Document:

EXHIBIT 10.16

                          SECURITIES PURCHASE AGREEMENT

         THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"),  dated as of May
11,  2000,  by  and  among  Diamond  Entertainment  Corporation,  a  New  Jersey
corporation,  with headquarters  located at 800 Tucker Lane, Walnut,  California
(the  "Company"),  and the  investors  listed  on  Schedule  I  attached  hereto
(individually, a "Buyer" or collectively "Buyers").

                                   WITNESSETH:

         WHEREAS,  the Company and the Buyers are executing and delivering  this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or  Regulation D  ("Regulation  D") as  promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");

         WHEREAS,  the Company has  authorized  the  following new series of its
preferred stock, no par value per share (the "Preferred  Stock"):  the Company's
Series A  Convertible  Preferred  Stock,  no par value per share (the  "Series A
Preferred  Shares"),  which shall be  convertible  into shares of the  Company's
Common Stock,  no par value per share (the "Common  Stock") (as  converted,  the
"Conversion  Shares"), in accordance with the terms of the Company's Certificate
of Amendment  Designating the Series A Preferred  Shares,  substantially  in the
form attached hereto as Exhibit A (the "Certificate of Designations");

         WHEREAS,  the Buyers wish to  purchase,  upon the terms and  conditions
stated in this Agreement,  up to 50 Series A Preferred  Shares in the respective
amounts set forth  opposite  each  Buyer's  name on Schedule I and at a purchase
price of $10,000 per Series A Preferred Share (the "Purchase Price");

         WHEREAS,  contemporaneously  with the  execution  and  delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement   substantially  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  1933 Act and the  rules  and
regulations promulgated thereunder, and applicable state securities laws; and

         WHEREAS,  the Series A Preferred  Shares are being offered  through May
Davis Group, Inc. (the "Placement  Agent"), as the Company's exclusive placement
agent for the offering on a "best efforts" basis; and

         WHEREAS,  the aggregate  proceeds of the sale of the Series A Preferred
Shares  contemplated  hereby shall be held in escrow pursuant to the terms of an
escrow  agreement  substantially  in the form of the Amended and Restated Escrow
Agreement attached hereto as Exhibit C.

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         NOW,  THEREFORE,  in  consideration  of the mutual  covenants and other
agreements  contained in this  Agreement the Company and the Buyers hereby agree
as follows:

         1.       PURCHASE AND SALE OF SERIES A PREFERRED SHARES.

                  (a)  Purchase  of Series A  Preferred  Stock.  Subject  to the
         satisfaction (or waiver) of the terms and conditions of this Agreement,
         each Buyer agrees,  severally  and not jointly,  to purchase at Closing
         (as defined  hereinbelow)  and the Company  agrees to sell and issue to
         each Buyer,  severally and not jointly, at Closing the number of Series
         A Preferred  Shares and at the purchase  price set forth  opposite each
         Buyer's name on Schedule I hereto.  Upon  execution  hereof by a Buyer,
         the  Buyer  shall  wire  transfer  the  subscription  amount  set forth
         opposite his name on Schedule I in same-day funds or a check payable to
         "First Union National  Bank, as Escrow Agent for Diamond  Entertainment
         Corporation,"  which  subscription  amount  shall  be  held  in  escrow
         pursuant to the terms of the Escrow Agreement (as hereinafter  defined)
         and  disbursed in  accordance  therewith or the Buyer shall convert the
         principal amount of the outstanding  note(s) held by Buyer as set forth
         on Schedule I whereupon such note shall be deemed cancelled and paid in
         full.   Notwithstanding  the  foregoing,   a  Buyer  may  withdraw  his
         subscription  amount and terminate  this  Agreement as to such Buyer at
         any  time  after  the  execution   hereof  and  prior  to  Closing  (as
         hereinafter defined).

                  (b) Closing Date.  The closing of the purchase and sale of the
         Series A  Preferred  Shares (the  "Closing")  shall take place at 10:00
         a.m.  Eastern  Standard Time on the fifth business day ("Closing Date")
         following the date hereof,  subject to notification of satisfaction (or
         waiver) of the  conditions to the Closing set forth in Sections 6 and 7
         below (or such later date as is  mutually  agreed to by the Company and
         the Buyers). The Closing shall occur on the Closing Date at the offices
         of Butler  Gonzalez,  LLP, 1000 Stuyvesant  Avenue,  Suite 6, Union, NJ
         07083.

                  (c)  Escrow  Arrangements;  Form of  Payment.  Upon  execution
         hereof by Buyer and pending Closing, the aggregate proceeds of the sale
         of the Series A Preferred  Shares to Buyers  pursuant  hereto  shall be
         deposited in a  non-interest  bearing  escrow  account with First Union
         National Bank, as escrow agent ("Escrow Agent"),  pursuant to the terms
         of an escrow agreement between the Company, the Placement Agent and the
         Escrow Agent in the form  attached  hereto as Exhibit C. Subject to the
         satisfaction  of the terms and  conditions  of this  Agreement,  on the
         Closing  Date,  (i) the Escrow  Agent  shall  deliver to the Company in
         accordance with the terms of the Escrow  Agreement such aggregate gross
         proceeds  for the  Series A  Preferred  Shares to be issued and sold to
         such Buyer at the Closing,  by wire transfer of  immediately  available
         funds in accordance with the Company's written wire  instructions,  and
         (ii) the Company shall deliver to each Buyer, certificates representing
         such Series A Preferred  Shares which such Buyer is then purchasing (as
         indicated  opposite  such Buyer's name on Schedule I), duly executed on
         behalf of the Company and  registered  in the name of such Buyer or its
         designee (the "Certificates").

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         2.       BUYER'S REPRESENTATIONS AND WARRANTEES.

                  Each Buyer represents and warrants, severally and not jointly,
that:

                  (a) Investment  Purpose.  Each Buyer is acquiring the Series A
         Preferred Shares and, upon conversion of the Series A Preferred Shares,
         will acquire the Conversion  Shares then issuable,  for its own account
         for  investment  only and not with a view  towards,  or for  resale  in
         connection  with,  the  public  sale or  distribution  thereof,  except
         pursuant to sales registered or exempted under the 1933 Act;  provided,
         however, that by making the representations herein, such Buyer reserves
         the right to dispose of Series A Preferred Shares or Conversion  Shares
         at any time in accordance with or pursuant to a registration  statement
         or an available exemption under the 1933 Act.

                  (b) Accredited  Investor Status.  Each Buyer is an "accredited
         investor" as that term is defined in Rule 501(a)(3) of Regulation D.

                  (c) Reliance on Exemptions.  Each Buyer  understands  that the
         Series A Preferred  Shares and the Conversion  Shares are being offered
         and sold to it in reliance on specific exemptions from the registration
         requirements  of United States  Federal and state  securities  laws and
         that the Company is relying in part upon the truth and accuracy of, and
         such  Buyer's   compliance  with,  the   representations,   warranties,
         agreements,  acknowledgments and understandings of such Buyer set forth
         herein in order to determine the  availability  of such  exemptions and
         the eligibility of such Buyer to acquire such securities.

                  (d) Information.  Such Buyer and its advisors (and his or, its
         counsel),  if any, have been furnished  with all materials  relating to
         the business, finances and operations of the Company and information he
         deemed material to making an informed investment decision regarding his
         purchase of the Series A Preferred  Shares and the  Conversion  Shares,
         which have been  requested by such Buyer.  Such Buyer and its advisors,
         if any,  have been  afforded the  opportunity  to ask  questions of the
         Company and its  management.  Neither such  inquiries nor any other due
         diligence  investigations  conducted by such Buyer or its advisors,  if
         any, or its representatives  shall modify, amend or affect such Buyer's
         right to rely on the Company's representations and warranties contained
         in Section 3 below.  Such Buyer  understands that its investment in the
         Series A Preferred  Shares and the  Conversion  Shares  involves a high
         degree of risk.  Buyer is in a position  regarding the Company,  which,
         based upon  employment,  family  relationship  or  economic  bargaining
         power, enabled and enables Buyer to obtain information from the Company
         in order to  evaluate  the  merits and risks of this  investment.  Such
         Buyer has  sought  such  accounting,  legal and tax  advice,  as it has
         considered  necessary  to make an  informed  investment  decision  with
         respect to its  acquisition  of the Series A  Preferred  Shares and the
         Conversion Shares.

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<PAGE>

                  (e) No Governmental  Review.  Such Buyer  understands  that no
         United  States  Federal  or state  agency  or any other  government  or
         governmental  agency  has  passed  on or  made  any  recommendation  or
         endorsement of the Series A Preferred Shares or the Conversion  Shares,
         or the  fairness  or  suitability  of the  investment  in the  Series A
         Preferred  Shares or the Conversion  Shares,  nor have such authorities
         passed  upon or  endorsed  the merits of the  offering  of the Series A
         Preferred Shares or the Conversion Shares.

                  (f) Transfer or Resale.  Such Buyer understands that except as
         provided  in the  Registration  Rights  Agreement:  (i)  the  Series  A
         Preferred  Shares and the  Conversion  Shares have not been and are not
         being  registered  under the 1933 Act or any state securities laws, and
         may not be offered for sale, sold,  assigned or transferred  unless (A)
         subsequently  registered  thereunder,  or (B)  such  Buyer  shall  have
         delivered  to  the  Company  an  opinion  of  counsel,  in a  generally
         acceptable  form,  to the  effect  that  such  securities  to be  sold,
         assigned or transferred may be sold,  assigned or transferred  pursuant
         to an exemption from such registration  requirements;  (ii) any sale of
         such  securities  made in reliance on Rule 144 under the 1933 Act (or a
         successor  rule  thereto)  ("Rule 144") may be made only in  accordance
         with the terms of Rule 144 and further,  if Rule 144 is not applicable,
         any resale of such securities  under  circumstances in which the seller
         (or the  person  through  whom the sale is made) may be deemed to be an
         underwriter  (as that  term is  defined  in the 1933  Act) may  require
         compliance  with some other  exemption  under the 1933 Act or the rules
         and  regulations of the SEC  thereunder;  and (iii) neither the Company
         nor  any  other  person  is  under  any  obligation  to  register  such
         securities under the 1933 Act or any state securities laws or to comply
         with the terms and conditions of any exemption thereunder.  The Company
         reserves  the right to place stop  transfer  instructions  against  the
         shares and certificates for the Conversion Shares and Warrant Shares.

                  (g) Legends.  Such Buyer  understands that the certificates or
         other  instruments  representing the Series A Preferred Shares and upon
         issuance of the Conversion Shares, the stock certificates  representing
         the Conversion Shares shall bear a restrictive  legend in substantially
         the  following  form (and a stop transfer  order may be placed  against
         transfer of such stock certificates):

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               THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE NOT BEEN
               REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS  AMENDED,  OR
               APPLICABLE  STATE  SECURITIES  LAWS.  THE  SECURITIES  HAVE  BEEN
               ACQUIRED  SOLELY  FOR  INVESTMENT  PURPOSES  AND NOT  WITH A VIEW
               TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,  TRANSFERRED
               OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
               FOR THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
               OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN
               A GENERALLY  ACCEPTABLE  FORM, THAT  REGISTRATION IS NOT REQUIRED
               UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

         The legend set forth above shall be removed and the Company shall issue
         a  certificate  without  such  legend  to the  holder  of the  Series A
         Preferred Shares and/or the Conversion Shares upon which it is stamped,
         if,  unless  otherwise  required  by  state  securities  laws,  (i)  in
         connection with a sale transaction,  provided the Conversion Shares are
         registered  under  the  1933  Act or  (ii)  in  connection  with a sale
         transaction,  such  holder  provides  the  Company  with an  opinion of
         counsel,  in form  acceptable  to the Company and its  counsel,  to the
         effect that a public  sale,  assignment  or transfer of the  Conversion
         Shares may be made without registration under the 1933 Act.

                  (h) Authorization,  Enforcement.  This Agreement has been duly
         and validly authorized,  executed and delivered on behalf of such Buyer
         and is a valid and  binding  agreement  of such  Buyer  enforceable  in
         accordance with its terms, except as such enforceability may be limited
         by  general   principles  of  equity  and  to  applicable   bankruptcy,
         insolvency,  reorganization,  moratorium, liquidation and other similar
         laws relating to, or affecting generally, the enforcement of applicable
         creditors' rights and remedies.

                  (i)  Receipt of  Documents.  Such Buyer and his or its counsel
         has received and read in their  entirety:  (i) this  Agreement and each
         representation, warranty and covenant set forth herein, the Certificate
         of Designations,  and the Escrow Agreement;  (ii) all due diligence and
         other information  necessary to verify the accuracy and completeness of
         such  representations,  warranties and  covenants;  (iii) the Company's
         Form 10-KSB for the year ended March 31, 1999; (iv) the Company's Forms
         10-QSB for the periods  ended June 30,  September  30, and December 31,
         1999; (v) the Company's  definitive  proxy  statement,  dated March 27,
         2000;  and (vi)  answers to all  questions  the Buyer  submitted to the
         Company  regarding  an  investment  in the  Company;  and the Buyer has
         relied on the information  contained therein and has not been furnished
         any other documents, literature, memorandum or prospectus.

                  (j) Due Formation of Corporate  and Other  Investors.   If the
         Buyer is a  corporation, trust, partnership or other entity that is not
         an individual person, it has been formed and validly exists and has not
         been  organized for  the specific  purpose of  purchasing  the Series A
         Preferred Shares and is not prohibited from doing so.

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                  (k) Due  Authorization of Fiduciary  Investors.   If the Buyer
          is  purchasing  the in a  fiduciary  capacity  for  another  person or
          entity, including without limitation a corporation, partnership, trust
          or any other entity,  the Buyer has been duly authorized and empowered
          to execute  this  Agreement  and such other  person  fulfills  all the
          requirements  for purchase of the Series A Preferred Shares and agrees
          to be  bound  by the  obligations,  representations,  warranties,  and
          covenants  contained  herein.  Upon request of the Company,  the Buyer
          will  provide  true,  complete  and  current  copies  of all  relevant
          documents  creating  the  Buyer,  authorizing  its  investment  in the
          Company and/or evidencing the satisfaction of the foregoing.

                  (l) Further  Representations  by Foreign  Investors.
                  ----------------------------------------------------
          If  Buyer  is  not a U.S.  Person  (as  defined),  such  Buyer  hereby
          represents  that such Buyer is satisfied as to full  observance of the
          laws of such Buyer's jurisdiction in connection with any invitation to
          subscribe for the securities or any use of this Agreement,  including:
          (i) the  legal  requirements  of  such  Buyer's  jurisdiction  for the
          purchase of the  securities,  (ii) any foreign  exchange  restrictions
          applicable to such purchase,  (iii) any governmental or other consents
          that may need to be  obtained,  and (iv) the  income tax and other tax
          consequences,  if any, which may be relevant to the purchase, holding,
          redemption,   sale,  or  transfer  of  the  securities.  Such  Buyer's
          subscription  and payment for, and such Buyer's  continued  beneficial
          ownership  of,  the   securities   will  not  violate  any  applicable
          securities or other laws of such Buyer's jurisdiction.  The term "U.S.
          Person"  as used  herein  shall  mean any  person  who is a citizen or
          resident of the United  States or Canada,  or any state,  territory or
          possession  thereof,  including  but not  limited to any estate of any
          such person,  or any corporation,  partnership,  trust or other entity
          created or existing under the laws thereof,  or any entity  controlled
          or owned by any of the foregoing.

         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to each of the Buyers that:

                  (a)  Organization  and  Qualification.  The  Company  and  its
         subsidiaries  are  corporations  duly organized and validly existing in
         good  standing  under the laws of the  jurisdiction  in which  they are
         incorporated,  and  have the  requisite  corporate  power to own  their
         properties and to carry on their business as now being conducted.  Each
         of the  Company and its  subsidiaries  is duly  qualified  as a foreign
         corporation   to  do  business  and  is  in  good   standing  in  every
         jurisdiction in which the nature of the business  conducted by it makes
         such qualification necessary,  except to the extent that the failure to
         be so  qualified  or be in good  standing  would  not  have a  material
         adverse effect on the Company and its subsidiaries taken as a whole.

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                  (b)   Authorization,   Enforcement,   Compliance   with  Other
         Instruments.  (i) The Company  has the  requisite  corporate  power and
         authority to enter into and perform this  Agreement,  the  Registration
         Rights Agreement and any related agreements,  and to issue the Series A
         Preferred  Shares and the Conversion  Shares,  the Warrants (as defined
         hereinbelow),  or shares of Common Stock  issuable upon exercise of the
         Warrants (the "Warrant Shares") in accordance with the terms hereof and
         thereof,  (ii)  the  execution  and  delivery  of this  Agreement,  the
         Registration Rights Agreement and any related agreements by the Company
         and the consummation by it of the transactions  contemplated hereby and
         thereby,  including  without  limitation  the  issuance of the Series A
         Preferred  Shares and the Warrants and the reservation for issuance and
         the issuance of the Conversion  Shares and the Warrant Shares  issuable
         upon conversion or exercise  thereof,  have been duly authorized by the
         Company's Board of Directors and no further consent or authorization is
         required by the Company,  its Board of  Directors or its  stockholders,
         (iii) this  Agreement  and the  Registration  Rights  Agreement and any
         related  agreements  have  been  duly  executed  and  delivered  by the
         Company, (iv) this Agreement, the Registration Rights Agreement and any
         related agreements  constitute the valid and binding obligations of the
         Company enforceable against the Company in accordance with their terms,
         except as such  enforceability  may be limited by general principles of
         equity   or   applicable   bankruptcy,   insolvency,    reorganization,
         moratorium,  liquidation  or similar  laws  relating  to, or  affecting
         generally,  the enforcement of creditors' rights and remedies,  and (v)
         prior  to  the  Closing   Date,   the   Certificate   of   Designations
         substantially  in the form attached  hereto as Exhibit A has been filed
         with the  Secretary  of State of the State of New Jersey and will be in
         full force and effect,  enforceable  against the Company in  accordance
         with its terms.

                  (c)  Capitalization.  As of the date  hereof,  the  authorized
         capital stock of the Company  consists of 100,000,000  shares of Common
         Stock, of which as of April 10, 2000, 62,334,029 shares were issued and
         outstanding,  and 5,000,000 shares of preferred stock, no par value, of
         which as of April 10, 2000, 483,251 shares were issued and outstanding.
         All of such  outstanding  shares have been validly issued and are fully
         paid and nonassessable. Except as disclosed in Schedule 3(c), no shares
         of Common Stock are subject to  preemptive  rights or any other similar
         rights  or any  liens or  encumbrances  suffered  or  permitted  by the
         Company.  Except as disclosed in Schedule  3(c), as of the date of this
         Agreement,  (i)  there are no  outstanding  options,  warrants,  scrip,
         rights  to  subscribe  to,  calls  or   commitments  of  any  character
         whatsoever  relating to, or securities or rights  convertible into, any
         shares of capital stock of the Company or any of its  subsidiaries,  or
         contracts,  commitments,  understandings  or  arrangements by which the
         Company  or any of its  subsidiaries  is or may  become  bound to issue
         additional  shares  of  capital  stock  of  the  Company  or any of its

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         subsidiaries or options, warrants, scrip, rights to subscribe to, calls
         or commitments of any character  whatsoever  relating to, or securities
         or rights  convertible into, any shares of capital stock of the Company
         or  any  of its  subsidiaries,  (ii)  there  are  no  outstanding  debt
         securities  and (iii) there are no  agreements  or  arrangements  under
         which the Company or any of its  subsidiaries  is obligated to register
         the sale of any of their securities under the 1933 Act (except pursuant
         to the  Registration  Rights  Agreements).  There are no  securities or
         instruments containing anti-dilution or similar provisions that will be
         triggered  by the  issuance  of the  Series  A  Preferred  Shares,  the
         Conversion Shares, the Warrants,  or the Warrant Shares as described in
         this  Agreement.  The  Company  has  furnished  to the Buyers  true and
         correct  copies  of the  Company's  Certificate  of  Incorporation,  as
         amended  and as in  effect  on the date  hereof  (the  "Certificate  of
         Incorporation"),  and the Company's  By-laws,  as in effect on the date
         hereof (the  "By-laws"),  and the terms of all  securities  convertible
         into or  exercisable  for Common Stock and the  material  rights of the
         holders thereof in respect thereto.

