall have the meaning set
forth in Section 7.1(a), above.

          7.2     Limitation on Transactions.

               (a)      Until the date of effectiveness of the registration
statement contemplated by the Registration Rights Agreement, without the
prior written consent of a majority-in-interest of the Investors (which
consent may be withheld in the Investors' discretion), the Company shall
not (i) issue or sell or agree to issue or sell any securities for cash in
a non-public MFN Transaction; or (ii) issue or sell, or agree to issue or
sell, any securities for cash in a non-public Variable Rate Transaction.

               (b)      During the period after effectiveness of the
registration statement contemplated by the Registration Rights Agreement
and until the expiration of the MFN Period, without the prior written
consent of a majority-in-interest of the Investors (which consent may be
withheld in the Investors' discretion), the Company shall not (i) issue or
sell or agree to issue or sell any securities for cash in a non-public MFN
Transaction; or (ii) issue or sell, or agree to issue or sell, any
securities for cash in a non-public Variable Rate Transactions.

               (c)      The Company shall not issue any securities in any
transaction that would be integrated with the Securities issued pursuant to
this Agreement for federal or state securities laws purposes or under NASD
or NASDAQ rules or regulations.

<PAGE>

          7.3     Right of Investors to Participate in Future Transactions.

               (a)      The Company agrees that during the MFN Period the
Investors will have a right to participate in future non-public capital
raising transactions as set forth in this Section 7.3.  The Company shall
give advance written notice to the Investors prior to any offer or sale of
any of its equity securities or any securities convertible into or
exchangeable or exercisable for such securities in a non-public capital
raising transaction.  Prior to the closing of any such transaction, the
Investors shall have the right to participate, on a pro rata basis among
those Investors interested in participating, in up to 33 1/3% of such new
offering (or in the case of a Variable Rate Transaction, up to 75% of such
new offering) and purchase such securities for the same consideration and
on the same terms and conditions as contemplated for such third-party sale.

In order to exercise this right, an Investor must give written notice to
the Company of the Investor's election to participate and such notice must
be given within ten (10) days following receipt of the notice from the
Company.  In the event the Company gives notice to the Investors of an
expected transaction pursuant to this Section 7.3 but cannot consummate
such transaction, the Company will give the Investors prompt written notice
of the cancellation of such transaction.  If, subsequent to the Company
giving notice to the Investors hereunder, the terms and conditions of the
proposed third-party sale are changed in any way, the Company shall be
required to provide a new notice to the Investors hereunder and the
Investors shall have the right to participate in the offering on such
changed terms and conditions as provided hereunder.

               (b)      Notwithstanding anything contained in Section
7.3(a) above, such Section 7.3(a) shall not apply if an investment bank,
which has been ranked as one of the top ten firms for dollar value of
equity underwritings for the prior calendar year (as reported by Dow Jones,
Bloomberg or other national financial publication or reporting service), is
providing the capital in such offering and such investment bank reasonably
requires as a condition thereto that such bank be the sole investor (not
acting as agent) in such offering.

               (c)      The Company agrees that during the MFN Period, if
the Company desires to seek or enter into any non-public capital raising
transaction from time to time, it shall first discuss such potential
transaction with the Investors and offer the Investors the right to provide
such capital in whole or in part prior to seeking capital from other
sources ("Right of First Discussion").  If after any such discussions
and/or offer the terms or conditions of such potential capital raising
transaction shall change in any way, the Right of First Discussion
contained herein shall again apply as if a new potential capital raising
transaction were contemplated.  Notwithstanding anything contained in this
Section 7.3(c), this Section 7.3(c) is intended to be in addition to
Section 7.1(a) and shall not in any way affect the Investors' rights or the
Company's obligations under Section 7.3(a).

          7.4     Opinion of Counsel.  On or prior to the Closing Date, the
Company will deliver to the Investors the opinions of independent legal
counsel to the Company, in form and substance reasonably acceptable to the
Investors, addressing those legal matters set forth in Schedule 7.4 hereto.