                  (d) Issuance of Securities.  The Series A Preferred Shares are
         duly authorized and, upon issuance in accordance with the terms hereof,
         shall be duly issued,  fully paid and nonassessable,  are free from all
         taxes,  liens and  charges  with  respect to the issue  thereof and are
         entitled to the rights and  preferences set forth in the Certificate of
         Designations for the Series A Preferred  Shares.  The Conversion Shares
         issuable  upon  conversion  of the Series A Preferred  Shares have been
         duly authorized and reserved for issuance.  Upon conversion or exercise
         in accordance  with the Certificate of Designations or the terms of the
         Warrants  and receipt of payment  therefor  (in the case of the Warrant
         Shares),  the  Conversion  Shares and the  Warrant  Shares will be duly
         issued, fully paid and nonassessable.

                  (e) No Conflicts.  Except as disclosed in Schedule  3(e),  the
         execution,  delivery and  performance  of this Agreement by the Company
         and the  consummation by the Company of the  transactions  contemplated
         hereby  will  not (i)  result  in a  violation  of the  Certificate  of
         Incorporation,  any  certificate  of  designations  of any  outstanding
         series of  preferred  stock of the Company or By-laws or (ii)  conflict
         with or constitute a default (or an event which with notice or lapse of
         time or both  would  become a  default)  under,  or give to others  any
         rights of termination,  amendment, acceleration or cancellation of, any
         agreement,  indenture or  instrument to which the Company or any of its
         subsidiaries  is a party,  or result in a violation  of any law,  rule,
         regulation,  order,  judgment  or decree  (including  federal and state
         securities  laws and  regulations  and the rules and regulations of The
         Nasdaq Stock Market Inc.'s OTC Bulletin Board on which the Common Stock
         is quoted)  applicable to the Company or any of its  subsidiaries or by
         which any  property or asset of the Company or any of its  subsidiaries

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         is bound or affected. Except as disclosed in Schedule 3(e), neither the
         Company  nor its  subsidiaries  is in  violation  of any  term of or in
         default  under its  Certificate  of  Incorporation  or By-laws or their
         organizational  charter  or  by-laws,  respectively,  or  any  material
         contract, agreement,  mortgage,  indebtedness,  indenture,  instrument,
         judgment, decree or order or any statute, rule or regulation applicable
         to the Company or its subsidiaries. The business of the Company and its
         subsidiaries  is not being  conducted,  and shall not be  conducted  in
         violation  of  any  material   law,   ordinance,   regulation   of  any
         governmental  entity.  Except  as  specifically  contemplated  by  this
         Agreement and as required under the 1933 Act and any  applicable  state
         securities  laws,  the Company is not  required to obtain any  consent,
         authorization or order of, or make any filing or registration with, any
         court or  governmental  agency in order for it to  execute,  deliver or
         perform any of its obligations  under or contemplated by this Agreement
         or the  Registration  Rights  Agreement  in  accordance  with the terms
         hereof or thereof.  Except as disclosed in Schedule 3(e), all consents,
         authorizations,  orders, filings and registrations which the Company is
         required  to  obtain  pursuant  to the  preceding  sentence  have  been
         obtained or effected  on or prior to the date  hereof.  The Company and
         its subsidiaries are unaware of any facts or circumstance,  which might
         give rise to any of the foregoing.

                  (f) SEC Documents:  Financial Statements. Since June 11, 1999,
         the Company has filed all reports,  schedules,  forms,  statements  and
         other  documents  required  to be filed by it with the SEC under of the
         Securities  Exchange  Act of 1934,  as amended (the "1934 Act") (all of
         the foregoing filed prior to the date hereof and all exhibits  included
         therein and financial  statements  and schedules  thereto and documents
         incorporated by reference therein, being hereinafter referred to as the
         "SEC  Documents").  The  Company has  delivered  to the Buyers or their
         representatives,  or  made  available  through  the  SEC's  website  at
         http://www.sec.gov.,  true and complete copies of the SEC Documents. As
         of their  respective  dates,  the  financial  statements of the Company
         disclosed in the SEC Documents (the "Financial Statements") complied as
         to  form  in  all  material   respects   with   applicable   accounting
         requirements  and the published  rules and  regulations of the SEC with
         respect  thereto.  Such  financial  statements  have been  prepared  in
         accordance with generally accepted accounting principles,  consistently
         applied,  during the periods  involved  (except (i) as may be otherwise
         indicated in such financial statements or the notes thereto, or (ii) in
         the  case of  unaudited  interim  statements,  to the  extent  they may
         exclude footnotes or may be condensed or summary statements) and fairly
         present in all material respects the financial  position of the Company
         as of the dates  thereof  and the  results of its  operations  and cash
         flows for the periods  then ended  (subject,  in the case of  unaudited
         statements, to normal year-end audit adjustments). No other information
         provided  by or on behalf  of the  Company  to the  Buyer  which is not
         included  in  the  SEC  Documents,   including,   without   limitation,
         information  referred  to in  Section  2(d) and (i) of this  Agreement,
         contains any untrue  statement of a material fact or omits to state any
         material fact necessary in order to make the statements therein, in the
         light of the circumstances under which they were made, not misleading.

                                       9
<PAGE>

                  (g)  Absence  of  Certain  Changes.  Except  as  disclosed  in
         Schedule 3(g), since the Quarterly Report on Form 10-QSB for the period
         ended  December 31, 1999 filed  February  22,  2000,  there has been no
         material  adverse  change and no material  adverse  development  in the
         business,  properties,  operations,  financial  condition,  results  of
         operations or prospects of the Company or its subsidiaries. The Company
         has not  taken any  steps,  and does not  currently  expect to take any
         steps, to seek  protection  pursuant to any bankruptcy law nor does the
         Company or its  subsidiaries  have any  knowledge  or reason to believe
         that  its   creditors   intend  to  initiate   involuntary   bankruptcy
         proceedings.

                  (h) Absence of  Litigation.  Except as  disclosed  on Schedule
         3(h), there is no action,  suit,  proceeding,  inquiry or investigation
         before   or  by   any   court,   public   board,   government   agency,
         self-regulatory  organization  or body pending or, to the  knowledge of
         the Company or any of its subsidiaries, threatened against or affecting
         the  Company,  the Common Stock or any of the  Company's  subsidiaries,
         wherein an  unfavorable  decision,  ruling or finding  would (i) have a
         material  adverse effect on the transactions  contemplated  hereby (ii)
         adversely affect the validity or enforceability of, or the authority or
         ability of the Company to perform its obligations under, this Agreement
         or any  of the  documents  contemplated  herein,  or  (iii)  except  as
         expressly  disclosed  in the SEC  Documents,  have a  material  adverse
         effect on the business, operations,  properties, financial condition or
         results of  operation  of the Company and its  subsidiaries  taken as a
         whole.

                  (i)  Acknowledgment  Regarding  Buyer's  Purchase  of Series A
         Preferred Shares. The Company acknowledges and agrees that the Buyer is
         acting solely in the capacity of an arm's length purchaser with respect
         to this Agreement and the transactions contemplated hereby. The Company
         further  acknowledges  that the  Buyer  is not  acting  as a  financial
         advisor or fiduciary of the Company (or in any similar  capacity)  with
         respect to this Agreement and the transactions  contemplated hereby and
         any   advice   given  by  the   Buyer   or  any  of  their   respective
         representatives  or agents in  connection  with this  Agreement and the
         transactions  contemplated  hereby is merely incidental to such Buyer's
         purchase of the Series A Preferred Shares or the Conversion Shares. The
         Company further  represents to the Buyer that the Company's decision to
         enter  into this  Agreement  has been based  solely on the  independent
         evaluation by the Company and its representatives.

                  (j)  No  Undisclosed  Events,  Liabilities,   Developments  or
         Circumstances.  No event,  liability,  development or circumstance  has
         occurred or exists,  or is contemplated  to occur,  with respect to the
         Company or its subsidiaries or their respective businesses, properties,
         prospects,  operations or financial condition,  which could be material
         but which has not been  publicly  announced  or disclosed in writing to
         the Buyer.

                                       10
<PAGE>

                  (k) No General  Solicitation.  Neither the Company, nor any of
         its  affiliates,  nor any  person  acting on its or their  behalf,  has
         engaged in any form of  general  solicitation  or  general  advertising
         (within the meaning of  Regulation D under the 1933 Act) in  connection
         with the offer or sale of the Series A Preferred Shares, the Conversion
         Shares, the Warrants, or the Warrant Shares.

                  (1) 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  require  registration  of the  Series A  Preferred  Shares,  the
         Conversion Shares,  the Warrants,  or the Warrant Shares under the 1933
         Act or cause this offering of Series A Preferred Shares, the Conversion
         Shares, the Warrants, or the Warrant Shares to be integrated with prior
         offerings by the Company for purposes of the 1933 Act.

                  (m)  Employee  Relations.  Neither  the Company nor any of its
         subsidiaries  is involved in any labor dispute nor, to the knowledge of
         the Company or any of its subsidiaries, is any such dispute threatened.
         None of the Company's or its  subsidiaries'  employees is a member of a
         union and the Company and its subsidiaries believe that their relations
         with their employees are good.

                  (n)  Intellectual   Property  Rights.   The  Company  and  its
         subsidiaries  own or possess  adequate  rights or  licenses  to use all
         trademarks,  trade names,  service marks,  service mark  registrations,
         service  names,  patents,   patent  rights,   copyrights,   inventions,
         licenses,  approvals,  governmental  authorizations,  trade secrets and
         rights  necessary  to  conduct  their  respective   businesses  as  now
         conducted.  Except as set forth on Schedule 3(n), none of the Company's
         trademarks,  trade names,  service marks,  service mark  registrations,
         service  names,  patents,   patent  rights,   copyrights,   inventions,
         licenses, approvals, government authorizations, trade secrets, or other
         intellectual  property  rights  have  expired  or  terminated,  or  are
         expected to expire or terminate in the near future. The Company and its
         subsidiaries  do not  have any  knowledge  of any  infringement  by the
         Company or its subsidiaries of trademark,  trade name rights,  patents,
         patent rights, copyrights, inventions, licenses, service names, service
         marks, service mark registrations, trade secret or other similar rights
         of others,  or of any such  development  of similar or identical  trade
         secrets or technical  information by others and, except as set forth on
         Schedule  3(n),  to the  knowledge of the  Company,  there is no claim,
         action or proceeding being made or brought against, or to the Company's
         knowledge,  being threatened  against,  the Company or its subsidiaries
         regarding  trademark,  trade name, patents,  patent rights,  invention,
         copyright,   license,   service  names,  service  marks,  service  mark
         registrations,  trade secret or other infringement; and the Company and
         its subsidiaries are unaware of any facts or circumstances  which might
         give rise to any of the  foregoing.  The Company  and its  subsidiaries
         have  taken  reasonable  security  measures  to  protect  the  secrecy,
         confidentiality and value of all of their intellectual properties.

                                       11
<PAGE>

                  (o)  Environmental  Laws. The Company and its subsidiaries are
         (i) in compliance with any and all applicable foreign,  federal,  state
         and local laws and  regulations  relating  to the  protection  of human
         health and safety,  the environment or hazardous or toxic substances or
         wastes,  pollutants or contaminants  ("Environmental  Laws"), (ii) have
         received  all  permits,  licenses or other  approvals  required of them
         under  applicable   Environmental  Laws  to  conduct  their  respective
         businesses and (iii) are in compliance with all terms and conditions of
         any such permit, license or approval.

                  (p) Title.  The  Company  and its  subsidiaries  have good and
         marketable  title  in fee  simple  to all  real  property  and good and
         marketable  title  to all  personal  property  owned  by them  which is
         material to the business of the Company and its  subsidiaries,  in each
         case free and clear of all liens,  encumbrances and defects except such
         as are described in Schedule  3(p),  are disclosed in the SEC Documents
         or such as do not  materially  affect the value of such property and do
         not  interfere  with  the  use  made  and  proposed  to be made of such
         property by the Company and its  subsidiaries.  Any real  property  and
         facilities  held under lease by the Company  and its  subsidiaries  are
         held by them under valid,  subsisting and enforceable  leases with such
         exceptions as are not material and do not  interfere  with the use made
         and proposed to be made of such  property and  buildings by the Company
         and its subsidiaries.

                  (q) Insurance.  The Company and each of its  subsidiaries  are
         insured by insurers of recognized financial responsibility against such
         losses  and risks and in such  amounts  as  management  of the  Company
         believes to be prudent and  customary  in the  businesses  in which the
         Company and its subsidiaries  are engaged.  Neither the Company nor any
         such  subsidiary  has been  refused any  insurance  coverage  sought or
         applied for and neither  the  Company nor any such  subsidiary  has any
         reason  to  believe  that it will  not be able to  renew  its  existing
         insurance  coverage  as and when  such  coverage  expires  or to obtain
         similar  coverage from similar insurers as may be necessary to continue
         its business at a cost that would not materially  and adversely  affect
         the  condition,  financial or otherwise,  or the earnings,  business or
         operations of the Company and its subsidiaries, taken as a whole.

                  (r)  Regulatory  Permits.  The  Company  and its  subsidiaries
         possess all  certificates,  authorizations  and  permits  issued by the
         appropriate federal,  state or foreign regulatory authorities necessary
         to conduct their respective businesses, and neither the Company nor any
         such subsidiary has received any notice of proceedings  relating to the
         revocation or modification of any such  certificate,  authorization  or
         permit.

                  (s) Internal Accounting Controls.  The Company and each of its
         subsidiaries   maintain  a  system  of  internal   accounting  controls
         sufficient to provide  reasonable  assurance that (i)  transactions are
         executed  in   accordance   with   management's   general  or  specific
         authorizations,  (ii)  transactions are recorded as necessary to permit
         preparation  of  financial  statements  in  conformity  with  generally
         accepted  accounting  principles and to maintain asset  accountability,
         (iii)  access  to  assets  is  permitted   only  in   accordance   with
         management's  general or specific  authorization  and (iv) the recorded
         accountability  for  assets is  compared  with the  existing  assets at
         reasonable  intervals and  appropriate  action is taken with respect to
         any differences.

                                       12
<PAGE>

                  (t) No Materially Adverse Contracts,  etc. Except as set forth
         in the SEC Documents,  neither the Company nor any of its  subsidiaries
         is subject to any charter, corporate or other legal restriction, or any
         judgment,  decree,  order,  rule or regulation which in the judgment of
         the  Company's  officers  has or is  expected  in the  future to have a
         material  adverse  effect  on  the  business,  properties,  operations,
         financial condition,  results of operations or prospects of the Company
         or its subsidiaries. Neither the Company nor any of its subsidiaries is
         a party to any  contract  or  agreement  which in the  judgment  of the
         Company's officers has or is expected to have a material adverse effect
         on the business, properties,  operations,  financial condition, results
         of operations or prospects of the Company or its subsidiaries.

                  (u) Tax Status.  The Company and each of its  subsidiaries has
         made or filed all federal and state  income and all other tax  returns,
         reports and  declarations  required by any  jurisdiction to which it is
         subject (unless and only to the extent that the Company and each of its
         subsidiaries has set aside on its books provisions  reasonably adequate
         for the  payment of all unpaid and  unreported  taxes) and has paid all
         taxes and other governmental  assessments and charges that are material
         in amount,  shown or determined to be due on such returns,  reports and
         declarations,  except  those being  contested in good faith and has set
         aside on its books provision reasonably adequate for the payment of all
         taxes for  periods  subsequent  to the  periods to which such  returns,
         reports  or  declarations  apply.  There  are no  unpaid  taxes  in any
         material  amount  claimed  to be  due by the  taxing  authority  of any
         jurisdiction,  and the officers of the Company know of no basis for any
         such claim.

                  (v) Certain Transactions. Except as set forth on Schedule 3(v)
         and in the SEC  Documents  and  except  for arm's  length  transactions
         pursuant to which the Company makes payments in the ordinary  course of
         business  upon terms no less  favorable  than the Company  could obtain
         from third parties and other than the grant of stock options  disclosed
         on Schedule 3(c), none of the officers,  directors, or employees of the
         Company is presently a party to any transaction with the Company (other
         than for services as employees, officers and directors),  including any
         contract,  agreement or other arrangement  providing for the furnishing
         of services to or by, providing for rental of real or personal property
         to or from,  or  otherwise  requiring  payments to or from any officer,
         director or such  employee or, to the  knowledge  of the  Company,  any
         corporation,  partnership,  trust or other entity in which any officer,
         director,  or any such  employee  has a  substantial  interest or is an
         officer, director, trustee or partner.

                                       13
<PAGE>

                  (w) Dilutive Effect. The Company  understands and acknowledges
         that the number of Conversion  Shares  issuable upon  conversion of the
         Series A Preferred  Shares will increase in certain  circumstances  and
         that the  number  of  Warrant  Shares  issuable  upon  exercise  of the
         Warrants will increase in certain  circumstances.  The Company  further
         acknowledges  that its  obligation  to  issue  Conversion  Shares  upon
         conversion  of the Series A Preferred  Shares in  accordance  with this
         Agreement  and  the  Certificate  of  Designations  and  the  Series  A
         Preferred  Shares  is  absolute  and  unconditional  regardless  of the
         dilutive effect that such issuance may have on the ownership  interests
         of other stockholders of the Company.

                  (x) Fees and  Rights  of First  Refusal.  The  Company  is not
         obligated to offer the securities offered hereunder on a right of first
         refusal  basis or otherwise  to any third  parties  including,  but not
         limited   to,   current  or  former   shareholders   of  the   Company,
         underwriters, brokers, agents or other third parties.

         4.       COVENANTS.

                  (a) Best Efforts. Each party shall use its best efforts timely
         to satisfy each of the  conditions to be satisfied by it as provided in
         Sections 6 and 7 of this Agreement.

                  (b) Form D. The Company  agrees to file a Form D with  respect
         to the Series A Preferred Shares and the Conversion  Shares as required
         under Regulation D and to provide a copy thereof to each Buyer promptly
         after such filing.  The Company  shall,  on or before the Closing Date,
         take such action as the Company shall reasonably determine is necessary
         to qualify the Series A Preferred Shares and the Conversion Shares for,
         or  obtain  exemption  for  the  Series  A  Preferred  Shares  and  the
         Conversion  Shares for,  sale to the Buyers at the Closing  pursuant to
         this Agreement  under  applicable  securities or "Blue Sky" laws of the
         states of the United  States,  and shall  provide  evidence of any such
         action so taken to the Buyers on or prior to the Closing Date.

                  (c) Reporting Status.  Until the earlier of (i) the date as of
         which the Investors (as that term is defined in the Registration Rights
         Agreement) may sell all of the Conversion Shares and the Warrant Shares
         without restriction  pursuant to Rule 144(k) promulgated under the 1933
         Act (or successor thereto), or (ii) the date on which (A) the Investors
         shall have sold all the Conversion  Shares and (B) none of the Series A
         Preferred  Shares or the Warrants are  outstanding  (the  "Registration
         Period"),  the Company shall file all reports required to be filed with
         the SEC pursuant to the 1934 Act, and the Company  shall not  terminate
         its status as an issuer  required  to file  reports  under the 1934 Act
         even if the 1934 Act or the  rules  and  regulations  thereunder  would
         otherwise permit such termination.

                                       14
<PAGE>

                  (d) Use of Proceeds.  The Company  will use the proceeds  from
         the sale of the Series A Preferred  Shares for  substantially  the same
         purposes and in substantially the same amounts as indicated in Schedule
         4(d).

                  (e)  Financial Information.  The  Company  agrees  to send the

         following to each Buyer  during the  Registration  Period:   (i) within
         five (5) days  after the  filing  thereof  with the SEC, a copy of  its
         Annual Reports on Form 10-KSB,  its Quarterly  Reports on  Form 10-QSB,
         any Current  Reports on Form 8-K and any  registration   statements  or
         amendments  filed  pursuant  to the 1933 Act;  (ii) within  one (1) day
         after  release  thereof,  copies of all press  releases  issued  by the
         Company  or any of its  subsidiaries;  and  (iii)  copies  of the  same
         notices and other information given to the stockholders of  the Company
         generally,   contemporaneously   with   the   giving   thereof  to  the
         stockholders.