          7.5     Reservation of Common Stock.  The Company hereby agrees,
at all times with respect to shares issuable upon conversion of and
interest payable pursuant to the Debentures and upon exercise of the
Warrants, (including without limitation additional shares issuable
following any adjustment described in Section 7.1 above), to reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for such issuance(s) of Common Stock
upon conversion of and for interest payable pursuant to the Debentures and
upon exercise of the Warrants, such number of shares of Common Stock as
shall from time to time equal the number of shares sufficient to permit the
exercise of the Warrants and conversion of and payment of interest under
the Debentures in full in accordance with the terms of the Warrants and
Debentures.

<PAGE>

          7.6     Reports.  Within one week of filing the following reports
with the SEC, or in the absence of such filing within the time periods
specified below, the Company shall send a copy of the following reports to
each Investor by regular mail:

               (a)      Quarterly Reports.  As soon as available the
Company's quarter-annual report on Form 10-Q or, in the absence of such
report, consolidated balance sheets of the Company and its subsidiaries as
at the end of such period and the related consolidated statements of
operations, stockholders' equity and cash flows for such period and for the
portion of the Company's fiscal year ended on the last day of such quarter,
all in reasonable detail and certified by a principal financial officer of
the Company to have been prepared in accordance with generally accepted
accounting principles, subject to year-end and audit adjustments.

               (b)      Annual Reports.  As soon as available after the end
of each fiscal year of the Company, the Company's Form 10K or, in the
absence of a Form 10K, consolidated balance sheets of the Company and its
subsidiaries as at the end of such year and the related consolidated
statements of earnings, stockholders' equity and cash flows for such year,
all in reasonable detail and accompanied by the report on such consolidated
financial statements of an independent certified public accountant,
currently PricewaterhouseCoopers LLP, or an equivalent accounting firm as
appointed by the Company's stockholders.

               (c)      Securities Filings.  As promptly as practicable and
in any event within one week after the same are issued or filed, copies of
(i) all notices, proxy statements, financial statements, reports and
documents as the Company or any subsidiary shall send or make available
generally to its stockholders or to financial analysts, and (ii) all
periodic and special reports, documents and registration statements which
the Company or any subsidiary furnishes or files, or any officer or
director of the Company or any of its subsidiaries (in such person's
capacity as such) furnishes or files with the SEC.

               (d)      Other Information.  Such other information relating
to the Company or its subsidiaries as from time to time may reasonably be
requested by any Investor provided the Company produces such information in
its ordinary course of business, and further provided that the Company,
solely in its own discretion, determines that such information is not
confidential in nature and disclosure to the Investors would not be harmful
to the Company.

               (e)      Rule 144.  The Company agrees to make publicly
available on a timely basis the information necessary to enable Rule 144 to
be available for resale.

          7.7     Press Releases.  Any press release or other publicity
concerning this Agreement or the transactions contemplated by this
Agreement shall be submitted to the Investors for comment at least two (2)
business days prior to issuance, unless the release is required to be
issued within a shorter period of time by law or pursuant to the rules of a
national securities exchange.  The Company shall issue a press release
concerning the fact and material terms of this Agreement within one
business day of the Closing.

          7.8     No Conflicting Agreements.  The Company will not, and
will not permit its subsidiaries to, take any action, enter into any
agreement or make any commitment that would conflict or interfere in any
material respect with the obligations to the Investors under the
Agreements.

<PAGE>

          7.9     Insurance.  For so long as any Investor beneficially owns
any of the Securities, the Company shall, and shall cause each subsidiary
to, have in full force and effect (a) insurance reasonably believed to be
adequate on all assets and activities of a type customarily insured,
covering property damage and loss of income by fire or other casualty, and
(b) insurance reasonably believed to be adequate protection against all
liabilities, claims and risks against which it is customary for companies
similarly situated as the Company and the subsidiaries to insure.