                  (f)  Reservation of Shares.  The Company shall take all action
         reasonably necessary to at all times have authorized,  and reserved for
         the purpose of issuance,  13,400,000 shares of Common Stock as shall be
         necessary  to effect  the  issuance  of the  Conversion  Shares and the
         Warrant Shares  (specifically,  11,875,000 shares to cover the issuance
         of the Conversion Shares, 1,500,000 shares to cover the issuance of the
         Placement Agent's Warrant Shares (as hereinafter  defined),  and 25,000
         shares  for  the  Butler   Gonzalez   Warrant  Shares  (as  hereinafter
         defined)).  If  at  any  time  the  Company  does  not  have  available
         13,400,000  shares  of  Common  Stock  as  shall  from  time to time be
         sufficient to effect the conversion of all of the Conversion Shares and
         the  exercise of the Warrant  Shares the Company  shall call and hold a
         special  meeting  within thirty (30) days of such  occurrence,  for the
         sole  purpose  of  increasing  the  number  of shares  authorized.  The
         Company's  management  shall  recommend to the  shareholders to vote in
         favor of  increasing  the number of shares of common stock  authorized.
         Management shall also vote all of its shares in favor of increasing the
         number of common shares authorized.

                  (g) Listings or Quotation.  The Company shall promptly  secure
         the listing or quotation of the  Conversion  Shares upon each  national
         securities  exchange,  automated  quotation system or  over-the-counter
         bulletin  board or other  market,  if any,  upon which shares of Common
         Stock  are then  listed  or  quoted  (subject  to  official  notice  of
         issuance)  and shall  maintain,  so long as any other  shares of Common
         Stock shall be so listed,  such listing of all  Conversion  Shares from
         time to time  issuable  under  the  terms  of  this  Agreement  and the
         Certificate  of  Designations.  The Company  shall  maintain the Common
         Stock's authorization for quotation in the over-the counter market. The
         Company shall  promptly  provide to each Buyer copies of any notices it
         receives  regarding the continued  eligibility  of the Common Stock for
         trading in the over-the-counter market.

                                       15
<PAGE>

                  (h) Expenses. Each of the Company and the Buyers shall pay all
         costs  and  expenses  incurred  by such  party in  connection  with the
         negotiation, investigation, preparation, execution and delivery of this
         Agreement and the Registration Rights Agreement. The costs and expenses
         of the Placement Agent and its counsel shall be paid for by the Company
         at  Closing  in  accordance  with  the  terms of the  Placement  Agency
         Agreement between the Company and the Placement Agent,  dated April 14,
         2000 as such agreement may be amended from time to time.

                  (i)  Corporate  Existence.  So long as any Series A  Preferred
         Shares remain outstanding, the Company shall not directly or indirectly
         consummate any merger,  reorganization,  restructuring,  consolidation,
         sale of all or substantially all of the Company's assets or any similar
         transaction or related transactions (each such transaction,  a "Sale of
         the  Company")  unless,  prior  to the  consummation  of a Sale  of the
         Company, the Company makes appropriate provision (in form and substance
         reasonably  satisfactory  to the  holders of a majority of the Series A
         Preferred   Shares  then   outstanding)   to  insure  that,   upon  the
         consummation  of such Sale of the  Company,  each of the holders of the
         Series A Preferred Shares will thereafter have the right to acquire and
         receive in lieu of the Series A Preferred Shares, such shares of stock,
         securities  or assets as may be issued or payable with respect to or in
         exchange  for  the  number  of  shares  of  Common  Stock   immediately
         theretofore  acquirable  and  receivable  upon the  conversion  of such
         holder's  Series A  Preferred  Shares had such Sale of the  Company not
         taken  place.  In any such  case,  the  Company  will make  appropriate
         provision (in form and substance reasonably satisfactory to the holders
         of a majority of the Series A Preferred Shares then  outstanding)  with
         respect  to such  holders'  rights  and  interests  to insure  that the
         provisions  of this Section 4(i) will  thereafter  be applicable to the
         Series A Preferred Shares.

                  (j)  Transactions  With  Affiliates.  So long as any  Series A
         Preferred  Shares are  outstanding,  the Company  shall not,  and shall
         cause each of its  subsidiaries  not to, enter into,  amend,  modify or
         supplement,  or permit any subsidiary to enter into,  amend,  modify or
         supplement any agreement, transaction,  commitment, or arrangement with
         any of its or any  subsidiary's  officers,  directors,  person who were
         officers  or  directors  at any time  during  the  previous  two years,
         stockholders  who  beneficially  own 5% or more of the Common Stock, or
         affiliates  or with any  individual  related  by  blood,  marriage,  or
         adoption  to any such  individual  or with any entity in which any such
         entity or  individual  owns a 5% or more  beneficial  interest  (each a
         "Related Party"),  except for (a) customary employment arrangements and
         benefit programs on reasonable  terms, (b) any agreement,  transaction,
         commitment,  or arrangement  on an  arms-length  basis on terms no less
         favorable  than terms  which would have been  obtainable  from a person
         other  than  such  Related  Party,   (c)  any  agreement   transaction,

                                       16
<PAGE>

         commitment,  or  arrangement  which is  approved  by a majority  of the
         disinterested  directors  of the  Company,  for  purposes  hereof,  any
         director who is also an officer of the Company or any subsidiary of the
         Company  shall not be  disinterested  director with respect to any such
         agreement,  transaction,  commitment,  or arrangement.  "Affiliate" for
         purposes  hereof means,  with respect to any person or entity,  another
         person or entity  that,  directly or  indirectly,  (i) has a 5% or more
         equity  interest in that  person or entity,  (ii) has 5% or more common
         ownership  with that person or entity,  (iii)  controls  that person or
         entity,  or (iv)  shares  common  control  with that  person or entity.
         "Control"  or  "controls"  for  purposes  hereof means that a person or
         entity  has the  power,  direct or  indirect,  to conduct or govern the
         policies of another person or entity.

                  (k)  Warrant  Issuances.  Subject to the  satisfaction  of the
         terms and condition of this Agreement, the Placement Agent will receive
         on the Closing Date warrants ("Placement Agent's Warrants") to purchase
         1,500,000  shares of  Common  Stock  (the  "Placement  Agent's  Warrant
         Shares")  at an  exercise  price equal to 100% of the Closing Bid Price
         (as  reported  by  Bloomberg)  on the day  immediately  preceeding  the
         Closing Date and Butler Gonzalez,  LLP, counsel to the Placement Agent,
         will  receive  on the  Closing  Date  warrants  (the  "Butler  Gonzalez
         Warrants") to purchase 25,000 shares of Common Stock ("Butler  Gonzalez
         Warrant  Shares") at an exercise price equal to 100% of the Closing Bid
         Price (as reported by Bloomberg) on the day  immediately  preceding the
         Closing Date (the Placement  Agent's  Warrants and the Butler  Gonzalez
         Warrants shall  collectively be referred to herein as the  "Warrants").
         The Warrants shall be  exercisable  for a period of five (5) years from
         the date of issuance and shall be substantially in the form of the form
         of Warrant hereto as Exhibit D.

                  (l) Forced Conversion.  As means to raise additional  capital,
         the Company shall have the right to require the holders of the Warrants
         to exercise  such Warrants if the five (5) day average of the Company's
         Common Stock (as reported by Bloomberg) closes at Thirty cents ($0.30 )
         or higher ("Forced Exercise  Event").  The Company shall furnish to the
         holders of the Warrants  written  notice of the  occurrence of a Forced
         Exercise  Event within ten (10) days thereof,  whereupon the holders of
         the Warrants shall within five (5) days of the receipt thereof exercise
         his Warrants in accordance with the terms thereof.

                  (m) Transfer Agent. The Company  covenants and agrees that, in
         the event that the  Company's  agency  relationship  with the  transfer
         agent should be terminated  for any reason prior to a date which is two
         (2) years after the Closing Date, the Company shall immediately appoint
         a new transfer  agent and shall require that the transfer agent execute
         and agree to be bound by the terms of the  Irrevocable  Instructions to
         Transfer Agent.

                                       17
<PAGE>

                  (n)  Limitations on Short Sales.  The Buyer and its Affiliates
         shall not engage in short sales of the Company's Common Stock.

         5.       TRANSFER AGENT INSTRUCTIONS.

                  The Company shall issue  irrevocable  instructions in the form
         attached   hereto  as  Exhibit  E  to  its  transfer   agent  to  issue
         certificates,  registered  in the name of the  Buyer or its  respective
         nominee(s),  for the  Conversion  Shares and the Warrant Shares in such
         amounts as specified from time to time by the Buyer to the Company upon
         conversion  of the Series A  Preferred  Shares or the  exercise  of the
         Warrants  and  payment  therefor  (the   "Irrevocable   Transfer  Agent
         Instructions").  Prior to registration of the Conversion Shares and the
         Warrant Shares under the 1933 Act, all such certificates shall bear the
         restrictive  legend  specified in Section 2(g) of this  Agreement.  The
         Company  warrants  that  no  instruction  other  than  the  Irrevocable
         Transfer  Agent  Instructions  referred to in this  Section 5, and stop
         transfer  instructions  to give  effect to Section  2(f) hereof (in the
         case  of  the  Conversion  Shares  or  the  Warrant  Shares,  prior  to
         registration  of such  shares  under the 1933 Act) will be given by the
         Company to its  transfer  agent and that the  Conversion  Shares or the
         Warrant Shares shall otherwise be freely  transferable on the books and
         records of the Company as and to the extent  provided in this Agreement
         and the Registration Rights Agreement.  Nothing in this Section 5 shall
         affect in any way the Buyer's  obligations and agreement to comply with
         all applicable  securities laws upon resale of Conversion Shares or the
         Warrant  Shares.  If the Buyer or Warrant  holder  provides the Company
         with an  opinion  of  counsel,  reasonably  satisfactory  in form,  and
         substance to the Company, that registration of a resale by the Buyer of
         any of the  Conversion  Shares,  or the Warrant  Shares is not required
         under the 1933 Act, the Company shall permit the transfer,  and, in the
         case of the Conversion Shares or the Warrant Shares,  promptly instruct
         its transfer agent to issue one or more  certificates  in such name and
         in  such   denominations   as  specified  by  the  Buyer.  The  Company
         acknowledges  that a breach  by it of its  obligations  hereunder  will
         cause irreparable harm to the Buyer by vitiating the intent and purpose
         of  the  transaction  contemplated  hereby.  Accordingly,  the  Company
         acknowledges  that the  remedy at law for a breach  of its  obligations
         under this Section 5 will be inadequate  and agrees,  in the event of a
         breach or  threatened  breach by the Company of the  provisions of this
         Section 5, that the Buyer shall be  entitled,  in addition to all other
         available  remedies,  to  an  injunction  restraining  any  breach  and
         requiring  immediate  issuance and  transfer,  without the necessity of
         showing  economic  loss and  without any bond or other  security  being
         required.

                                       18
<PAGE>

         6.       CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

                  The obligation of the Company  hereunder to issue and sell the
         Series A  Preferred  Shares to the Buyers at the  Closing is subject to
         the  satisfaction,  at or  before  the  Closing  Date,  of  each of the
         following  conditions,  provided  that  these  conditions  are  for the
         Company's  sole benefit and may be waived by the Company at any time in
         its sole discretion:

                  (a) Each Buyer  shall have  executed  this  Agreement  and the
         Registration Rights Agreement and delivered the same to the Company.

                  (b) The Certificate of Designations shall have been filed with
         the Secretary of State of the State of New Jersey.

                  (c) The Buyers  shall have  delivered  to the Escrow Agent the
         Purchase Price for the Series A Preferred Shares being purchased by the
         Buyers at the Closing and the Escrow  Agent shall have  delivered  such
         funds to the Company by wire  transfer of  immediately  available  U.S.
         funds pursuant to the wire instructions provided by the Company.

                  (d) The  representations  and warranties of the Buyer shall be
         true and correct in all material  respects as of the date when made and
         as of the  Closing  Date  as  though  made  at that  time  (except  for
         representations  and warranties that speak as of a specific date),  and
         the Buyer shall have performed,  satisfied and complied in all material
         respects with the covenants, agreements and conditions required by this
         Agreement to be  performed,  satisfied or complied with by the Buyer at
         or prior to the Closing Date.

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

                  The obligation of the Buyer hereunder to purchase the Series A
         Preferred Shares at the Closing is subject to the  satisfaction,  at or
         before the Closing Date, of each of the following conditions,  provided
         that these  conditions  are for the  Buyer's  sole  benefit  and may be
         waived by the Buyer at any time in its sole discretion:

                  (a) The Company  shall have  executed  this  Agreement and the
         Registration Rights Agreement, and delivered the same to the Buyer.

                  (b) The Common Stock shall be authorized  for quotation on The
         Nasdaq Stock Market,  Inc.'s OTC Bulletin Board, trading  in the Common
         Stock  shall not have been  suspended  for any  reason  and  all of the
         Conversion  Shares  issuable upon conversion of the Series A  Preferred
         Shares  shall be approved for listing or quotation on The Nasdaq  Stock
         Market, Inc.'s OTC Bulletin Board.

                                       19
<PAGE>

                  (c) The representations  and  warranties of the Company  shall
         be true and  correct in all  material  respects  (except to the  extent
         that any of such  representations  and warranties is already  qualified
         as  to   materiality  in  Section  3  above,   in   which  case,   such
         representations  and  warranties  shall  be true and   correct  without
         further  qualification) as of the date when made and as  of the Closing
         Date as  though  made at that  time  (except  for  representations  and
         warranties  that speak as of a specific  date) and  the  Company  shall
         have performed,  satisfied and complied in all material  respects  with
         the covenants, agreements and conditions required by this Agreement  to
         be performed, satisfied or complied with by the Company at or prior  to
         the  Closing   Date.  The Buyer  shall  have  received  a  certificate,
         executed by the Chief  Executive  Officer of the Company,  dated as  of
         the Closing Date, to the foregoing effect and as to such other  matters
         as  may  be  reasonably  requested  by  the  Buyer  including,  without
         limitation   an  update  as  of  the   Closing   Date   regarding   the
         representation contained in Section 3(c) above.

                  (d) The Buyer shall have received the opinion of the Company's
         counsel  dated as of the Closing  Date,  in form,  scope and  substance
         reasonably  satisfactory to the Buyer and in substantially  the form of
         Exhibit F attached hereto.

                  (e) The Company shall have executed and delivered to the Buyer
         the Certificates (in such denominations as the Buyer shall request) for
         the  Series A  Preferred  Shares  being  purchased  by the Buyer at the
         Closing.

                  (f) The Board of Directors  of the Company  shall have adopted
         the resolutions in substantially the form of Exhibit G attached hereto.

                  (g)  As of the  Closing  Date,  the  Company  shall  as of the
         Closing Date have reserved out of its  authorized  and unissued  Common
         Stock, solely for the purpose of effecting the conversion of the Series
         A  Preferred  Shares  and  permitting  the  exercise  of the  Warrants,
         13,400,000  shares of Common Stock to effect the  conversion  of all of
         the Series A Preferred Shares and the exercise of all the Warrants then
         outstanding.

                  (h) The Irrevocable  Transfer Agent Instructions,  in form and
         substance  satisfactory to the Buyer,  shall have been delivered to and
         acknowledged in writing by the Company's transfer agent.

         8.       INDEMNIFICATION.

                  In consideration of the Buyer's execution and delivery of this
         Agreement  and  acquiring  the  Series  A  Preferred   Shares  and  the
         Conversion  Shares  hereunder,  and in addition to all of the Company's
         other  obligations  under this  Agreement,  the Company  shall  defend,

                                       20
<PAGE>

         protect, indemnify and hold harmless the Buyer and each other holder of
         the Series A Preferred  Shares and the  Conversion  Shares,  and all of
         their officers,  directors,  employees and agents  (including,  without
         limitation,   those  retained  in  connection  with  the   transactions
         contemplated by this Agreement) (collectively,  the "Indemnitees") from
         and  against  any and all  actions,  causes of action,  suits,  claims,
         losses, costs,  penalties,  fees, liabilities and damages, and expenses
         in connection therewith (irrespective of whether any such Indemnitee is
         a party to the action for which  indemnification  hereunder is sought),
         and  including  reasonable   attorneys'  fees  and  disbursements  (the
         "Indemnified Liabilities"),  incurred by the Indemnitees or any of them
         as  a  result  of,  or  arising   out  of,  or   relating  to  (a)  any
         misrepresentation  or breach of any  representation or warranty made by
         the Company in this  Agreement,  the Series A  Preferred  Shares or the
         Registration  Rights Agreement or any other certificate,  instrument or
         document  contemplated  hereby  or  thereby,  (b)  any  breach  of  any
         covenant,  agreement  or  obligation  of the Company  contained in this
         Agreement, the Certificate of Designations,  or the Registration Rights
         Agreement or any other certificate, instrument or document contemplated
         hereby or thereby, or (c) any cause of action, suit or claim brought or
         made against such  Indemnitee  and arising out of or resulting from the
         execution,  delivery,  performance  or enforcement of this Agreement or
         any other instrument, document or agreement executed pursuant hereto by
         any of the Indemnities,  any transaction  financed or to be financed in
         whole or in part,  directly  or  indirectly,  with the  proceeds of the
         issuance of the Series A Preferred Shares or the status of the Buyer or
         holder of the Series A Preferred Shares,  the Conversion  Shares, as an
         investor in the Company.  To the extent that the foregoing  undertaking
         by the Company may be unenforceable  for any reason,  the Company shall
         make the maximum  contribution to the payment and  satisfaction of each
         of the Indemnified  Liabilities,  which is permissible under applicable
         law.

         9.       GOVERNING LAW: MISCELLANEOUS.

                  (a)  Governing  Law. This  Agreement  shall be governed by and
         interpreted  in  accordance  with  the  laws of the  State  of New York
         without  regard to the  principles  of  conflict  of laws.  The parties
         further  agree that any action  between them shall be heard in New York
         City, New York, and expressly  consent to the jurisdiction and venue of
         the Supreme Court of New York and the United States  District Court for
         the  Southern  District of New York for the  adjudication  of any civil
         action asserted pursuant to this Paragraph.

                  (b)  Counterparts.  This  Agreement  may be executed in two or
         more identical  counterparts,  all of which shall be considered one and
         the same agreement and shall become  effective when  counterparts  have
         been  signed by each party and  delivered  to the other  party.  In the
         event any signature  page is delivered by facsimile  transmission,  the
         party  using such means of  delivery  shall  cause four (4)  additional
         original  executed  signature  pages to be physically  delivered to the
         other party within five (5) days of the execution and delivery hereof

                                       21
<PAGE>

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

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

                  (e) Entire Agreement,  Amendments.  This Agreement  supersedes
         all other  prior  oral or written  agreements  between  the Buyer,  the
         Company,  their  affiliates  and  persons  acting on their  behalf with
         respect to the matters  discussed  herein,  and this  Agreement and the
         instruments  referenced herein contain the entire  understanding of the
         parties  with  respect to the matters  covered  herein and therein and,
         except as specifically set forth herein or therein, neither the Company
         nor  any  Buyer  makes  any  representation,   warranty,   covenant  or
         undertaking  with  respect  to  such  matters.  No  provision  of  this
         Agreement  may be waived or  amended  other  than by an  instrument  in
         writing signed by the party to be charged with enforcement.

                  (f)  Notices.  Any  notices,   consents,   waivers,  or  other
         communications  required  or  permitted  to be given under the terms of
         this  Agreement  must be in  writing  and will be  deemed  to have been
         delivered  (i) upon  receipt,  when  delivered  personally;  (ii)  upon
         receipt,  when  sent by  facsimile,  provided  a copy is mailed by U.S.
         certified mail,  return receipt  requested;  (iii) three (3) days after
         being sent by U.S.  certified mail, return receipt  requested,  or (iv)
         one  (1) day  after  deposit  with a  nationally  recognized  overnight
         delivery  service,  in each  case  properly  addressed  to the party to
         receive  the  same.  The  addresses  and  facsimile  numbers  for  such
         communications shall be:

         If to the Company, to:          Diamond Entertainment Corporation
                                         800 Tucker Lane
                                         Walnut, CA 81709
                                         Attention:     James K.T. Lu, President
                                         Telephone:     (909) 839-1989
                                         Facsimile:     (909) 869-1990

         With a copy to:                 De Martino Finkelstein Rosen & Virga
                                         1818 N Street, N.W., Suite 400
                                         Washington, D.C. 20036
                                         Attention:     Neil R. E. Carr, Esq.
                                         Telephone:     (202) 659-0494
                                         Facsimile:     (202) 659-1290

                     22
<PAGE>

         If to the Transfer Agent, to:   Continental Stock Transfer & Trust Co.
                                         2 Broadway
                                         19th Floor
                                         New York, NY 10004
                                         Attention:  Steven G. Nelson, Chairman
                                         Telephone:  (212) 509-4000
                                         Facsimile:  (212) 509-5150

                  If to the  Buyer,  to its  address  and  facsimile  number  on
         Schedule I, with copies to the Buyer's counsel as set forth on Schedule
         I. Each party shall provide five (5) days' prior written  notice to the
         other party of any change in address or facsimile number.