          7.10    Compliance with Laws.  For so long as any Investor
beneficially owns any of the Securities, the Company will use reasonable
efforts, and will cause each of its subsidiaries to use reasonable efforts,
to comply with all applicable laws, rules, regulations, orders and decrees
of all governmental authorities, except to the extent non-compliance (in
one instance or in the aggregate) would not have a Material Adverse Effect.

          7.11    Listing of Shares and Related Matters.  The Company
hereby agrees, promptly following the Closing of the transactions
contemplated by this Agreement, to take such action to cause the Shares to
be listed on the Nasdaq Stock Market as promptly as possible but no later
than the effective date of the registration contemplated by the
Registration Rights Agreement.  The Company further agrees that if the
Company applies to have its Common Stock or other securities traded on any
other principal stock exchange or market, it will include in such
application the Common Stock underlying the Debentures and Warrants, and
will take such other action as is necessary to cause such Common Stock to
be so listed.  The Company will take all action necessary to continue the
listing and trading of its Common Stock on the Nasdaq Stock Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange, as applicable, to
ensure the continued eligibility for trading of the Shares thereon.

          7.12    Corporate Existence.  So long as any Investor
beneficially owns any of the Securities, the Company shall maintain its
corporate existence, except in the event of a merger, consolidation or sale
of all or substantially all of the Company's assets, as long as the
surviving or successor entity in such transaction (a) assumes the Company's
obligations hereunder and under the agreements and instruments entered into
in connection herewith, regardless of whether or not the Company would have
had a sufficient number of shares of Common Stock authorized and available
for issuance in order to fulfill its obligations hereunder and effect the
conversion and exercise in full of all Debentures and Warrants outstanding
as of the date of such transaction; (b) has no legal, contractual or other
restrictions on its ability to perform the obligations of the Company
hereunder and under the agreements and instruments entered into in
connection herewith; and (c) (i) is a publicly traded corporation whose
common stock and the shares of capital stock issuable upon conversion and
exercise of the Debentures and Warrants are (or would be upon issuance
thereof) listed for trading on the Nasdaq Stock Market, New York Stock
Exchange or American Stock Exchange, or (ii) if not such a publicly traded
corporation, then the buyer agrees that it will, at the election of the
Investors, purchase such Investors' Securities at a price equal to 120% of
the Purchase Price of such Securities.

     8.     Survival.  All representations, warranties, covenants and
agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants and agreements as of the date hereof
and shall survive the execution and delivery of this Agreement.

<PAGE>

     9.     Litigation.  The parties hereby agree that all actions or
proceedings arising directly or indirectly from or in connection with this
Agreement or the other Agreements shall be litigated only in the Supreme
Court of the State of New York or the United States District Court for the
Southern District of New York located in New York County, New York.  The
parties consent to the jurisdiction and venue of the foregoing courts and
consent that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State
of New York or the Southern District of New York by registered mail, return
receipt requested, directed to the party being served at its address set
forth in this Agreement (and service so made shall be deemed complete three
(3) days after the same has been posted as aforesaid) or by personal
service or in such other manner as may be permissible under the rules of
said courts.  The Company hereby waives any right to a jury trial in
connection with any litigation pursuant to this Agreement or the other
Agreements.

     10.    Miscellaneous.

          10.1    Successors and Assigns.  This Agreement may not be
assigned by a party hereto without the prior written consent of the other
party hereto which consent may not be unreasonably withheld or delayed,
except that without the prior written consent of the Company, but after
notice duly given, an Investor may assign its rights hereunder in whole or
in part to any purchaser of Securities from such Investor or to such
Investor's affiliates.  The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective permitted
successors and assigns of the parties.  Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