                  (g)  Successors and Assigns.  This Agreement  shall be binding
         upon and inure to the  benefit  of the  parties  and  their  respective
         successors and assigns.  Neither the Company nor any Buyer shall assign
         this Agreement or any rights or obligations hereunder without the prior
         written consent of the other party hereto.

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

                  (i)  Survival.  Unless  this  Agreement  is  terminated  under
         Section 9(l), the representations and warranties of the Company and the
         Buyers  contained in Sections 2 and 3, the agreements and covenants set
         forth in Sections 4, 5 and 9, and the  indemnification  provisions  set
         forth in Section 8,  shall  survive  the  Closing.  The Buyer  shall be
         responsible only for its own  representations,  warranties,  agreements
         and covenants hereunder.

                  (j) Publicity. The Company and the Buyers shall have the right
         to  approve,  before  issuance  any press  release or any other  public
         statement with respect to the transactions  contemplated hereby made by
         any party;  provided,  however,  that the  Company  shall be  entitled,
         without the prior approval of the Buyers, to issue any press release or
         other  public  disclosure  with respect to such  transactions  required
         under  applicable  securities or other laws or regulations  (the Buyers
         shall be  consulted  by the Company in  connection  with any such press
         release or other  public  disclosure  prior to its  release  and Buyers
         shall be provided with a copy thereof upon release thereof).

                  (k) Further  Assurances.  Each party shall do and perform,  or
         cause to be done and performed,  all such further acts and things,  and
         shall  execute  and deliver  all such other  agreements,  certificates,
         instruments and documents, as the other party may reasonably request in
         order to carry out the  intent  and  accomplish  the  purposes  of this
         Agreement and the consummation of the transactions contemplated hereby.

                                       23
<PAGE>

                  (1) Termination.  In the event that the Closing shall not have
         occurred with respect to the Buyers on or before five (5) business days
         from the date hereof due to the  Company's  or the  Buyer's  failure to
         satisfy  the  conditions  set forth in  Sections 6 and 7 above (and the
         nonbreaching  party's failure to waive such unsatisfied  condition(s)),
         the  nonbreaching  party  shall  have  the  option  to  terminate  this
         Agreement with respect to such breaching party at the close of business
         on such  date  without  liability  of any  party  to any  other  party;
         provided,  however,  that if this  Agreement is terminated  pursuant to
         this Section 9(l), the Company shall remain  obligated to reimburse the
         Buyer for the expenses described in Section 4(h) above.

                  (m) Finder.  The Company  acknowledges that it has engaged The
         May Davis Group,  Inc. as a placement agent in connection with the sale
         of the Series A Preferred Shares.  The Company shall be responsible for
         the  payment of any  placement  agent  fees  (which  includes  cash and
         warrants to purchase  Common  Stock)  relating to or arising out of the
         transactions contemplated hereby and from the proceeds thereof.

                  (n)  No  Strict  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 rules of strict  construction will
         be applied against any party.

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.]

                                       24
<PAGE>

         IN WITNESS  WHEREOF,  the  Buyers  and the  Company  have  caused  this
Securities  Purchase  Agreement to be duly executed as of the date first written
above.

                          DIAMOND ENTERTAINMENT CORPORATION

                          By:        --------------------------------------
                            Name:     James K. T. Lu
                            Title:    President and Chief Executive Officer

                                            [INSERT NAME OF BUYER]

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

                                       25
<PAGE>

                            CERTIFICATE OF AMENDMENT
                                       TO
                          CERTIFICATE OF INCORPORATION
                                       OF
                        DIAMOND ENTERTAINMENT CORPORATION

         Pursuant to the provisions of Section 14A:7-2,  Corporations,  General,
of the New Jersey Statutes,  the undersigned executes the following  Certificate
of Amendment to its Certificate of Incorporation:

         1. The name of the  corporation  is Diamond  Entertainment  Corporation
(the "Corporation").

         2.  Set  forth  below  is a copy of the  resolutions  of the  Board  of
Directors of the  Corporation  as required by Section  14A:7-2 of the New Jersey
Business  Corporation  Act which was duly  adopted by the Board of  Directors on
April 14, 2000, which amends the Certificate of Incorporation  (i) authorizing a
series of the Corporation's  authorized preferred stock, no par value per share,
and  (ii)   providing   for  the   designations,   preferences   and   relative,
participating, optional or other rights, and the qualifications,  limitations or
restrictions  thereof,  of 50 shares of Series A Convertible  Preferred Stock of
the Corporation, as follows:

         RESOLVED,  that  pursuant  to the  authority  expressly  granted to and
vested  in the Board of  Directors  of the  Corporation  by the  Certificate  of
Incorporation   of  the   Corporation,   as   amended   (the   "Certificate   of
Incorporation"),  there  hereby  is  created  out of  the  5,000,000  shares  of
Preferred  Stock,  no par value per  share,  of the  Corporation  authorized  by
Article 4 of the Certificate of Incorporation (the "Preferred  Stock"), a series
of Preferred  Stock of the Corporation  consisting of 50 shares,  which shall be
designated Series A Convertible  Preferred Stock, which shall have the following
powers, designations, preferences and relative, participating, optional or other
rights:

         1.  Designations,  Amount and Par Value.  The series of Preferred Stock
shall be designated as Series A Convertible Preferred Stock ("Series A Preferred
Shares")  and the  number of shares so  designated  shall be 50.  Each  Series A
Preferred  Share shall have no par value and a stated value of $10,000 per share
(the "Stated Value").

         2.  Dividends.  The  Series  A  Preferred  Shares  shall  not  bear any
dividends.

         3. Holder's Conversion of Series A Preferred Shares. A holder of Series
A Preferred Shares shall have the right, at such holder's option, to convert the
Series A Preferred Shares into shares of the Corporation's  common stock, no par
value per share (the "Common Stock"), on the following terms and conditions:

                                       A-1
<PAGE>

                  (a)  Conversion  Right.  Subject to the provisions of Sections
         3(g) and 4(a)  below,  at any time or times on or after the  earlier of
         (i) 90 days after the Issuance  Date (as defined  herein),  (ii) 5 days
         after  receiving a "no-review"  status from the Securities and Exchange
         Commission  (the "SEC") in  connection  with a  registration  statement
         ("Registration  Statement")  covering the resale of Common Stock issued
         upon  conversion  of the Series A Preferred  Shares and  required to be
         filed by the Corporation  pursuant to the Registration Rights Agreement
         between the  Corporation  and its initial holders of Series A Preferred
         Shares (the "Registration  Rights Agreement"),  (iii) the date that the
         Registration  Statement is declared  effective by the SEC any holder of
         Series A  Preferred  Shares  shall be  entitled to convert any Series A
         Preferred Shares into fully paid and  nonassessable  shares (rounded to
         the  nearest  whole share in  accordance  with  Section  3(h) below) of
         Common Stock,  at the  Conversion  Rate (as defined  below);  provided,
         however,  that in no  event  other  than  upon a  Mandatory  Conversion
         pursuant to Section 3(g) hereof, or upon a Triggering Event pursuant to
         Section 5(b) hereof,  shall any holder be entitled to convert  Series A
         Preferred  Shares in excess of that number of Series A Preferred Shares
         which, upon giving effect to such conversion, would cause the aggregate
         number of shares of Common Stock  beneficially  owned by the holder and
         its affiliates to exceed 4.9% of the then issued and outstanding shares
         of Common  Stock of the  Corporation  following  such  conversion.  For
         purposes of the foregoing  proviso,  the aggregate  number of shares of
         Common Stock  beneficially owned by the holder and its affiliates shall
         include the number of shares of Common Stock  issuable upon  conversion
         of  the  Series  A  Preferred   Shares   with   respect  to  which  the
         determination  of such  proviso is being  made,  but shall  exclude the
         number  of  shares  of  Common  Stock  which  would  be  issuable  upon
         conversion of the remaining,  non-converted  Series A Preferred  Shares
         beneficially  owned by the  holder  and its  affiliates.  Except as set
         forth  in the  preceding  sentence,  for  purposes  of this  paragraph,
         beneficial  ownership  shall be calculated  in accordance  with Section
         13(d) of the  Securities  Exchange Act of 1934,  as amended  ("Exchange
         Act"), and the rules thereunder;

                  (b)  Conversion  Rate.  The  number of shares of Common  Stock
         issuable  upon  conversion  of each of the  Series A  Preferred  Shares
         pursuant  to  Section  (3)(a)  shall  be  determined  according  to the
         following formula (the "Conversion Rate"):

                      (.06)(N/365)(10,000) + 10,000
                      -----------------------------
                              Conversion Price

                  For  purposes  of  this  Certificate  of   Designations,   the
         following terms shall have the following meanings:

                                       A-2
<PAGE>

                           (i)  "Conversion  Price" means as, of any  Conversion
                  Date (as  defined  below),  the lower of the Fixed  Conversion
                  Price and the Floating  Conversion Price, each in effect as of
                  such  date,  if  applicable,  and  subject  to  adjustment  as
                  provided herein;

                           (ii)  "Fixed  Conversion  Price"  means  120%  of the
                  Closing Bid Price on the day immediately  preceding the day of
                  the closing of the sale and issuance of the Series A Preferred
                  Shares  ("Closing  Date") subject to  adjustment,  as provided
                  herein;

                           (iii)  "Floating  Conversion  Price" means, as of any
                  date of determination,  the amount obtained by multiplying the
                  Conversion Percentage in effect as of such date by the Average
                  Market  Price for the  Common  Stock for any five (5)  trading
                  days  of  the  previous  ten  (10)  trading  days  immediately
                  preceding the date of conversion;

                           (iv)    "Conversion Percentage" means 80% as adjusted
                  as described herein;

                           (v) "Average Market Price" means, with respect to any
                  security for any period, that price which shall be computed as
                  the  arithmetic  average of the Closing Bid Prices (as defined
                  below) for such security for each trading day in such period;

                           (vi) "Closing Bid Price"  means,  for any security as
                  of any date,  the last  closing bid price on The Nasdaq  Stock
                  Market,  Inc.'s  SmallCap Market (the  "Nasdaq-Small  Cap") as
                  reported by Bloomberg Financial Markets ("Bloomberg"),  or, if
                  the  Nasdaq-SmallCap  is not the principal  trading market for
                  such security,  the last closing bid price of such security on
                  the principal securities exchange or trading market where such
                  security is listed or traded as reported by  Bloomberg,  or if
                  the foregoing do not apply, the last closing bid price of such
                  security in The Nasdaq Stock Market, Inc.'s OTC Bulletin Board
                  or, if not so quoted,  in the "pink  sheets" for such security
                  as  reported  by  Bloomberg,  or, if no  closing  bid price is
                  reported  for such  security by  Bloomberg,  the last  closing
                  trade price of such security as reported by Bloomberg.  If the
                  Closing Bid Price cannot be  calculated  for such  security on
                  such date on any of the foregoing bases, the Closing Bid Price
                  of such  security on such date shall be the fair market  value
                  as  reasonably  determined  in  good  faith  by the  Board  of
                  Directors of the Corporation  (all as  appropriately  adjusted
                  for  any  stock   dividend,   stock  split  or  other  similar
                  transaction during such period); and

                                       A-3
<PAGE>

                           (vii)  "N"  means  the  number  of  days  from,   but
                  excluding,   the  Issuance  Date  through  and  including  the
                  Conversion  Date for the Series A  Preferred  Shares for which
                  conversion is being elected; and

                           (viii)  "Issuance Date" means the date of issuance of
                  the Series A Preferred Shares.

                  (c)  Penalty -  Registration  Statement.  If the  Registration
         Statement  is not  declared  effective  by the SEC on or before the one
         hundred and  fiftieth  (150th) day  following  the  Issuance  Date (the
         "Scheduled Effective Date"), or if after the Registration Statement has
         been  declared  effective by the SEC,  sales cannot be made pursuant to
         the  Registration  Statement  (whether because of a failure to keep the
         Registration  Statement  effective,  to disclose such information as is
         necessary for sales to be made pursuant to the Registration  Statement,
         to register  sufficient shares of Common Stock or otherwise),  then, as
         partial  relief  for the  damages  to any  holder by reason of any such
         delay in or reduction of its ability to sell the  underlying  shares of
         Common Stock (which remedy shall not be exclusive of any other remedies
         at law or in equity), then:

                           (i) the  Corporation  will pay as liquidated  damages
                  (the "Liquidated Damages") in penalties to the Buyer(s) a cash
                  amount  within three (3) business days of the end of the month
                  immediately  following  the Scheduled  Effective  Date and for
                  each month  thereafter  in an amount equal to one and one half
                  percent (1 1/2 %) of the Liquidation  Value. (For example,  if
                  the  Registration  Statement  becomes  effective one (l) month
                  after the Scheduled  Effective Date, the Corporation  will pay
                  in cash to the Buyer(s) an aggregate  of Seven  Thousand  Five
                  dollars  ($7,500) in Liquidated  Damages (1 1/2% of $500,000);
                  if, as a further  example,  thereafter sales could not be made
                  pursuant to the Registration Statement for a period of one and
                  one half (1 1/2) months,  the Corporation  will pay in cash to
                  the Buyer(s) an  aggregate of Eleven  Thousand Two Hundred and
                  Fifty dollars ($11,250) in Liquidated  Damages ($7,500 for the
                  first month plus $3,750 for the half of second month); and if,
                  as a  further  example,  thereafter  sales  could  not be made
                  pursuant to the Registration Statement for a period of two (2)
                  months after the Scheduled  Effective  Date,  the  Corporation
                  will  pay in cash to the  Buyer(s)  an  aggregate  of  Fifteen
                  Thousand dollars  ($15,000) in Liquidated  Damages ($7,500 for
                  the first month plus $7,500 for the second month).

                                       A-4
<PAGE>

                  (d)  Adjustment  to  Conversion  Price -  Dilution  and  Other
         Events.  In order to prevent  dilution of the rights granted under this
         Certificate of  Designations,  the Conversion  Price will be subject to
         adjustment from time to time as provided in this Section 2(d).

                           (i)  Adjustment  of  Fixed   Conversion   Price  upon
                  Subdivision or Combination of Common Stock. If the Corporation
                  at any time  subdivides (by any stock split,  stock  dividend,
                  re-capitalization  or  otherwise)  one or more  classes of its
                  outstanding  shares of Common  Stock into a greater  number of
                  shares, the Fixed Conversion Price in effect immediately prior
                  to such subdivision will be  proportionately  reduced.  If the
                  Corporation  at any time  combines  (by  combination,  reverse
                  stock  split  or  otherwise)   one  or  more  classes  of  its
                  outstanding  shares of Common  Stock into a smaller  number of
                  shares, the Fixed Conversion Price in effect immediately prior
                  to such combination will be proportionately increased.

                           (ii) Reorganization, Reclassification, Consolidation,
                  Merger,   or  Sale.   Any   recapitalization,   reorganization
                  reclassification,   consolidation,  merger,  sale  of  all  or
                  substantially  all  of the  Corporation's  assets  to  another
                  Person (as defined below) or other similar  transaction  which
                  is  effected  in such a way that  holders of Common  Stock are
                  entitled  to  receive  (either  directly  or  upon  subsequent
                  liquidation) stock, securities or assets with respect to or in
                  exchange for Common Stock is referred to herein as an "Organic
                  Change." Prior to the consummation of any Organic Change,  the
                  Corporation  will  make  appropriate  provision  (in  form and
                  substance reasonably satisfactory to the Holders of a majority
                  of the Series A Preferred  Shares then  outstanding) to insure
                  that, upon the  consummation  of such Organic Change,  each of
                  the Holders of the Series A Preferred  Shares will  thereafter
                  have the right to acquire  and receive in lieu of the Series A
                  Preferred Shares,  such shares of stock,  securities or assets
                  as may be issued or payable with respect to or in exchange for
                  the number of shares of Common Stock  immediately  theretofore
                  acquirable and receivable upon the conversion of such holder's
                  Series A Preferred  Shares had such  Organic  Change not taken
                  place. In any such case, the Corporation will make appropriate
                  provision (in form and substance  reasonably  satisfactory  to
                  the  Holders of a majority  of the Series A  Preferred  Shares
                  then  outstanding)  with respect to such  holders'  rights and
                  interests to insure that the  provisions  of this Section 3(d)
                  and Section 3(e) below will  thereafter  be  applicable to the
                  Series A Preferred  Shares.  For  purposes of this  Agreement,
                  "Person"  shall  mean  an  individual,   a  limited  liability
                  company,  a  partnership,  a joint venture,  a corporation,  a
                  trust, an unincorporated  organization and a government or any
                  department or agency thereof.

                                       A-5
<PAGE>

                           (iii) Notices.

                                    (A)  Immediately  upon any adjustment of the
                           Conversion  Price  pursuant to this Section 3(d), the
                           Corporation  will give written notice thereof to each
                           holder of Series A Preferred Shares, setting forth in
                           reasonable  detail and certifying the  calculation of
                           such adjustment.

                                    (B) The Corporation will give written notice
                           to each Holder of Series A Preferred  Shares at least
                           twenty  (20)  days  prior to the  date on  which  the
                           Corporation  closes  its books or takes a record  (I)
                           with respect to any dividend or distribution upon the
                           Common  Stock,  (II)  with  respect  to any pro  rata
                           subscription  offer to  holders  of  Common  Stock or
                           (III) for determining  rights to vote with respect to
                           any Organic Change, dissolution or liquidation.

                                    (C) The  Corporation  will also give written
                           notice to each Holder of Series A Preferred Shares at
                           least twenty (20) days prior to the date on which any
                           Organic Change, Major Transaction (as defined below),
                           dissolution or liquidation will take place.

                  (e) Purchase  Rights.  If at any time the Corporation  grants,
         issues  or sells  any  options,  convertible  securities  or  rights to
         purchase stock, warrants,  securities or other property pro rata to the
         record  holders of any class of Common Stock (the  "Purchase  Rights"),
         then the  holders of Series A  Preferred  Shares  will be  entitled  to
         acquire,  upon  the  terms  applicable  to such  Purchase  Rights,  the
         aggregate Purchase Rights which such holder could have acquired if such
         holder had held the number of shares of Common  Stock  acquirable  upon
         complete conversion of the Series A Preferred Shares immediately before
         the date an which a record is taken for the grant,  issuance or sale of
         such Purchase  Rights,  or, if no such record is taken,  the date as of
         which the record  holders of Common Stock are to be determined  for the
         grant, issue or sale of such Purchase Rights.

                  (f)  Mechanics  of  Conversion.  Subject to the  Corporation's
         inability to fully satisfy its  obligations  under a Conversion  Notice
         (as defined below) as provided for in Section 6 below:

                           (i)  Holder's  Delivery   Requirements.   Subject  to
                  Section  3(a), in order to convert  Series A Preferred  Shares
                  into full shares of Common Stock on any date (the  "Conversion
                  Date"),  the holder  thereof  shall (A) deliver or transmit by
                  facsimile,  for  receipt  on or prior to 11:59  p.m.,  Eastern

                                       A-6
<PAGE>

                  Standard Time, on such date, a copy of a fully executed notice
                  of conversion  in the form  attached  hereto as Exhibit I (the
                  "Conversion  Notice")  to the  Corporation  or its  designated
                  transfer agent (the "Transfer Agent"),  and (B) surrender to a
                  common carrier for delivery to the Corporation or the Transfer
                  Agent as soon as practicable following such date, the original
                  certificates  representing the Series A Preferred Shares being
                  converted (or an  indemnification  undertaking with respect to
                  such shares in the case of their loss,  theft or  destruction)
                  (the  "Preferred  Stock   Certificates")  and  the  originally
                  executed  Conversion  Notice.  Each  Conversion  Notice  shall
                  specify  the  number  of  Series  A  Preferred  Shares  to  be
                  converted  and the  date on  which  such  conversion  is to be
                  effected,  which  date may not be prior to the date the holder
                  delivers such Conversion Notice.