          10.2    Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

          10.3    Titles and Subtitles.  The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.

          10.4    Notices.  Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effectively given only upon delivery to each party to be notified by
(i) personal delivery, (ii) telex or telecopier, upon receipt of the
electronically generated confirmation of delivery, or (iii) a recognized
overnight air courier, addressed to the party to be notified at the address
as follows, or at such other address as such party may designate by ten
days' advance written notice to the other party:

                  If to the Company:

                  SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
                  3400 West Warren Avenue
                  Fremont, California  94538
                  Telephone:  (510) 623-9001
                  Telefax:    (510) 623-9009
                  Attention:  Mr. Peter E. Jansen
                              Chief Financial Officer

<PAGE>

                  with a copy to:

                  Duane, Morris & Heckscher LLP
                  227 West Monroe Street, Suite 3400
                  Chicago, Illinois  60606
                  Attn:       Eric M. Fogel
                  Telephone:  (312) 499-6700
                  Facsimile:  (312) 499-6701

                  If to the Investors:

                  To the address listed for such Investor on its signature
                  page.

                  with a copy to:

                  Tail Wind, Inc.
                  c/o European American Securities, Inc.
                  One Regent Street, 4th Floor
                  London SW1Y 4NS
                  England
                  Attn:       David Crook
                  Telephone:  44-171-468-7660
                  Facsimile:  44-171-468-7657

                  and with a copy to:

                  Kleinberg, Kaplan, Wolff & Cohen, P.C.
                  551 Fifth Avenue
                  New York, New York  10176
                  Attn:       Stephen M. Schultz
                  Telephone:  (212) 986-6000
                  Facsimile:  (212) 986-8866

          10.5    Fees and Expenses.

               (a)      Except as set forth below, the parties hereto shall
pay their own costs and expenses in connection herewith.

               (b)      The Investors shall have no liability or
responsibility for the payment of any commission or finder's fee to any
third party in connection with or resulting from this agreement or the
transactions contemplated by this Agreement.  A cash fee equal to 4.5% of
the gross proceeds received by the Company hereunder from Investors
procured by Dunwoody will be paid by the Company to Dunwoody Brokerage
Services, Inc. ("Dunwoody") at closing.  The company will also issue to
Dunwoody a five-year warrant (the "Dunwoody Warrant") for the purchase of
100,000 shares of Common Stock.  The Dunwoody Warrant shall have an
exercise price per share equal to the five-day average closing bid price of
the Company's Common Stock as reported on the Nasdaq National Market over
the five trading days immediately preceding the Closing Date.  The shares
of Common Stock underlying the Dunwoody Warrants shall be included in the
definition of "Registrable Securities" under the Registration Rights
Agreement and Dunwoody shall be made a party thereto.

<PAGE>

                  (c)  Tail Wind Inc. shall receive an expense allowance to
cover due diligence expenses and legal expenses, in an amount equal to the
sum of (i) 1% of the aggregate Purchase Price of The Tail Wind Fund, Ltd.,
Jeddy Development Inc. (or other investor in substitution thereof) and LBI
Group Inc. and (ii) 0.5% of the aggregate Purchase Price of all other
Investors.  Half of such expense allowance shall be paid by the Company
upon execution hereof and the remainder shall be paid at the Closing.

          10.6    Amendments and Waivers.  Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and a
majority-in-interest of the Investors, provided, however, that (a) any such
amendment or waiver shall not be effective against any Investor not
consenting to same in writing to the extent such Investor's rights or
obligations hereunder are or may be adversely affected thereby, and (b) any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement
at the time outstanding, each future holder of all such securities, and the
Company.

          10.7    Severability.  If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.

          10.8    Entire Agreement.  This Agreement, including the Exhibits
and Schedules hereto, and the Registration Rights Agreement constitute the
entire agreement among the parties hereof with respect to the subject
matter hereof and thereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to
the subject matter hereof and thereof.

          10.9    Further Assurances.  The parties shall execute and
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions
contemplated hereby and to evidence the fulfillment of the agreements
herein contained.