                           (ii)  Corporation's  Response.  Upon  receipt  by the
                  Corporation  of a facsimile copy of a Conversion  Notice,  the
                  Corporation   shall   immediately   send,  via  facsimile,   a
                  confirmation  of  receipt  of such  Conversion  Notice to such
                  holder.  Upon receipt by the Corporation or the Transfer Agent
                  of the Preferred Stock  Certificates to be converted  pursuant
                  to a Conversion Notice,  together with the originally executed
                  Conversion  Notice,  the Corporation or the Transfer Agent (as
                  applicable) shall, within ten (10) business days following the
                  date of receipt,  (A) issue and surrender to a common  carrier
                  for  overnight  delivery  to the address as  specified  in the
                  Conversion  Notice,  a certificate,  registered in the name of
                  the holder or its designee, for the number of shares of Common
                  Stock to which the holder  shall be entitled or (B) credit the
                  aggregate number of shares of Common Stock to which the holder
                  shall be entitled to the  holder's or its  designee's  balance
                  account at The Depository Trust Corporation.

                           (iii) Dispute Resolution. In the case of a dispute as
                  to  the  determination  of the  Average  Market  Price  or the
                  arithmetic calculation of the Conversion Rate, the Corporation
                  shall  promptly  issue to the  holder  the number of shares of
                  Common  Stock  that  is not  disputed  and  shall  submit  the
                  disputed  determinations  or  arithmetic  calculations  to the
                  holder via facsimile within three (3) business days of receipt
                  of such  holder's  Conversion  Notice.  If such holder and the
                  Corporation are unable to agree upon the  determination of the
                  Average   Market  Price  or  arithmetic   calculation  of  the
                  Conversion  Rate within two (2) business days of such disputed
                  determination or arithmetic calculation being submitted to the
                  holder, then the Corporation shall within one (1) business day

                                       A-7
<PAGE>

                  submit via  facsimile  (A) the disputed  determination  of the
                  Average Market Price to an independent,  reputable  investment
                  bank  designated  by  the  Corporation,  or (B)  the  disputed
                  arithmetic   calculation  of  the   Conversion   Rate  to  its
                  independent,  outside accountant.  The Corporation shall cause
                  the investment bank or the accountant,  as the case may be, to
                  perform  the  determinations  or  calculations  and notify the
                  Corporation  and the  holder  of the  results  no  later  than
                  forty-eight  (48) hours from the time it receives the disputed
                  determinations  or  calculations.  Such  investment  bank's or
                  accountant's determination or calculation, as the ease may be,
                  shall be binding upon all parties absent manifest error.

                           (iv) Record Holder. The person or persons entitled to
                  receive the shares of Common Stock  issuable upon a conversion
                  of Series A Preferred Shares shall be treated for all purposes
                  as the record holder or holders of such shares of Common Stock
                  following such conversion.

                           (v) Corporation's  Failure to Timely Convert.  If the
                  Corporation  shall fail to issue to a holder  within seven (7)
                  business days following the date of receipt by the Corporation
                  or the Transfer Agent of the Preferred  Stock  Certificates to
                  be converted  pursuant to a Conversion  Notice,  a certificate
                  for the number of shares of Common  Stock to which such holder
                  is  entitled  upon  such  holder's   conversion  of  Series  A
                  Preferred Shares, in addition to all other available  remedies
                  which  such  holder  may  pursue   hereunder   and  under  the
                  securities  purchase agreement between the Corporation and the
                  initial  holders of the Series A Preferred  Shares pursuant to
                  which such  holders  purchased  the Series A Preferred  Shares
                  (the    "Securities    Purchase     Agreement")     (including
                  indemnification   pursuant   to   Section  8   thereof),   the
                  Corporation  shall pay  additional  damages to such  holder on
                  each day after the seven (7th) business day following the date
                  of receipt by the  Corporation  or the  Transfer  Agent of the
                  Preferred Stock  Certificates to be converted  pursuant to the
                  Conversion  Notice,  for which such  conversion  is not timely
                  effected,   an  amount   calculated  in  accordance  with  the
                  following schedule:

                                       A-8
<PAGE>

                                                    Late Payment for Each
                     Principal Amount Being       Series A Preferred Share
                     No. Business Days Late              Converted
                     ----------------------       ------------------------

                               1                            $100
                               2                            $200
                               3                            $300
                               4                            $400
                               5                            $500
                               6                            $600
                               7                            $700
                               8                            $800
                               9                            $900
                              10                          $1,000

                              11             $1,000 + $200   for
                                             each  Business Days
                                             Late Beyond 10 days

                  (g)  Mandatory  Conversion.  If any Series A Preferred  Shares
         remain  outstanding on April 14, 2002, then all such Series A Preferred
         Shares  shall be  converted  as of such  date in  accordance  with this
         Section 2 as if the holders of such Series A Preferred Shares had given
         the Conversion  Notice on April 14, 2002,  and the Conversion  Date had
         been fixed as of April 14,  2002,  for all  purposes of this Section 2,
         and all holders of Series A Preferred  Shares shall  thereupon and with
         two  (2)  business  days  thereafter   surrender  all  Preferred  Stock
         Certificates, duly endorsed for cancellation, to the Corporation or the
         Transfer Agent.  No person shall  thereafter have any rights in respect
         of Series A  Preferred  Shares,  except the right to receive  shares of
         Common Stock on conversion thereof as provided in this Section 2.

                  (h) Fractional  Shares.  The  Corporation  shall not issue any
         fraction of a share of Common Stock upon any conversion.  All shares of
         Common Stock (including  fractions thereof) issuable upon conversion of
         more  than one  share  of the  Series A  Preferred  Shares  by a holder
         thereof shall be  aggregated  for purposes of  determining  whether the
         conversion  would  result in the  issuance  of a fraction of a share of
         Common Stock. If, after the  aforementioned  aggregation,  the issuance
         would result in the issuance of a fraction of a share of Common  Stock,
         the Corporation shall round such fraction of a share of Common Stock up
         or down to the nearest whole share.

                                       A-9
<PAGE>

                  (i) Notwithstanding anything to the contrary set forth in this
         Certificate of Designations,  the Corporation shall not be obligated to
         issue in excess of 11,875,000  conversion Shares upon conversion of the
         Series A Preferred Shares.

         4. Corporation's Right to Redeem at its Election.

                  (a) At any time,  commencing 120 days after the Issuance Date,
         as long as the Corporation has not breached any of the representations,
         warranties,   and  covenants   contained   herein  or  in  any  related
         agreements,   the  Corporation   shall  have  the  right,  in  it  sole
         discretion,  to redeem ("Redemption at Corporation's  Election"),  from
         time to time,  any or all of the Series A Preferred  Shares  which have
         not previously  been redeemed at a price equal to the Redemption  Price
         at Corporation's  Election below,  provided (i) Corporation shall first
         provide  thirty  (30)  days  advance  written  notice  as  provided  in
         subparagraph 4(a)(ii) below (which can be given any time on or after 90
         days after the Issuance Date, and (ii) that the Corporation  shall only
         be entitled to redeem  Series A Preferred  Shares  having an  aggregate
         Stated Value of at least One Hundred  Thousand Dollars  ($100,000).  If
         the  Corporation  elects to redeem  some,  but not all, of the Series A
         Preferred  Shares,  the Corporation shall redeem a pro-rata amount from
         each Holder of the Series A Preferred Shares.

                           (i) Redemption Price At Corporation's  Election.  The
                  "Redemption   Price  at   Corporation's   Election"  shall  be
                  calculated as 120% of the  Liquidation  Value, as that term is
                  defined in Section 10 hereof.

                           (ii)   Mechanics  of  Redemption   at   Corporation's
                  Election. The Corporation shall effect each such redemption by
                  giving at least thirty (30) days prior written notice ("Notice
                  of Redemption at  Corporation's  Election") to (A) the holders
                  of the Series A Preferred  Shares  selected for  redemption at
                  the address and facsimile  number of such holder  appearing in
                  the  Corporation's  Series A Preferred Shares register and (B)
                  the   Transfer   Agent,   which   Notice  of   Redemption   At
                  Corporation's  Election shall be deemed to have been delivered
                  three (3) business  days after the  Corporation's  mailing (by
                  overnight or two (2) day courier, with a copy by facsimile) of
                  such Notice of  Redemption  at  Corporation's  Election.  Such
                  Notice of Redemption At Corporation's  Election shall indicate
                  (i) the  number of shares of Series A  Preferred  Shares  that
                  have been  selected for  redemption,  (ii) the date which such
                  redemption is to become  effective (the "Date of Redemption At
                  Corporation's  Election") and (iii) the applicable  Redemption
                  Price At  Corporation's  Election,  as defined  in  subsection
                  (a)(i) above.  Notwithstanding the above, a holder may convert

                                      A-10
<PAGE>

                  into Common Stock,  prior to the close of business on the Date
                  of  Redemption  at  Corporation's   Election,   any  Series  A
                  Preferred  Shares which it is  otherwise  entitled to convert,
                  including Series A Preferred Shares that has been selected for
                  redemption  at   Corporation's   election   pursuant  to  this
                  subsection 4(a).

                  (b)  Corporation  Must  Have  Immediately  Available  Funds or
         Credit  Facilities.  The Corporation  shall not be entitled to send any
         Notice of Redemption at Corporation's Election and begin the redemption
         procedure under Sections 4(a) unless it has:

                           (i) the full amount of the redemption  price in cash,
                  available in a demand or other  immediately  available account
                  in a bank or similar financial institution; or

                           (ii) immediately available credit facilities,  in the
                  full  amount of the  redemption  price  with a bank or similar
                  financial institution; or

                           (iii) an agreement with a standby underwriter willing
                  to purchase from the Corporation a sufficient number of shares
                  of stock to  provide  proceeds  necessary  to redeem any stock
                  that is not converted prior to redemptions; or

                           (iv) a  combination  of the  items  set forth in (i),
                  (ii),  and (iii)  above,  aggregating  the full  amount of the
                  redemption price.

                  (c) Payment of Redemption Price. Each Holder submitting Series
         A Preferred Shares being redeemed under this Section 4 shall send their
         Series A Preferred Share Certificates to be redeemed to the Corporation
         or its Transfer  Agent,  and the  Corporation  shall pay the applicable
         redemption  price to that Holder  within five (5) business  days of the
         Date of Redemption at Corporation's Election.

         5.       Redemption at Option of Holders.

                  (a) Redemption Option Upon Major  Transaction.  In addition to
         all other rights of the holders of Series A Preferred  Shares contained
         herein,  after a Major  Transaction (as defined below),  the holders of
         Series A  Preferred  Shares  then  outstanding  shall have the right in
         accordance  with Section 5(f), at the option of the holders of at least
         two-thirds (2/3) of the Series A Preferred Shares then outstanding,  to
         require the Corporation to redeem all of the Series A Preferred  Shares
         then  outstanding at a price per Series A Preferred  Share equal to the
         greater of (i) 100% of the Liquidation Value (as defined below) of such
         shares and (ii) the price  calculated in accordance with the Redemption

                                      A-11
<PAGE>

         Rate  (as  defined  below)  calculated  as of the  date  of the  public
         announcement  of such Major  Transaction  or the next date on which the
         exchange or market on which the Common  Stock is traded is open if such
         public  announcement is made (A) after 1:00 p.m.  Eastern Standard Time
         on such date or (B) on a date on which the  exchange or market on which
         the Common Stock is traded or quoted is closed.

                  (b) Redemption  Option Upon  Triggering  Event. In addition to
         all other rights of the holders of Series A Preferred  Shares contained
         herein,  after a Triggering  Event (as defined  below),  the holders of
         Series A  Preferred  Shares  the  outstanding  shall  have the right in
         accordance  with Section 5(g), at the option of the holders of at least
         two-thirds (2/3) of the Series A Preferred Shares then outstanding,  to
         require the Corporation to redeem all of the Series A Preferred  Shares
         then  outstanding at a price per Series A Preferred  Share equal to the
         greater of (i) 125% of the Liquidation Value of such share and (ii) the
         price  calculated in accordance with the Redemption Rate as of the date
         immediately  preceding such  Triggering  Event on which the exchange or
         market on which the Common Stock is traded or quoted is open.

                  (c) "Redemption  Rate." The "Redemption Rate" shall, as of any
         date of determination, be equal to (i) the Conversion Rate in effect as
         of such date as calculated  pursuant to Section 3(b) multiplied by (ii)
         the Closing Bid Price of the Common Stock on such date.

                  (d) "Major Transaction." A "Major Transaction" shall be deemed
         to have occurred at such time as any of the following events:

                           (i) the  consummation of any merger,  reorganization,
         restructuring,  consolidation,  or similar  transaction by or involving
         the  Corporation  except  (A)  a  merger  or  consolidation  where  the
         Corporation is the survivor,  or where the holders of the capital stock
         of the Corporation  immediately  prior to such merger or  consolidation
         own at least  50% of the  outstanding  capital  stock of the  surviving
         entity,  (B)  pursuant to a migratory  merger  effected  solely for the
         purpose  of  changing  the   jurisdiction  of   incorporation   of  the
         Corporation,  or (C) any such  transaction in which each of the holders
         of the Series A Preferred  Shares  receives cash at least equal to 120%
         of the  Liquidation  Value of such shares in  accordance  with  Section
         5(d)(ii) hereof;

                           (ii) sale of all or  substantially  all of the assets
         of the Corporation on a consolidated  basis or any similar  transaction
         or related  transactions which effectively  results in a sale of all or
         substantially  all of the assets of the  Corporation  on a consolidated
         basis,  unless, upon consummation of such transaction,  the Corporation
         reserves  an amount in cash at least  equal to 125% of the  Liquidation
         Value of the  Series A  Preferred  Shares for  payment  to the  holders
         thereof.

                                      A-12
<PAGE>

                  (e)  "Triggering  Event."   A  "Triggering   Event"  shall  be
         deemed  to have occurred at such time as any of the following events:

                           (i)  either  (A)  the  failure  of  the  Registration
         Statement to be declared effective by the SEC or to cover the resale of
         all of the shares of Common Stock issued or issuable upon conversion of
         the Series A Preferred  Shares at any time after ninety (90) days after
         the Scheduled Effective Date (provided that for purposes of determining
         the Closing Bid Price under Section 5(c) above,  the  Triggering  Event
         shall be deemed to have  occurred  on the first day of such ninety (90)
         day period) or (B) for any period of ninety (90) consecutive days after
         the date that is ninety (90) days after the  Scheduled  Effective  Date
         that Common Stock issued or issuable  upon  conversion  of the Series A
         Preferred  Shares cannot be sold under the  Registration  Statement for
         any reason  (provided that for purposes of determining  the Closing Bid
         Price under Section 5(c) above, the Triggering Event shall be deemed to
         have occurred on the first day of such ninety (90) day period);

                           (ii) if for  any  reason  the  Corporation  fails  to
         perform  or  observe  any  covenant,   agreement,  or  other  provision
         contained in Section 9 or 10 hereof;

                           (iii)  the  Corporation's  notice to the  holders  of
         Series A  Preferred  Shares  as a  class,  including  by way of  public
         announcement,  at any time, of its intention not to comply,  other than
         in accordance  with the terms hereof,  with requests for  conversion of
         any Series A Preferred Shares for shares of Common Stock;

                           (iv) if for  any  reason  the  Corporation  fails  to
         perform  or  observe  any  covenant,   agreement,  or  other  provision
         contained  herein  or  in  the  Securities  Purchase   Agreement,   the
         Registration  Rights Agreement,  or in any related agreement,  and such
         failure is not cured  within 30 days after the  Corporation  knows,  or
         should have known with the  exercise of  reasonable  diligence,  of the
         occurrence  thereof,  and such failure has had, or could  reasonably be
         expected  to have,  a  material  adverse  effect  on (A) the  financial
         condition,  operating results,  business,  properties, or operations of
         the  Corporation  and its  subsidiaries  taken as a whole  taking  into
         account  any  proceeds  reasonably  expected  to  be  received  by  the
         Corporation  or  its  subsidiaries  in  the  foreseeable   future  from
         insurance  policies  or rights of  indemnification  or (B) the Series A
         Preferred Shares; or

                                      A-13
<PAGE>

                           (v) any  representation or warranty  contained in the
         Securities  Purchase Agreement or the Registration  Rights Agreement is
         false or misleading on or as of the date made and which either reflects
         or has had a material  adverse effect on and which,  upon the date that
         the  holders  require the  Corporation  to redeem the Class A Preferred
         Shares continues to have a material adverse effect on (A) the financial
         condition,  operating results,  business,  properties, or operations of
         the  Corporation  and its  subsidiaries  taken as a whole  taking  into
         account  any  proceeds  reasonably  expected  to  be  received  by  the
         Corporation  or  its  subsidiaries  in  the  foreseeable   future  from
         insurance  policies  or rights of  indemnification  or (B) the Series A
         Preferred Shares.

                  (f)  Mechanics  of  Redemption  at Option of Buyer  Upon Major
         Transaction.  No sooner than  fifteen (15) days nor later than ten (10)
         days prior to the consummation of a Major Transaction, but not prior to
         the public  announcement  of such Major  Transaction,  the  Corporation
         shall  deliver  written  notice  thereof via  facsimile  and  overnight
         courier  ("Notice  of Major  Transaction")  to each  holder of Series A
         Preferred  Shares.  At any time  after  receipt  of a  Notice  of Major
         Transaction,  the holders of at least  two-thirds (2/3) of the Series A
         Preferred Shares then outstanding may require the Corporation to redeem
         all of the  holders'  Series A  Preferred  Shares then  outstanding  in
         accordance  with Section 5(a) by delivering  written notice thereof via
         facsimile  and  overnight  courier  ("Notice of Redemption at Option of
         Buyer Upon Major  Transaction")  to the  Corporation,  which  Notice of
         Redemption at Option of Buyer Upon Major Transaction shall indicate (i)
         the number of Series A Preferred Shares that such holders are voting in
         favor of  redemption  and  (ii) the  applicable  redemption  price,  as
         calculated pursuant to Section 5(a) above. Unless the Corporation shall
         fail to fully  redeem all of the  holder's  Series A  Preferred  Shares
         pursuant to this Section 5, any notice delivered by the holder pursuant
         to this subsection shall be irrevocable.

                  (g) Mechanics of Redemption at Option of Buyer Upon Triggering
         Event. As soon as  practicable,  but in any event no more than five (5)
         business  days  after  the  occurrence  of  a  Triggering   Event,  the
         Corporation  shall  deliver  written  notice  thereof via facsimile and
         overnight  courier  ("Notice  of  Triggering  Event") to each holder of
         Series A  Preferred  Shares.  At any time after  receipt of a Notice of
         Triggering  Event,  the  holders  of at least  two-thirds  (2/3) of the
         Series A Preferred  Shares then outstanding may require the Corporation
         to redeem all of the Series A  Preferred  Shares  then  outstanding  in
         accordance  with Section 5(b) by delivering  written notice thereof via
         facsimile  and  overnight  courier  ("Notice of Redemption at Option of
         Buyer Upon  Triggering  Event")  to the  Corporation,  which  Notice of
         Redemption at Option of Buyer Upon Triggering  Event shall indicate (i)
         the number of Series A Preferred Shares that such holders are voting in
         favor of  redemption  and  (ii) the  applicable  redemption  price,  as
         calculated pursuant to Section 5(b) above. Unless the Corporation shall
         fail to fully  redeem all of the  holder's  Series A  Preferred  Shares
         pursuant to this Section 5, any notice delivered by the holder pursuant
         to this subsection shall be irrevocable.

                                      A-14
<PAGE>

                  (h)  Payment  of  Redemption  Price.  Upon  the  Corporation's
         receipt  of a  Notice(s)  of  Redemption  at Option of Buyer Upon Major
         Transaction  or a  Notice(s)  of  Redemption  at Option  of Buyer  Upon
         Triggering  Event,  as the case may be,  from the  holders  of at least
         two-thirds (2/3) of the Series A Preferred Shares then outstanding, the
         Corporation  shall  immediately  notify each holder by facsimile of the
         Corporation's  receipt of such requisite  notices necessary to effect a
         redemption  and  each  holder  of  Series  A  Preferred   Shares  shall
         thereafter  promptly send such holder's Preferred Stock Certificates to
         be redeemed to the Corporation or its Transfer  Agent.  The Corporation
         shall pay the applicable  redemption  price, as calculated  pursuant to
         Section 5(a) or 5(b) above,  in cash to such holder  within thirty (30)
         days after the Corporation's  receipt of the requisite notices required
         to  effect a  redemption;  provided  that a  holder's  Preferred  Stock
         Certificates  shall have been so  delivered to the  Corporation  or its
         Transfer Agent;  provided  further that if the Corporation is unable to
         redeem all of the Series A  Preferred  Shares,  the  Corporation  shall
         redeem an amount from each holder of Series A Preferred Shares equal to
         such  holder's  pro-rata  amount  (based  on the  number  of  Series  A
         Preferred Shares held by such holder relative to the number of Series A
         Preferred  Shares  outstanding) of all Series A Preferred  Shares being
         redeemed.  If the Corporation  shall fall to redeem all of the Series A
         Preferred  Shares  submitted for  redemption  (other than pursuant to a
         dispute  as to  the  determination  of the  Closing  Bid  Price  or the
         arithmetic   calculation  of  the  Redemption   Rate),  the  applicable
         redemption  price  payable  in  respect  of such  unredeemed  Series  A
         Preferred Shares shall bear interest at the rate of 2.5% per month (pro
         rated for partial  months)  until paid in full.  Until the  Corporation
         pays such unpaid  applicable  redemption  price in full to each holder,
         holders of at least  two-thirds  (2/3) of the Series A Preferred Shares
         then  outstanding,  including  shares  of  Series  A  Preferred  Shares
         submitted for  redemption  pursuant to this Section 4 and for which the
         applicable  redemption  price has not been paid,  shall have the option
         (the "Void  Optional  Redemption  Option")  to, in lieu of  redemption,
         require the  Corporation  to promptly  return to each holder all of the
         Series A Preferred  Shares that were  submitted for  redemption by such
         holder  under this  Section 5 and for which the  applicable  redemption
         price has not been  paid,  by  sending  written  notice  thereof to the
         Corporation via facsimile (the "Void Optional Redemption Notice"). Upon
         the Corporation's  receipt of such Void Optional  Redemption  Notice(s)
         and prior to payment of the full  applicable  redemption  price to each
         holder,  (i) the  Notice(s)  of  Redemption  at  Option  of Buyer  Upon
         Triggering Event or the Notice(s) of Redemption at Option of Buyer Upon
         Major  Transaction,  as the  case may be,  shall be null and void  with
         respect to those Series A Preferred Shares submitted for redemption and
         for which the applicable  redemption  price has not been paid, (ii) the
         Corporation  shall  immediately  return any  Certificates  for Series A
         Preferred  Shares  submitted  to the  Corporation  by each  holder  for

                                      A-15
<PAGE>

         redemption  under  this  Section  4(h)  and for  which  the  applicable
         redemption price had not been paid, (iii) the Fixed Conversion Price of
         such returned Series A Preferred Shares shall be adjusted to the lesser
         of (A) the Fixed Conversion Price as in effect on the date on which the
         Void Option  Redemption  Notice(s) is delivered to the  Corporation and
         (B) the lowest  Closing Bid Price  during the period  beginning  on the
         date on which the Notice(s) of Redemption of Option of Buyer Upon Major
         Transaction  or the  Notice(s)  of  Redemption  at Option of Buyer Upon
         Triggering  Event,  as the case may be, is delivered to the Corporation
         and ending on the date on which the Void Optional Redemption  Notice(s)
         is delivered to the  Corporation;  provided that no adjustment shall be
         made if such  adjustment  would  result  in an  increase  of the  Fixed
         Conversion Price then in effect, and (iv) the Conversion  Percentage in
         effect  at such time and  thereafter  shall be  reduced  by a number of
         percentage  points equal to the product of (A) two and  one-half  (2.5)
         and (B) the  number of months  (prorated  for  partial  months)  in the
         period  beginning on the date on which the  Notice(s) of  Redemption at
         Option of Buyer Upon Major  Transaction  or the Notice(s) of Redemption
         at  Option  of Buyer  Upon  Triggering  Event,  as the case may be,  is
         delivered to the  Corporation  and ending on the date on which the Void
         Optional   Redemption   Notice(s)  is  delivered  to  the  Corporation.
         Notwithstanding  the  foregoing,  in the event of a  dispute  as to the
         determination of the Closing Bid Price or the arithmetic calculation of
         the Redemption Rate, such dispute shall be resolved pursuant to Section
         3(f)(iii) above with the term "Closing Bid Price" being substituted for
         the term "Average  Market Price" and the term  "Redemption  Rate" being
         substituted for the term "Conversion Rate."

         6.       Inability to Fully Convert.

                  (a) Holder's Option if Corporation Cannot Fully Convert. If at
         any  time  after  the  earlier  to occur  of (i)  effectiveness  of the
         Registration  Statement  or (ii) ninety  (90) days after the  Scheduled
         Effective Date, upon the Corporation's  receipt of a Conversion Notice,
         the  Corporation  does not  issue  shares  of  Common  Stock  which are
         registered for resale under the Registration Statement within seven (7)
         business  days of the time  required in  accordance  with  Section 3(f)
         hereof, for any reason or for no reason, including, without limitation,
         because the Corporation (x) does not have a sufficient number of shares
         of Common Stock authorized and available,  (y) is otherwise  prohibited
         by applicable law or by the rules or regulations of any stock exchange,
         inter-dealer  quotation  system or other  self-regulatory  organization
         with  jurisdiction  over the Corporation or its securities from issuing
         all of the Common  Stock  which is to be issued to a holder of Series A
         Preferred Shares pursuant to a Conversion Notice or (z) fails to have a
         sufficient number of shares of Common Stock registered and eligible for
         resale under the  Registration  Statement,  then the Corporation  shall
         issue  as many  shares  of  Common  Stock  as it is able  to  issue  in

                                      A-16
<PAGE>

         accordance with Stockholder's Conversion Notice and pursuant to Section
         3(f) above and,  with  respect to the  unconverted  Series A  Preferred
         Shares, the holder, solely at such holder's option, can, in addition to
         any other remedies such holder may have hereunder, under the Securities
         Purchase Agreement (including indemnification under Section 8 thereof),
         under the Registration Rights Agreement, at law or in equity, elect to:

                           (i)  require  the  Corporation  to  redeem  from such
         holder those  Series A Preferred  Shares for which the  Corporation  is
         unable  to  issue  Common  Stock  in  accordance   with  such  holder's
         Conversion  Notice  ("Mandatory  Redemption")  at a price per  Series A
         Preferred Share (the "Mandatory Redemption Price") equal to the greater
         of (x)  120%  of the  Liquidation  Value  of  such  share  and  (y) the
         Redemption Rate as of such Conversion Date;

                           (ii) void its  Conversion  Notice  and retain or have
         returned,  as  the  case  may  be  the  Certificates  representing  the
         unconverted  Series  A  Preferred  Shares  that  were  to be  converted
         pursuant to such holder's Conversion Notice.

         7.  Reissuance  of  Certificates.  In  the  event  of a  conversion  or
redemption  pursuant to this Certificate of Designations of less than all of the
Series  A  Preferred  Shares   represented  by  a  particular   Preferred  Stock
Certificate,  the Corporation shall promptly cause to be issued and delivered to
the holder of such  Series A  Preferred  Shares a  Preferred  Stock  Certificate
representing  the  remaining  Series A Preferred  Shares  which have not been so
converted or redeemed.

         8. Reservation of Shares.  The Corporation shall, so long as any of the
Series A Preferred Shares are outstanding, reserve and keep available out of its
authorized  and  unissued  shares of Common  Stock,  solely  for the  purpose of
effecting the conversion of the Series A Preferred Shares,  11,875,000 shares of
the Common  Stock to effect  the  conversion  of all of the  Series A  Preferred
Shares.  If at any time,  the  Corporation  does not have  available  11,500,000
authorized and unissued  shares of Common Stock to satisfy  conversion of all of
the Series A Preferred Shares outstanding, the Corporation shall call and hold a
special shareholders  meeting with thirty (30) days of such occurrence,  for the
sole  purpose  of  increasing  the  number of  authorized  shares.  Furthermore,
management of the  Corporation  shall  recommend to the  shareholders to vote in
favor of increasing  the number of common shares  authorized.  Management  shall
also vote all of its  shares in favor of  increasing  the  number of  authorized
shares of Common Stock.

         9. Voting  Rights.  Holders of Series A Preferred  Shares shall have no
voting  rights,  except as  required  by law,  including  but not limited to the
General  Corporation Law of the State of New Jersey and as expressly provided in
this Certificate of Designations.

                                      A-17
<PAGE>

         10. Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation,  dissolution, or winding up of the Corporation,  the
holders of the Series A  Preferred  Shares  shall be entitled to receive in cash
out of the assets of the  Corporation,  whether  from  capital or from  earnings
available for distribution to its stockholders (the "Preferred  Funds"),  before
any  amount  shall be paid to the  holders  of any of the  capital  stock of the
Corporation  of any class  junior in rank to the  Series A  Preferred  Shares in
respect  of  the  preferences  as to  the  distributions  and  payments  on  the
liquidation, dissolution and winding up of the Corporation, an amount per Series
A Preferred  Share equal to the sum off (i) $10,000 and (ii) an amount  equal to
the  product  of (.06)  (N/365)  ($10,000)  (such sum being  referred  to as the
"Liquidation Value");  provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Series A Preferred  Shares and holders
of shares of other classes or series of preferred stock of the Corporation  that
are of equal rank with the Series A Preferred Shares as to payments of Preferred
Funds (thc "Pari Passu Shares"),  then each holder of Series A Preferred  Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full  amount of  Preferred  Funds  payable to such  holder as a  liquidation
preference,  in accordance with their  respective  Certificate of  Designations,
Preferences  and Rights as a percentage  or the full amount of  Preferred  Funds
payable to all holders of Series A Preferred  Shares and Pari Passu Shares.  The
purchase or  redemption by the  Corporation  of stock of any class in any manner
permitted  by  law,  shall  not  for  the  purposes  hereof,  be  regarded  as a
liquidation,   dissolution  or  winding  up  of  the  Corporation.  Neither  the
consolidation  or merger of the Corporation  with or into any other Person,  nor
the sale or transfer by the  Corporation of less than  substantially  all of its
assets,  shall,  for  the  purposes  hereof,  be  deemed  to  be a  liquidation,
dissolution  or winding up of the  Corporation.  No holder of Series A Preferred
Shares shall be entitled to receive any amounts  with  respect  thereto upon any
liquidation, dissolution or winding up of the Corporation other than the amounts
provided for herein.

         11.  Preferred Rank. All shares of Common Stock shall be of junior rank
to  all  Series  A  Preferred  Shares  in  respect  to  the  preferences  as  to
distributions and payments upon the liquidation,  dissolution, and winding up of
the  Corporation.  The rights of the shares of Common  Stock shall be subject to
the preferences and relative rights of the Series A Preferred Shares. The Series
A Preferred  Shares shall be senior in rights and liquidation  preference to the
Common  Stock or and any series of  Preferred  Stock  hereinafter  issued by the
Corporation.  Without the prior  express  written  consent of the holders of not
less than two-thirds (2/3) of the then issued and outstanding Series A Preferred
Shares,  the Corporation  shall not hereafter  authorize or issue  additional or
other  capital  stock that is of senior or equal rank to the Series A  Preferred
Shares in respect of the preferences as to  distributions  and payments upon the
liquidation,  dissolution and winding up of the  Corporation.  Without the prior
express written consent of the holders off not less than two-thirds (2/3) of the
then issued and outstanding Series A Preferred Shares, the Corporation shall not
hereafter  authorize or make any amendment to the  Corporation's  Certificate of

                                      A-18
<PAGE>

Incorporation  or Bylaws,  or make any resolution of the board of directors with
the New  Jersey  Secretary  of State  containing  any  provisions,  which  would
adversely  affect or  otherwise  impair the rights or  relative  priority of the
holders of the Series A Preferred  Shares  relative to the holders of the Common
Stock or the  holders of any other class of capital  stock.  In the event of the
merger or consolidation of the Corporation with or into another corporation, the
Series A Preferred  Shares shall maintain their relative  powers,  designations,
and  preferences  provided for herein and no merger  shall  result  inconsistent
therewith.

         12.      Restriction on Redemption and Dividends.

                  (a) Restriction on Dividend.  If any Series A Preferred Shares
         are  outstanding,  without  the prior  express  written  consent of the
         holders  of not less  than  two-thirds  (2/3)  of the then  outstanding
         Series A  Preferred  Shares,  the  Corporation  shall not  directly  or
         indirectly  declare,  pay or make any dividends or other  distributions
         upon any of the Common Stock so long as written notice thereof has been
         given to  holders  of the  Series A  Preferred  Shares at least 30 days
         prior  to the  earlier  of (a) the  record  date  taken  for or (b) the
         payment of any such dividend or other distribution. Notwithstanding the
         foregoing,  this Section 12(a) shall not prohibit the Corporation  from
         declaring  and  paying a  dividend  in cash with  respect to the Common
         Stock  so long as the  Corporation:  (i)  pays  simultaneously  to each
         holder of  Series A  Preferred  Shares  an amount in cash  equal to the
         amount such holder would have received had all of such holder's  Series
         A Preferred Shares been converted to Common Stock pursuant to Section 2
         hereof one business day prior to the record date for any such dividend,
         and (ii) after  giving  effect to the payment of any  dividend  and any
         other  payments  required  in  connection  therewith  including  to the
         holders of the Series A Preferred  Shares under clause 12(a)(i) hereof,
         the Corporation has in cash or cash  equivalents an amount equal to the
         aggregate of: (A) all of its liabilities reflected on its most recently
         available balance sheet, (B) the amount of any indebtedness incurred by
         the  Corporation  or any of its  subsidiaries  since  its  most  recent
         balance sheet and (C) 125% of the amount  payable to all holders of any
         shares of any class of preferred  stock of the  Corporation  assuming a
         liquidation  of the  Corporation  as the  date  of  its  most  recently
         available balance sheet.

                                      A-19
<PAGE>

                  (b)  Restriction  on  Redemption.  If any  Series A  Preferred
         Shares are  outstanding,  without the prior express  written consent of
         the holders of not less than two-thirds  (2/3) of the then  outstanding
         Series A  Preferred  Shares,  the  Corporation  shall not  directly  or
         indirectly  redeem,  purchase or  otherwise  acquire from any person or
         entity' other than from a direct or indirect wholly-owned subsidiary of
         the Corporation, or permit any subsidiary of the Corporation to redeem,
         purchase or otherwise acquire from any person or entity other than from
         the Corporation or another direct or indirect  wholly-owned  subsidiary
         of  the  Corporation,  any  of the  Corporation's  or any  subsidiary's
         capital   stock  or  other  equity   securities   (including,   without
         limitation,  warrants, options and other rights to acquire such capital
         stock or other equity securities).

         13.  Vote to  Change  the  Terms of  Series  A  Preferred  Shares.  The
affirmative  vote at a meeting  duly  called  for such  purpose  or the  written
consent without a meeting,  of the holders of not less than two-thirds  (2/3) of
the then outstanding Series A Preferred Shares, shall be required for any change
to  this  Certificate  of  Designations  or  the  Corporation's  Certificate  of
Incorporation  which  would  amend,  alter,  change or repeal any of the powers,
designations, preferences and rights of the Series A Preferred Shares.

         14. Lost or Stolen  Certificates.  Upon receipt by the  Corporation  of
evidence  satisfactory  to the  Corporation of the loss,  theft,  destruction or
mutilation  of any  Preferred  Stock  Certificates  representing  the  Series  A
Preferred  Shares,  and,  in the case of  loss,  theft  or  destruction,  of any
indemnification undertaking by the holder to the Corporation and, in the case of
mutilation,   upon   surrender  and   cancellation   of  the   Preferred   Stock
Certificate(s),  the  Corporation  shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided,  however, the Corporation shall
not be  obligated  to  re-issue  Preferred  Stock  Certificates  if  the  holder
contemporaneously  requests the  Corporation  to convert such Series A Preferred
Shares into Common Stock.

         15. Withholding Tax Obligations. Notwithstanding anything herein to the
contrary, to the extent that the Corporation receives advice in writing from its
counsel that there is a  reasonable  basis to believe  that the  Corporation  is
required by applicable  federal laws or regulations  and delivers a copy of such
written advice to the holders of the Series A Preferred Shares so affected,  the
Corporation  may reasonably  condition the making of any  distribution  (as such
term is defined under applicable  federal tax law and regulations) in respect of
any Series A Preferred  Shares on the holder of such  Series A Preferred  Shares
depositing  with the  Corporation  an amount of cash  sufficient  to enable  the
Corporation to satisfy its withholding tax obligations (the  "Withholding  Tax")
with respect to such distribution,  Notwithstanding the foregoing or anything to
the  contrary,  if any  holder of the  Series A  Preferred  Shares  so  affected
receives advice in writing from its counsel that there is a reasonable  basis to

                                      A-20
<PAGE>

believe that the  Corporation  is not so required by applicable  federal laws or
regulations and delivers a copy of such written advice to the  Corporation,  the
Corporation  shall  not be  permitted  to  condition  the  making  of  any  such
distribution  in respect of any Series A  Preferred  Share on the holder of such
Series A Preferred  Shares  depositing  with the Corporation any Withholding Tax
with  respect to such  distribution,  provided,  however,  the  Corporation  may
reasonably  condition  the  making of any such  distribution  in  respect of any
Series A  Preferred  Share on the  holder  of such  Series  A  Preferred  Shares
executing  and  delivering  to the  Corporation,  at the election of the holder,
either:  (i) if applicable,  a properly  completed Internal Revenue Service Form
4224, or (a) an  indemnification  agreement in reasonably  acceptable form, with
respect to any federal tax liability, penalties and interest that may be imposed
upon  the  Corporation  by the  Internal  Revenue  Service  as a  result  of the
Corporation's  failure to withhold in connection with such  distribution to such
holder.  If the  conditions in the preceding two sentences are fully  satisfied,
the Corporation shall not be required to pay any additional damages set forth in
Section  3(f)(v) of this  Certificate of  Designations  if its failure to timely
deliver  any  Conversion  Shares  results  solely from the  holder's  failure to
deposit any  withholding tax hereunder or provide to the Corporation an executed
indemnification   agreement  in  the  form   reasonably   satisfactory   to  the
Corporation.

         3. The  Certificate of  Incorporation  of the Corporation is amended so
that the designation and number of shares of each class and series acted upon in
the  resolutions  set forth above,  and the relative  rights,  preferences,  and
limitations of each such class and series are as state in the above resolutions.

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.]

                                      A-21
<PAGE>

         IN WITNESS  WHEREOF,  the  Corporation  has caused this  Certificate of
Amendment to be signed by James K.T. Lu, its  President,  as of this day of 14th
April, 2000.

DIAMOND ENTERTAINMENT CORPORATION

By:
         Name:    James K. T. Lu
         Title:   President and Chief Executive Officer

                                      A-22
<PAGE>

                                    EXHIBIT I

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert Shares of Preferred Stock)

         The undersigned hereby elects to convert the number of shares of Series
A Convertible  Preferred Stock indicated below,  into shares of Common Stock, no
par value per share (the "Common Stock"), of Diamond  Entertainment  Corporation
(the "Company") according to the condition hereof, as of the date written below.
If shares are to be issued in the name of a person  other than the  undersigned,
the under signed will pay all transfer taxes payable with respect thereto and is
delivering  herewith such  certificates and opinions as reasonably  requested by
the Company in  accordance  therewith.  No fee will be charged to the Holder for
any conversion, except for such transfer taxes.

Conversion calculations:         ---------------------------------------
                                  Date to Effect Conversion

                                  ---------------------------------------
                                  Number of Shares of Preferred Stock
                                  to be Converted

                                  ---------------------------------------
                                  Number of shares of Common Stock to be issued

                                  ---------------------------------------
                                  Applicable Conversion Price

                                  ---------------------------------------
                                  Signature

                                  ---------------------------------------
                                  Name

                                  ---------------------------------------
                                  Address

                                      A-23

<PAGE>

                                    EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"),  dated as of May
__,  2000,  is made  and  entered  into  by and  between  Diamond  Entertainment
Corporation,     a    New    Jersey    corporation    (the    "Company"),    and
-------------------------- (the "Investor").