          10.10   Applicable Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without
regard to principles of conflicts of laws.

          10.11   Remedies.

               (a)      The Investors shall be entitled to specific
performance of the Company's obligations under the Agreements.

               (b)      Each party shall indemnify the other and hold it
harmless from any loss, cost, expense or fees (including attorneys' fees
and expenses) arising out of any breach of any representation, warranty,
covenant or agreement in any of the Agreements, or arising out of the
enforcement of this Section 10.11

                         [Signature Page Follows]

<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.

                  The Company:
                  -----------

                  SUNRISE TECHNOLOGIES INTERNATIONAL, INC.

                  By:_________________________
                  Name:
                  Title:

<PAGE>

                  The Investors:
                  -------------

                  THE TAIL WIND FUND, LTD.

                  By:_________________________
                  Name:
                  Title:

Aggregate Purchase Price:           $1,500,000

Address for Notices:                The Tail Wind Fund, Ltd.
                                    Windermere House
                                    404 East Bay Street
                                    P.O. Box SS-5539
                                    Nassau, Bahamas
                                    Attn:  J. McCarroll
                                    Telephone:  242/393-8777
                                    Facsimile:   242/393-9021

                                    with a copy to:

                                    Tail Wind, Inc.
                                    c/o European American Securities, Inc.
                                    One Regent Street, 4th Floor
                                    London SW1Y 4NS
                                    England
                                    Attn:  David Crook
                                    Telephone:  44-171-468-7660
                                    Facsimile:   44-171-468-7657

                                    and with a copy to:

                                    Kleinberg, Kaplan, Wolff & Cohen, P.C.
                                    551 Fifth Avenue
                                    New York, New York  10176
                                    Attn:  Stephen M. Schultz
                                    Telephone: (212) 986-6000
                                    Facsimile: (212) 986-8866

<PAGE>

                        LBI GROUP INC.

                        By:_________________________
                        Name:  Steven L. Berkenfeld
                        Title:  Senior Vice President

Aggregate Purchase Price:           $5,000,000

Address for Notices:                LBI Group Inc.
                                    c/o Lehman Brothers, Inc.
                                    3 World Financial Center
                                    New York, NY  10285
                                    Attn:  Steven Weinstein
                                    Phone:  (212) 526-6957
                                    Fax:  (212) 526-2199

                                    with a copy to:

                                    Kleinberg, Kaplan, Wolff & Cohen, P.C.
                                    551 Fifth Avenue
                                    New York, New York  10176
                                    Attn:  Stephen M. Schultz
                                    Telephone: (212) 986-6000
                                    Facsimile: (212) 986-8866

<PAGE>

                        JEDDY DEVELOPMENT INC.

                        By:_________________________
                        Name: Pablo Javier Espino
                        Title:      Director

Aggregate Purchase Price:           $2,000,000

Address for Notices:                JEDDY DEVELOPMENT INC.
                                    53 Street
                                    Urbanization Obarrio
                                    Republic of Panama
                                    Attn: Pablo Javier Espino
                                    Phone:  (212) 692-9577
                                    Fax:  001718-339-7079

                                    with a copy to:

                                    Moe Bodner
                                    551 Fifth Avenue
                                    New York, New York  10176
                                    Telephone: (212) 693-9577
                                    Facsimile: (212) 986-2825

                                    with a copy to:

                                    Kleinberg, Kaplan, Wolff & Cohen, P.C.
                                    551 Fifth Avenue
                                    New York, New York  10176
                                    Attn:  Stephen M. Schultz
                                    Telephone: (212) 986-6000
                                    Facsimile: (212) 986-8866

<PAGE>

      The undersigned Investor agrees that he, she or it will permit all
decisions with respect to amendments, waivers and remedies of the Purchase
Agreement, Registration Rights Agreement, Debenture and Warrant to be made
by LBI Group Inc. ("LBI") and The Tail Wind Fund, Ltd. ("Tail Wind"),
provided that no amendment, waiver or remedy shall discriminate to the
detriment of such undersigned but not LBI and Tail Wind.  The undersigned
has had the opportunity to consult with separate counsel with respect to
such documents.  The undersigned Investor does not make the representation
contained in Section 5.1 hereof.