                                   WITNESSETH:

         WHEREAS,  the Company and the  Investor  have entered into a Securities
Purchase  Agreement,  dated  as of the date  hereof  (the  "Securities  Purchase
Agreement"),  pursuant to which the Company  issued and sold to the Investor and
certain  other  Investors  identified on Schedule I to the  Securities  Purchase
Agreement,  up to $500,000 worth of the Company's  Series A Preferred  Stock, no
par value per share (the "Preferred Stock"),  which may be converted into shares
of the  Company's  common  stock,  no par value per share (the "Common  Stock"),
pursuant  to the  terms  of  the  Certificate  of  Amendment  to  the  Company's
Certificate of  Incorporation  establishing  the  designations,  preferences and
other rights of the Preferred Stock ("Certificate of Designations"); and

         WHEREAS,  pursuant to the terms of, and in partial  consideration  for,
the Investor's  agreement to enter into the Securities Purchase  Agreement,  the
Company has agreed to provide the Investor with certain registration rights with
respect to the Registrable Securities;

         NOW, THEREFORE,  in consideration of the premises, the representations,
warranties,  covenants and  agreements  contained  herein and in the  Securities
Purchase Agreement,  and for other good and valuable consideration,  the receipt
and sufficiency of which is hereby  acknowledged,  intending to be legally bound
hereby,  the parties hereto agree as follows  (capitalized terms used herein and
not defined  herein shall have the respective  meanings  ascribed to them in the
Securities Purchase Agreement):

                                    ARTICLE I
                               REGISTRATION RIGHTS

         Section 1.1 Form S-1, SB-2 or S-3 Registration Statements.

                  (a) Filing of Registration Statement. Subject to the terms and
conditions of this Agreement,  the Company shall prepare and, within ninety (90)
days following the date hereof (the "Filing Deadline"), file with the Securities
and Exchange  Commission  ("SEC") a  registration  statement on Form S-1 or SB-2
(or, if the Company is then eligible, on Form S-3) under the Securities Act (the
"Initial  Registration  Statement") for the  registration  for the resale by all
Investors who purchased  Preferred  Stock  pursuant to the  Securities  Purchase
Agreement up to  11,875,000  shares of Common  Stock and up to 1,525,000  shares
underlying  the  Warrants  issued  pursuant  to Section  4(k) of the  Securities
Purchase Agreement to May Davis Group, Inc. (the "Placement Agent"),  and Butler
Gonzalez,  LLP  ("Butler  Gonzalez")  (collectively,  the  "Initial  Registrable
Securities"). Prior to the filing of the Initial Registration Statement with the

                                       B-1
<PAGE>

SEC, the Company shall furnish a copy of the Initial  Registration  Statement to
Investors,  the Placement Agent and Butler Gonzalez for their review and comment
together  with a  Selling  Shareholder  Questionnaire  in form  prepared  by the
Company.  Investors,  the  Placement  Agent and Butler  Gonzalez  shall  furnish
comments  on  the  Initial  Registration   Statement  and  an  executed  Selling
Shareholder  Questionnaire  to the  Company  within five (5) days of the receipt
thereof from the  Company.  Thereafter,  if the Company  desires to issue to the
Investor and/or the Investor  desires to convert any  Registrable  Securities in
addition to the Initial  Registrable  Securities,  the Company  shall first file
with the SEC a registration statement on Form S-1 or SB-2 (or, if the Company is
then eligible,  on Form S-3) under the Securities Act (the Initial  Registration
Statement  and any  subsequent  registration  statement,  each, a  "Registration
Statement").

                  (b) Effectiveness of the Initial Registration  Statement.  The
Company shall use its  commercially  reasonable  efforts (i) to have the Initial
Registration  Statement  declared  effective  by the SEC by no  later  than  one
hundred and fifty (150) days after the date hereof (the "Registration Deadline")
and (ii) to insure that the Initial  Registration  Statement and any  subsequent
Registration  Statement  remains in effect throughout the term of this Agreement
as set  forth in  Section  4.2,  subject  to the terms  and  conditions  of this
Agreement.

                  (c) Failure to File the Initial Registration Statement. In the
event that the Initial  Registration  Statement is not filed by the Company with
the SEC by the Filing Deadline,  then the Applicable Discount (as defined in the
Certificate of Designations)  shall be reduced by an additional 2% for the first
thirty (30) days.

                  (d)  Failure  to  Maintain  Effectiveness  of  a  Registration
Statement.  Subject to Section 1.1(e) hereto,  in the event the Company fails to
maintain the  effectiveness  of any  Registration  Statement (or the  underlying
prospectus)  throughout  the  period set forth in  Section  4.2,  other than any
temporary  suspensions  permitted by Section 1.1(e),  and the Investor holds any
Registrable Securities at any time during the period of such ineffectiveness (an
"Ineffective  Period"),  the Company  shall pay to the  Investor in  immediately
available  funds into an account  designated  by the Investor an amount equal to
one  percent  (1%) of the  aggregate  Purchase  Price of all of the  Registrable
Securities  then held by the Investor  for each thirty (30)  calendar day period
(prorated for partial periods) of such Ineffective Period. The payments required
by this  Section  1.1(d)  shall  be made on the  first  Trading  Day  after  the
expiration of an Ineffective Period (or if an Ineffective Period shall last more
than thirty (30) calendar days, the  expiration of each  additional  thirty (30)
calendar day period of an Ineffective Period).

                  (e) Deferral or Suspension During a Blackout Period.  Sections
1.1(c) and (d)  notwithstanding,  if the Company  shall  furnish to the Investor
notice (a  "Blackout  Notice")  signed by the Chief  Executive  Officer or Chief
Financial  Officer of the Company  stating that he has  determined in good faith
that it would be seriously  detrimental to the Company and its  shareholders for
the  Initial  Registration  Statement  to be  filed  (or  for  any  Registration
Statement to remain in effect) and it is therefore desirable to defer the filing

                                       B-2
<PAGE>

of such Initial Registration Statement (or temporarily suspend the effectiveness
of any  Registration  Statement or use of the related  prospectus),  the Company
shall have the right (i)  immediately  to defer such  filing for a period of not
more than thirty (30) days  beyond the date by which such  Initial  Registration
Statement  was  otherwise  required  hereunder  to be filed or (ii)  suspend the
effectiveness of any Registration Statement for a period of not more than thirty
(30)  days (any such  deferral  or  suspension  period of up to thirty  days,  a
"Blackout  Period").  The  Investor  acknowledges  that it  would  be  seriously
detrimental to the Company and its  shareholders  for such initial  Registration
Statement  to be filed (or for any  Registration  Statement to remain in effect)
during a  Blackout  Period and  therefore  essential  to defer  such  filing (or
suspend such effectiveness)  during such Blackout Period and agrees to cease any
disposition of Registrable  Securities during such Blackout Period.  The Company
may not utilize any of its rights under this Section  1.1(e) to defer the filing
of a Registration  Statement (or suspend its  effectiveness)  more than twice in
any twelve  (12) month  period.  Following  such  deferral  or  suspension,  the
Investor  shall be  entitled  to the  payment  required  by Section  3(c) of the
Certificate of Designations establishing the designations and preferences of the
Preferred Stock.

                  (f) Liquidated  Damages.  The Company and the Investor  hereto
acknowledge and agree that the sums payable under subsections 1(c) or 1(d) above
shall  constitute  liquidated  damages and not  penalties.  The parties  further
acknowledge  that (i) the amount of loss or  damages  likely to be  incurred  is
incapable or is difficult to precisely  estimate,  (ii) the amounts specified in
such  subsections  bear a  reasonable  relationship  to, and are not  plainly or
grossly  disproportionate  to  the  probable  loss  likely  to  be  incurred  in
connection   with  any  failure  by  the  Company  to  obtain  or  maintain  the
effectiveness  of a  Registration  Statement,  (iii) one of the  reasons for the
Company  and the  Investor  reaching  an  agreement  as to such  amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are  sophisticated  business  parties and have
been  represented by  sophisticated  and able legal counsel and negotiated  this
Agreement at arm's length.

                                   ARTICLE II
                             REGISTRATION PROCEDURES

         Section  2.1  Filings;   Information.   The  Company  will  effect  the
registration  and sale of the  Registrable  Securities  in  accordance  with the
intended methods of disposition  thereof.  Without  limiting the foregoing,  the
Company in each such case will do the  following as  expeditiously  as possible,
but in no event later than the  deadline,  if any,  prescribed  therefor in this
Agreement:

                                       B-3
<PAGE>

                  (a) The  Company  shall  (i)  prepare  and file with the SEC a
Registration Statement on Form S-1 or SB-2 (or, if the Company is then eligible,
Form S-3)  within  ninety (90) days from the date hereof (if use of such form is
then  available to the Company  pursuant to the rules of the SEC and, if not, on
such other form  promulgated  by the SEC for which the Company  then  qualifies,
that  counsel for the  Company  shall deem  appropriate  and which form shall be
available for the sale of the Registrable Securities to be registered thereunder
in accordance  with the provisions of this Agreement and in accordance  with the
intended  method  of  distribution  of such  Registrable  Securities);  (ii) use
commercially  reasonable efforts to cause such filed  Registration  Statement to
become  effective within one hundred and fifty (150) days of the date hereof and
remain  effective during the period set forth in Section 1.1(b) hereof (pursuant
to Rule 415 under the Securities Act or otherwise);  (iii) prepare and file with
the SEC such amendments and supplements to such  Registration  Statement and the
prospectus  used in  connection  therewith  as may be  necessary  to  keep  such
Registration  Statement  effective  for the time  period  prescribed  by Section
1.1(b);  and (iv) comply with the  provisions of the Securities Act with respect
to the  disposition of all  securities  covered by such  Registration  Statement
during such period in accordance with the intended methods of disposition by the
Investor set forth in such Registration Statement.

                  (b) The  Company  shall  file  all  necessary  amendments  and
supplements to any Registration  Statement in order to effectuate the purpose of
this Agreement and the Securities Purchase Agreement.

                  (c) No later than ten (10) days prior to filing any  amendment
or  supplement  to  the  Initial   Registration   Statement  or  any  subsequent
Registration  Statement or  prospectus,  or any amendment or supplement  thereto
(excluding,  in each  case,  amendments  deemed  to  result  from the  filing of
documents  incorporated  by reference  therein),  or such  shorter  period as is
reasonable  under the  circumstances,  the Company shall deliver to the Investor
and one firm of counsel representing the Investor, in accordance with the notice
provisions of Section 4.8, copies of such Registration  Statement as proposed to
be filed,  together with exhibits  thereto,  which  documents will be subject to
review by the Investor and such counsel,  and thereafter deliver to the Investor
and such counsel,  in accordance with the notice provisions of Section 4.8, such
number of copies of the  Registration  Statement,  each amendment and supplement
thereto (in each case including all exhibits thereto),  the prospectus  included
in such Registration Statement (including each preliminary  prospectus) and such
other documents or information as the Investor or counsel may reasonably request
in order to facilitate the disposition of the Registrable Securities.

                  (d) The Company shall deliver,  in accordance  with the notice
provisions of Section 4.8, to each seller of Registrable Securities covered by a
Registration  Statement  such number of  conformed  copies of such  Registration
Statement and of each amendment and  supplement  thereto (in each case including
all exhibits and documents incorporated by reference),  such number of copies of
the  prospectus   contained  in  any  Registration   Statement  (including  each
preliminary  prospectus  and any summary  prospectus)  and any other  prospectus
filed  under Rule 424  promulgated  under the  Securities  Act  relating to such
seller's Registrable  Securities,  and such other documents,  as such seller may
reasonably request to facilitate the disposition of its Registrable Securities.

                                       B-4
<PAGE>

                  (e) After the filing of a Registration Statement,  the Company
shall promptly notify the Investor of any stop order issued or threatened by the
SEC in connection  therewith and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.

                  (f) The Company shall use its commercially  reasonable efforts
to  (i)  register  or  qualify  the  Registrable  Securities  under  such  other
securities  or blue sky laws of such  jurisdictions  in the United States as the
Investor may  reasonably  request in light of its intended plan of  distribution
and (ii) cause the  Registrable  Securities to be registered with or approved by
such other  governmental  agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things  that may be  reasonably  necessary  or  advisable  to
enable the Investor to consummate the disposition of the Registrable  Securities
in light of its  intended  plan of  distribution;  provided,  however,  that the
Company  will  not be  required  to  qualify  generally  to do  business  in any
jurisdiction  where it would not  otherwise  be required to qualify but for this
paragraph (f), subject itself to taxation in any such  jurisdiction,  or consent
or subject itself to general service of process in any such jurisdiction.

                  (g) The Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of Registrable  Securities:  (i)
receipt  of any  request by the SEC or any other  federal or state  governmental
authority  for  additional  information,   amendments  or  supplements  to  such
Registration  Statement or related  prospectus;  (ii) the issuance by the SEC or
any other federal or state  governmental  authority of any stop order suspending
the  effectiveness  of  such  Registration  Statement  or  notification  of  the
initiation  of  any  proceedings   for  that  purpose;   (iii)  receipt  of  any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction  or the  initiation  or  threatening  of any  proceeding  for  such
purpose;  (iv) the happening of any event that makes any statement  made in such
Registration  Statement or related  prospectus or any document  incorporated  or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in such Registration Statement,  related
prospectus or documents so that, in the case of such Registration  Statement, it
will not contain any untrue  statement  of a material  fact or omit to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading,  in the light of the circumstances under which they were
made,  and that in the case of the related  prospectus,  it will not contain any
untrue  statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements  therein,  in the light
of the  circumstances  under which they were made, not  misleading;  and (v) the
Company's  reasonable  determination  that a  post-effective  amendment  to such
Registration Statement would be appropriate,  and the Company will promptly make
available  to the  Investor  any such  supplement  or  amendment  to the related
prospectus.

                                       B-5
<PAGE>

                  (h) The Company shall enter into customary agreements and take
such other customary actions as are reasonably  required in order to expedite or
facilitate  the  disposition  by the  Investor  of such  Registrable  Securities
(whereupon  the  Investor  may,  at its option,  require  that any or all of the
representations, warranties and covenants of the Company also be made to and for
the benefit of the Investor).

                  (i) The Company shall make available to the Investor (and will
deliver to Investor's  counsel),  subject to restrictions  imposed by the United
States federal  government or any agency or instrumentality  thereof,  copies of
all correspondence  between the SEC and the Company, its counsel or its auditors
and will also make  available  for  inspection by the Investor and any attorney,
accountant or other  professional  retained by the Investor  (collectively,  the
"Inspectors"),  all financial and other records,  pertinent  corporate documents
and  properties  of the  Company  (collectively,  the  "Records")  as  shall  be
reasonably   necessary   to  enable  them  to  exercise   their  due   diligence
responsibility,  and cause the  Company's  officers and  employees to supply all
information  reasonably  requested  by  any  Inspectors  in  connection  with  a
Registration Statement.  Records that the Company determines,  in good faith, to
be confidential and that it notifies the Inspectors are  confidential  shall not
be  disclosed by the  Inspectors  unless (i) the  disclosure  of such Records is
necessary  to avoid or correct a  misstatement  or omission in any  Registration
Statement  or (ii) the  disclosure  or release of such  Records is  requested or
required pursuant to oral questions,  interrogatories,  requests for information
or documents or a subpoena or other order from a court of competent jurisdiction
or other legal  process;  provided,  however,  that prior to any  disclosure  or
release  pursuant to clause (ii), the Inspectors  shall provide the Company with
prompt notice of any such request or requirement so that the Company may seek an
appropriate  protective  order  or  waive  such  Inspectors'  obligation  not to
disclose such Records;  and, provided,  further,  that if failing the entry of a
protective  order or the waiver by the  Company  permitting  the  disclosure  or
release of such Records,  the Inspectors,  upon advice of counsel, are compelled
to disclose  such  Records,  the  Inspectors  may  disclose  that portion of the
Records  that  counsel  has  advised  the  Inspectors  that the  Inspectors  are
compelled to disclose.  The Investor agrees that information obtained by it as a
result of such inspections (not including any information  obtained from a third
party who, insofar as is known to the Investor after reasonable  inquiry, is not
prohibited from providing such information by a contractual,  legal or fiduciary
obligation to the Company) shall be deemed confidential and shall not be used by
it as the basis for any market  transactions  in the  securities  of the Company
unless and until  such  information  has been made  generally  available  to the
public.  The Investor further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent  jurisdiction,  give notice to
the Company and allow the  Company,  at its expense,  to  undertake  appropriate
action to prevent disclosure of the Records deemed confidential.

                  (j) The Company  shall  otherwise  comply with all  applicable
rules and regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.

                                       B-6
<PAGE>

                  (k) The Company may require the  Investor to promptly  furnish
in  writing to the  Company  such  information  as may be  legally  required  in
connection  with  such  registration  including,  without  limitation,  all such
information as may be requested by the SEC or the NASD.  The Investor  agrees to
provide such information  requested in connection with such registration  within
five (5) calendar days after  receiving  such written  request,  or such shorter
period as is reasonable  under the  circumstances,  and the Company shall not be
responsible for any delays in obtaining or maintaining the  effectiveness of any
Registration  Statement caused by the Investor's  failure to timely provide such
information.

                  (l) The  Company  shall use its best  efforts  either:  (i) to
secure the  inclusion  for  quotation  on The  Nasdaq  Stock  Market  Inc.'s OTC
Bulletin Board Bulletin for such  Resgistrable  Securities,  or (ii) if, despite
the Company's  best efforts to satisfy the preceding  clause (i), the Company is
unsuccessful in satisfying the preceding clause (i), to secure the inclusion for
quotation in the "pink sheets" for such  Registrable  Securities,  and,  without
limiting the generality of the foregoing,  in the case of clause (i) or (ii), to
arrange for at least two market makers to register with the National Association
of Securities Dealers,  Inc. ("NASD"),  as such with respect to such Registrable
Securities.  The  Company  shall pay all fees and  expenses in  connection  with
satisfying its obligation under this Section 2(l).

         Section 2.2 Registration Expenses. In connection with each Registration
Statement,   the  Company  shall  pay  all  registration  expenses  incurred  in
connection  with the  registration  thereunder  (the  "Registration  Expenses"),
including, without limitation: (a) all registration, filing, securities exchange
listing  and  fees  required  by  the  NASD,  (b)  all   registration,   filing,
qualification  and other fees and expenses of compliance with securities or blue
sky  laws  (including  reasonable  fees and  disbursements  of  counsel  for the
Company), (c) all word processing, duplicating, printing, messenger and delivery
expenses,  (d) the Company's internal expenses  (including,  without limitation,
all salaries and expenses of its  officers  and  employees  performing  legal or
accounting duties), and (e) reasonable fees and disbursements of counsel for the
Company  and  customary  fees and  expenses  for  independent  certified  public
accountants retained by the Company; but excluding underwriting fees, discounts,
transfer  taxes  or  commissions,  if  any,  attributable  to  the  sale  of the
Registrable  Securities,  which shall be payable by each  holder of  Registrable
Securities pro rata on the basis of the number of Registrable Securities of each
holder that are included under this Agreement.

                                       B-7
<PAGE>

                                   ARTICLE III
                        INDEMNIFICATION AND CONTRIBUTION

         Section 3.1       Indemnification.