                                    ____________________________
                                    Donald Sanders MD, PhD

Aggregate Purchase Price:           $800,000

Address for Notices:                DONALD SANDERS MD, PhD
                                    180 W. Park Avenue
                                    Suite 150
                                    Elmhurst, Illinois  60126
                                    Attn: DONALD SANDERS MD, PhD
                                    Phone:  (630) 530-9700
                                    Fax:  (630) 530-1636

<PAGE>

      The undersigned Investor agrees that he, she or it will permit all
decisions with respect to amendments, waivers and remedies of the Purchase
Agreement, Registration Rights Agreement, Debenture and Warrant to be made
by LBI Group Inc. ("LBI") and The Tail Wind Fund, Ltd. ("Tail Wind"),
provided that no amendment, waiver or remedy shall discriminate to the
detriment of such undersigned but not LBI and Tail Wind.  The undersigned
has had the opportunity to consult with separate counsel with respect to
such documents.  The undersigned Investor does not make the representation
contained in Section 5.1 hereof.

                                    DONALD SANDERS, IRA,
                                    CIBC OPPENHEIMER CORP AS CUSTODIAN

                                    By:_________________________
                                    Name:      Donald Sanders MD, PhD
                                    Title:     Beneficiary

Aggregate Purchase Price:           $700,000

Address for Notices:                DONALD SANDERS MD, PhD
                                    180 W. Park Avenue
                                    Suite 150
                                    Elmhurst, Illinois  60126
                                    Attn: DONALD SANDERS MD, PhD
                                    Phone:  (630) 530-9700
                                    Fax:  (630) 530-1636

<PAGE>

      The undersigned Investor agrees that he, she or it will permit all
decisions with respect to amendments, waivers and remedies of the Purchase
Agreement, Registration Rights Agreement, Debenture and Warrant to be made
by LBI Group Inc. ("LBI") and The Tail Wind Fund, Ltd. ("Tail Wind"),
provided that no amendment, waiver or remedy shall discriminate to the
detriment of such undersigned but not LBI and Tail Wind.  The undersigned
has had the opportunity to consult with separate counsel with respect to
such documents.  The undersigned Investor does not make the representation
contained in Section 5.1 hereof.

                                    MONICA SANDERS

                                    By:_________________________
                                    Name:Donald Sanders MD, PhD,
                                         as guardian for
                                         Monica Sanders

Aggregate Purchase Price:           $100,000

Address for Notices:                DONALD SANDERS MD, PhD
                                    180 W. Park Avenue
                                    Suite 150
                                    Elmhurst, Illinois  60126
                                    Attn: DONALD SANDERS MD, PhD
                                    Phone:  (630) 530-9700
                                    Fax:  (630) 530-1636

<PAGE>

      The undersigned Investor agrees that he, she or it will permit all
decisions with respect to amendments, waivers and remedies of the Purchase
Agreement, Registration Rights Agreement, Debenture and Warrant to be made
by LBI Group Inc. ("LBI") and The Tail Wind Fund, Ltd. ("Tail Wind"),
provided that no amendment, waiver or remedy shall discriminate to the
detriment of such undersigned but not LBI and Tail Wind.  The undersigned
has had the opportunity to consult with separate counsel with respect to
such documents.  The undersigned Investor does not make the representation
contained in Section 5.1 hereof.

                                    KENDRA SANDERS

                                    By:_________________________
                                    Name:Donald Sanders MD, PhD,
                                         as guardian for
                                         Kendra Sanders

Aggregate Purchase Price:           $100,000

Address for Notices:                DONALD SANDERS MD, PhD
                                    180 W. Park Avenue
                                    Suite 150
                                    Elmhurst, Illinois  60126
                                    Attn: DONALD SANDERS MD, PhD
                                    Phone:  (630) 530-9700
                                    Fax:  (630) 530-1636

<PAGE>

      The undersigned Investor agrees that he, she or it will permit all
decisions with respect to amendments, waivers and remedies of the Purchase
Agreement, Registration Rights Agreement, Debenture and Warrant to be made
by LBI Group Inc. ("LBI") and The Tail Wind Fund, Ltd. ("Tail Wind"),
provided that no amendment, waiver or remedy shall discriminate to the
detriment of such undersigned but not LBI and Tail Wind.  The undersigned
has had the opportunity to consult with separate counsel with respect to
such documents.  The undersigned Investor does not make the representation
contained in Section 5.1 hereof.

                                    WANDA SANDERS, IRA,
                                    CIBC OPPENHEIMER CORP AS CUSTODIAN

                                    By:_________________________
                                    Name:      Wanda Sanders
                                    Title:     Beneficiary

Aggregate Purchase Price:           $300,000

Address for Notices:                DONALD SANDERS MD, PhD
                                    180 W. Park Avenue
                                    Suite 150
                                    Elmhurst, Illinois  60126
                                    Attn: DONALD SANDERS MD, PhD
                                    Phone:  (630) 530-9700
                                    Fax:  (630) 530-1636

<PAGE>

      The undersigned Investor agrees that he, she or it will permit all
decisions with respect to amendments, waivers and remedies of the Purchase
Agreement, Registration Rights Agreement, Debenture and Warrant to be made
by LBI Group Inc. ("LBI") and The Tail Wind Fund, Ltd. ("Tail Wind"),
provided that no amendment, waiver or remedy shall discriminate to the
detriment of such undersigned but not LBI and Tail Wind.  The undersigned
has had the opportunity to consult with separate counsel with respect to
such documents.  The undersigned Investor does not make the representation
contained in Section 5.1 hereof.

                                    ____________________________
                                    Meyer Temkin

Aggregate Purchase Price:           $200,000

Address for Notices:                Meyer Temkin
                                    11 Grace Ave
                                    Great Neck, NY  11021
                                    Attn: Meyer Temkin
                                    Telephone: 516-829-4242
                                    Facsimile: 516-829-3752

                                    with a copy to:

                                    Berger Kaye LLP
                                    270 Madison Avenue
                                    New York, New York  10016
                                    Attn:  Darren Berger, Esq.
                                    Telephone: (212) 252-7733
                                    Facsimile: (212) 252-7738

<PAGE>

      The undersigned Investor agrees that he, she or it will permit all
decisions with respect to amendments, waivers and remedies of the Purchase
Agreement, Registration Rights Agreement, Debenture and Warrant to be made
by LBI Group Inc. ("LBI") and The Tail Wind Fund, Ltd. ("Tail Wind"),
provided that no amendment, waiver or remedy shall discriminate to the
detriment of such undersigned but not LBI and Tail Wind.  The undersigned
has had the opportunity to consult with separate counsel with respect to
such documents.  The undersigned Investor does not make the representation
contained in Section 5.1 hereof.

                                    ____________________________
                                    Charles D. Kelman, M.D.

Aggregate Purchase Price:           $1,000,000

Address for Notices:                Charles D. Kelman, M.D.
                                    631 South Ocean Blvd.
                                    Boca Raton, Florida 33432
                                    Attn:   Charles D. Kelman, M.D.
                                    Telephone: 561-367-0218
                                    Facsimile: 561-367-1030

                                    with a copy to:

                                    Berger Kaye LLP
                                    270 Madison Avenue
                                    New York, New York  10016
                                    Attn:  Darren Berger, Esq.
                                    Telephone: (212) 252-7733
                                    Facsimile: (212) 252-7738

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