                  (a)  Indemnification  by the  Company.  The Company  agrees to
indemnify and hold harmless the Investor,  its partners,  Affiliates,  officers,
directors,  employees,  counsel and duly authorized  agents,  and each Person or
entity,  if any, who  controls the Investor  within the meaning of Section 15 of
the  Securities  Act or  Section  20 of the  Exchange  Act,  together  with  the
partners,   Affiliates,   officers,  directors,   employees,  counsel  and  duly
authorized  agents of such  controlling  Person or entity  (collectively,  the "
Controlling  Persons"),  from and against any loss,  claim,  damage,  liability,
costs and expenses (including,  without limitation,  reasonable  attorneys' fees
and disbursements and costs and expenses of investigating and defending any such
claim) (collectively, "Damages"), joint or several, and any action or proceeding
in respect thereof to which the Investor,  its partners,  Affiliates,  officers,
directors, employees and duly authorized agents, and any Controlling Person, may
become subject under the Securities  Act or otherwise,  as incurred,  insofar as
such Damages (or actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue  statement or alleged untrue statement of a material fact
contained in any Registration  Statement,  preliminary  prospectus or prospectus
relating to the Registrable  Securities or arises out of, or are based upon, any
omission or alleged  omission to state  therein a material  fact  required to be
stated  therein or necessary to make the  statements  therein not  misleading in
light of the  circumstances  under which they were made,  except  insofar as any
such untrue statement, alleged untrue statement, omission or alleged omission is
made in reliance upon and in conformity  with written  information  furnished to
the Company by the Investor which is  specifically  intended by the Investor for
use  in  the  preparation  of  any  such  Registration  Statement,   preliminary
prospectus  or  prospectus,  and shall  reimburse  the  Investor,  its partners,
Affiliates,  officers, directors, employees, counsel and duly authorized agents,
and each such Controlling  Person,  for any legal and other expenses  reasonably
incurred  by  the  Investor,  its  partners,  Affiliates,  officers,  directors,
employees,  counsel and duly authorized agents, or any such Controlling  Person,
as incurred,  in  investigating  or defending or preparing to defend against any
such  Damages or actions or  proceedings;  provided,  however,  that the Company
shall not be liable to the  Investor to the extent that any such  Damages  arise
out of or are based upon an untrue statement or omission made in any preliminary
prospectus  if (i) the  Investor  failed to send or  deliver a copy of the final
prospectus  delivered  by the  Company  to the  Investor  with or  prior  to the
delivery  of  written  confirmation  of the sale by the  Investor  to the Person
asserting the claim from which such Damages arise, and (ii) the final prospectus
would have corrected such untrue  statement or alleged untrue  statement or such
omission or alleged omission.

                                       B-8
<PAGE>

                  (b)  Indemnification  by the Investor.  The Investor agrees to
indemnify and hold harmless the Company,  its Affiliates,  officers,  directors,
employees,  counsel and duly authorized agents, and each Controlling  Persons of
the  Company,  from and against any and all Damages,  joint or several,  and any
action or  proceeding in respect  thereof to which the  Investor,  its partners,
Affiliates,  officers, directors, employees, counsel and duly authorized agents,
and any such Controlling  Person, may become subject under the Securities Act or
otherwise,  as incurred,  insofar as such Damages (or actions or  proceedings in
respect  thereof)  arise out of, or are based  upon,  any  untrue  statement  or
alleged  untrue  statement  of a material  fact  contained  in any  Registration
Statement,  preliminary  prospectus  or prospectus  relating to the  Registrable
Securities or arises out of, or are based upon, any omission or alleged omission
to state therein a material  fact required to be stated  therein or necessary to
make the statements  therein not misleading in light of the circumstances  under
which they were made,  but only to the extent  that any such  untrue  statement,
alleged untrue statement,  omission or alleged omission is made in reliance upon
and in  conformity  with  written  information  furnished  to the Company by the
Investor  which  is  specifically  intended  by  the  Investor  for  use  in the
preparation  of any  such  Registration  Statement,  preliminary  prospectus  or
prospectus, and shall reimburse the Company, its partners, Affiliates, officers,
directors,  employees,  counsel  and  duly  authorized  agents,  and  each  such
Controlling  Person, for any legal and other expenses reasonably incurred by the
Investor, its partners, Affiliates,  officers, directors, employees, counsel and
duly  authorized  agents,  or any  such  Controlling  Person,  as  incurred,  in
investigating  or defending  or preparing to defend  against any such Damages or
actions or proceedings.

         Section  3.2 Conduct of  Indemnification  Proceedings.  Promptly  after
receipt  by any person or entity in  respect  of which  indemnity  may be sought
pursuant to Section 3.1 (an  "Indemnified  Party") of notice of any claim or the
commencement of any action,  the Indemnified  Party shall, if a claim in respect
thereof is to be made against the person or entity  against whom such  indemnity
may be sought  (the  "Indemnifying  Party"),  notify the  Indemnifying  Party in
writing  of the  claim  or the  commencement  of such  action.  In the  event an
Indemnified Party shall fail to give such notice as provided in this Section 3.2
and the  Indemnifying  Party to whom  notice  was not given was  unaware  of the
proceeding  to which such notice  would have related and was  prejudiced  by the
failure to give such  notice,  the  indemnification  provided for in Section 3.1
shall be  reduced  to the extent of any  actual  prejudice  resulting  from such
failure to so notify the Indemnifying Party; provided, however, that the failure
to notify the Indemnifying  Party shall not relieve the Indemnifying  Party from
any liability  that it may have to an  Indemnified  Party  otherwise  than under
Section 3.1. If any such claim or action shall be brought against an Indemnified
Party,  and it shall notify the  Indemnifying  Party thereof,  the  Indemnifying
Party  shall be  entitled  to  participate  therein,  and, to the extent that it
wishes,  jointly with any other similarly notified Indemnifying Party, to assume
the defense  thereof with counsel  reasonably  satisfactory  to the  Indemnified
Party.  After notice from the Indemnifying Party to the Indemnified Party of its

                                       B-9
<PAGE>

election to assume the defense of such claim or action,  the Indemnifying  Party
shall  not be liable to the  Indemnified  Party for any legal or other  expenses
subsequently  incurred by the  Indemnified  Party in connection with the defense
thereof other than reasonable costs of investigation;  provided,  however,  that
the  Indemnified  Party  shall  have the right to  employ  separate  counsel  to
represent the Indemnified  Party and its Controlling  Persons who may be subject
to  liability  arising  out of any claim in  respect of which  indemnity  may be
sought by the Indemnified Party against the Indemnifying Party, but the fees and
expenses of such  counsel  shall be for the account of such  Indemnified  Party,
unless (i) the Indemnifying  Party and the Indemnified Party shall have mutually
agreed to the  retention of such counsel or (ii) in the  reasonable  judgment of
the Indemnifying Party and the Indemnified Party, representation of both parties
by the same counsel would be inappropriate due to actual or potential  conflicts
of interest between them, it being  understood,  however,  that the Indemnifying
Party shall not, in connection with any one such claim or action or separate but
substantially  similar  or related  claims or  actions in the same  jurisdiction
arising out of the same general allegations or circumstances,  be liable for the
fees and expenses of more than one separate  firm of  attorneys  (together  with
appropriate local counsel) at any time for all Indemnified  Parties, or for fees
and expenses that are not reasonable.  No Indemnifying Party shall,  without the
prior written  consent of the  Indemnified  Party,  effect any settlement of any
claim or pending or threatened  proceeding  in respect of which the  Indemnified
Party is or could have been a party and  indemnity  is sought  hereunder by such
Indemnified Party, unless such settlement  includes an unconditional  release of
such  Indemnified  Party  from  all  liability  arising  out of  such  claim  or
proceeding.  Whether or not the defense of any claim or action is assumed by the
Indemnifying Party, such Indemnifying Party will not be subject to any liability
for  any  settlement  made  without  its  consent,  which  consent  will  not be
unreasonably withheld.

         Section  3.3 Other  Indemnification.  Indemnification  similar  to that
specified in the  preceding  paragraphs  of this  Article III (with  appropriate
modifications)  shall be given  by the  Company  with  respect  to any  required
registration or other qualification of securities under any federal or state law
or regulation of any  governmental  authority other than the Securities Act. The
provisions  of this  Article  III shall be in  addition  to any other  rights to
indemnification,  contribution or other remedies which an Indemnified  Party may
have pursuant to law, equity, contract or otherwise.

         Section 3.4  Contribution.  If the  indemnification  and  reimbursement
obligations  provided for in any section of this Article III is  unavailable  or
insufficient to hold harmless the Indemnified  Parties in respect of any Damages
referred to herein,  then the Indemnifying  Party, in lieu of indemnifying  such
Indemnified  Party,  shall  contribute  to the  amount  paid or  payable by such
Indemnified  Party as a result of such Damages as between the Company on the one
hand and the Investor on the other,  in such  proportion  as is  appropriate  to
reflect the relative fault of the Company and of the Investor in connection with
such  statements or omissions,  as well as other equitable  considerations.  The
relative  fault of the Company on the one hand and of the  Investor on the other
shall be determined  by reference to, among other things,  whether the untrue or
alleged untrue  statement of a material fact or the omission or alleged omission
to state a material fact relates to information  supplied by such party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent such statement or omission.

                                      B-10
<PAGE>

         The  Company  and the  Investor  agree  that it  would  not be just and
equitable if  contribution  pursuant to this Section 3.4 were  determined by pro
rata  allocation or by any other method of allocation that does not take account
of  the  equitable  considerations  referred  to in  the  immediately  preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
Damages  referred to in the immediately  preceding  paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably  incurred by such Indemnified Party in connection with  investigating
or defending any such action or claim.  Notwithstanding  the  provisions of this
Section 3.4, the Investor shall in no event be required to contribute any amount
in excess  of the  amount  by which  the  total  price at which the  Registrable
Securities of the Investor were sold to the public (less underwriting  discounts
and  commissions)  exceeds  the amount of any  damages  which the  Investor  has
otherwise  been  required  to pay by reason of such  untrue  or  alleged  untrue
statement  or  omission  or alleged  omission.  No Person  guilty of  fraudulent
misrepresentation  (within the meaning of Section 11(f) of the  Securities  Act)
shall be  entitled  to  contribution  from any Person who was not guilty of such
fraudulent misrepresentation.

                                   ARTICLE IV
                                  MISCELLANEOUS

         Section 4.1 No Outstanding  Registration Rights. The Company represents
and warrants to the Investor  that there is not in effect on the date hereof any
agreement  by the Company  pursuant to which any  holders of  securities  of the
Company have a right to cause the Company to register or qualify such securities
under the Securities Act or any securities or blue sky laws of any jurisdiction,
except  for  piggyback  registration  rights  granted  to the  holders  of three
convertible  notes in the aggregate  amount of $250,000 issued to Mr. James K.T.
Lu, Balmore Funds and Mr. Jeffrey I. Schillen which notes are  convertible  into
5,000,000 shares of Common Stock of the Company.

         Section  4.2  Term.  The  obligations  of the  Company  and the  rights
provided to the holders of Registrable  Securities  hereunder shall terminate at
such time as all  Registrable  Securities have been issued and have ceased to be
Registrable Securities.  Notwithstanding the foregoing,  Section 1.1(c) and (d),
Article  III,  Section  4.8, and Section 4.9 shall  survive the  termination  or
expiration of this Agreement.

         Section 4.3 Rule 144. The Company will use its commercially  reasonable
efforts  to file in a  timely  manner  information,  documents  and  reports  in
compliance  with  the  Securities  Act and the  Exchange  Act and  will,  at its
expense,  promptly take such further action as holders of Registrable Securities
may reasonably request to enable such holders of Registrable  Securities to sell
Registrable  Securities without registration under the Securities Act within the
limitation of the  exemptions  provided by (a) Rule 144 under the Securities Act
("Rule 144"),  as such Rule may be amended from time to time, or (b) any similar

                                      B-11
<PAGE>

rule or regulation  hereafter  adopted by the SEC. If at any time the Company is
not required to file such reports,  it will, at its expense,  forthwith upon the
written request of any holder of Registrable Securities, make available adequate
current  public  information  with respect to the Company  within the meaning of
paragraph  (c)(2) of Rule 144 or such other  information  as necessary to permit
sales  pursuant to Rule 144. Upon the request of the Investor,  the Company will
deliver to the Investor a written statement,  signed by the Company's  principal
executive  or  financial  officer,  as to  whether  it has  complied  with  such
requirements.

         Section 4.4  Certificate.  The Company will, at its expense,  forthwith
upon the request of any holder of Registrable Securities, deliver to such holder
a certificate,  signed by the Company's principal financial officer, stating (a)
the Company's name,  address and telephone number (including area code), (b) the
Company's Internal Revenue Service  identification number, (c) the Company's SEC
file number, (d) the number of shares of each class of capital stock outstanding
as shown by the most recent  report or statement  published by the Company,  and
(e) whether  the  Company  has filed the reports  required to be filed under the
Exchange Act for a period of at least ninety (90) days prior to the date of such
certificate  and in addition has filed the most recent annual report required to
be filed thereunder.

         Section 4.5 Amendment and Modification.  No provision of this Agreement
may be waived,  unless  such  waiver is set forth in a writing  executed by both
parties to this  Agreement.  The  provisions  of this  Agreement,  including the
provisions of this sentence, may not be amended,  modified or supplemented,  and
waivers or consents to departures  from the provisions  hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable  Securities.  Notwithstanding the foregoing,
the  waiver of any  provision  hereof  with  respect  to a matter  that  relates
exclusively to the rights of holders of Registrable  Securities whose securities
are being sold  pursuant to a  Registration  Statement  and does not directly or
indirectly  affect the rights of other holders of Registrable  Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such  holders;  provided  that the  provisions  of this  sentence  may not be
amended,  modified or  supplemented  except in accordance with the provisions of
the immediately  preceding  sentence.  No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this  Agreement or any rights or  obligations  of
any person under or by reason of this Agreement.

         Section 4.6 Successors and Assigns;  Entire  Agreement.  This Agreement
and all of the provisions  hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns. The
Investor may assign its rights under this Agreement to any subsequent  holder of
the  Registrable  Securities,  provided that the Company shall have the right to
require any holder of  Registrable  Securities to execute a counterpart  of this
Agreement as a condition to such holder's  claim to any rights  hereunder.  This
Agreement,  together  with the  Securities  Purchase  Agreement,  sets forth the
entire agreement and understanding  between the parties as to the subject matter
hereof  and  merges  and  supersedes  all  prior  discussions,   agreements  and
understandings of any and every nature among them.

                                      B-12
<PAGE>

         Section  4.7  Severability.  In the event  that any  provision  of this
Agreement  becomes or is declared  by a court of  competent  jurisdiction  to be
illegal,  unenforceable or void, this Agreement shall continue in full force and
effect  without  said  provision;  provided  that  such  severability  shall  be
ineffective if it materially  changes the economic  benefit of this Agreement to
any party.

         Section  4.8  Notices.  All  notices,  demands,   requests,   consents,
approvals,  and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein,  shall be (a) personally served,
(b) deposited in the mail,  registered or certified,  return receipt  requested,
postage  prepaid,  (c) delivered by reputable  air courier  service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile,  addressed
as set forth below or to such other  address as such party shall have  specified
most  recently by written  notice given in  accordance  herewith.  Any notice or
other communication  required or permitted to be given hereunder shall be deemed
effective  (i) upon hand  delivery  or  delivery  by  facsimile,  with  accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours where such notice is to be  received)  or (ii) on the second  business day
following  the date of  mailing  by  express  courier  service  or on the  fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address,  or upon actual receipt of such mailing,  whichever shall first
occur. The addresses for such communications shall be:

       If to the Company, to:             Diamond Entertainment Corporation
                                          800 Tucker Lane
                                          Walnut, CA 81709
                                          Attention:        President
                                          Telephone:        (909) 839-1989
                                          Facsimile:        (909) 869-1990

       With a copy(which shall not
       constitute notice), to:            De Martino Finkelstein Rosen & Virga
                                          1818 N Street, N.W.
                                          Suite 400
                                          Washington, D.C. 20036
                                          Attention:        Neil R.E. Carr, Esq.
                                          Telephone:        (202) 659-0494
                                          Facsimile:        (202) 659-1290

       If to the Investor, to:            ---------------------------------
                                          ---------------------------------
                                          ---------------------------------
                                          ---------------------------------
                                          Attention:
                                          Telephone:        (---) --------
                                          Facsimile:        (---) --------

                                      B-13
<PAGE>

         Either  party  hereto  may from  time to time  change  its  address  or
facsimile  number for notices under this Section 4.8 by giving at least ten (10)
days' prior written  notice of such changed  address or facsimile  number to the
other party hereto.

         Section  4.9  Governing  Law,  Jurisdiction.  This  Agreement  shall be
governed by and interpreted in accordance with the laws of the State of New York
without  regard to the principles of conflicts of law. The parties hereto hereby
submit to the  exclusive  jurisdiction  of the United  States  Federal and state
courts located in New York,  New York with respect to any dispute  arising under
this  Agreement,  the  agreements  entered  into in  connection  herewith or the
transactions contemplated hereby or thereby.

         Section 4.10 Title and Subtitles. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.

         Section 4.11  Counterparts.  This Agreement may be executed in multiple
counterparts,  each of which may be executed by less than all of the parties and
shall be deemed to be an original  instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute  one and the same  instrument.  This  Agreement,  once  executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.

         Section 4.12 Further  Assurances.  Each party shall do and perform,  or
cause to be done and  performed,  all such  further  acts and things,  and shall
execute and deliver all such other  agreements,  certificates,  instruments  and
documents,  as the other party may reasonably  request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

         Section  4.13  No  Strict  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 rules of strict construction will be applied against
any party.

            (THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.)

                                      B-14
<PAGE>

         IN WITNESS  WHEREOF,  the parties hereto have caused this  Registration
Rights Agreement to be executed by the  undersigned,  thereunto duly authorized,
as of the date first set forth above.

                  DIAMOND ENTERTAINMENT CORPORATION

                  By:      ----------------------------------------------
                           Name:    James K. T. Lu
                           Title:   President and Chief Executive Officer

                           ----------------------------------------------
                                         [Name of Investor]

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

                                      B-15

<PAGE>

                                    EXHIBIT C

                              AMENDED AND RESTATED
                                ESCROW AGREEMENT

         THIS ESCROW  AGREEMENT  (this  "Agreement")  is made and  entered  into
effective as of April 14, 2000, by and May Davis Group,  a Maryland  corporation
(the  "Placement  Agent"),  Diamond  Entertainment  Corporation,  a  New  Jersey
Corporation (the  "Company"),  and First Union National Bank, a national banking
association, as Escrow Agent hereunder (the "Escrow Agent").

                                   BACKGROUND

         WHEREAS,  the  Company  and the  Placement  Agent have  entered  into a
Placement Agency Agreement (the "Placement Agency Agreement"), dated as of April
14, 2000 as amended, pursuant to which the Company proposes to offer for sale to
investors ("Investors") through the Placement Agent on a "best efforts" basis up
to 50  Shares  of  Series  A  Preferred  Stock,  no par  value  per  share  (the
"Securities")  resulting in gross proceeds to the Company of up to $500,000 (the
"Proceeds").  The Securities will be sold to investors  pursuant to a Securities
Purchase Agreement (the "Securities Purchase Agreement") between the Company and
each Investor listed on Schedule I thereto.  The Securities  Purchase  Agreement
provides that the Investor  shall deposit the purchase  price of the  Securities
purchased  pursuant to the Securities  Purchase Agreement in a segregated escrow
account to be held by Escrow Agent in order to effectuate a disbursement  of the
proceeds to the  Company at one or more  closings to be held as set forth in the
Securities Purchase Agreement. (the "Closing")

         WHEREAS,  the  Placement  Agent  intends to sell the  Securities as the
Company's agent on a "best efforts" basis (the "Offering").

         WHEREAS,  Escrow  Agent has agreed to accept,  hold,  and  disburse the
funds deposited with it in accordance with the terms of this agreement .

         WHEREAS,  in order to  establish  the escrow of funds and to effect the
provisions of the Securities Purchase Agreement, the parties hereto have entered
into this Agreement.

         NOW THEREFORE,  in consideration of the foregoing,  it is hereby agreed
as follows:

1. Definitions.  The following terms shall have the following meanings when used
herein:

         a. "Escrow Funds" shall mean the funds  deposited with the Escrow Agent
pursuant to this Agreement,  which funds shall include, without limitation,  the
sum of up to $500,000.

                                      C-1
<PAGE>

         b. "Joint Written Direction" shall mean a written direction executed by
the Placement Agent and the Company  directing Escrow Agent to disburse all or a
portion  of the  Escrow  Funds or to take or  refrain  from  taking  any  action
pursuant to this Agreement.

         c. "Escrow  Period" shall begin with the  commencement  of the Offering
and shall terminate upon the earlier to occur of the following dates:

         (i) The date  upon  which the  Escrow  Agent  disburses  at one or more
closings from the Escrow Account all $500,000 of the Proceeds;

         (ii)  The  expiration  of  twenty-six   (26)  days  from  the  date  of
commencement  of the  Offering  (unless  extended  by mutual  written  agreement
between the Company and the Placement Agent with a copy of such extension to the
Escrow Agent); or

         (iii) The date upon which a  determination  is made by the  Company and
the  Placement  Agent to  terminate  the  Offering  prior to the sale of all the
Securities.

During the Escrow  Period,  the Company and the  Placement  Agent are aware that
they are not entitled to any funds received into escrow and no amounts deposited
in the Escrow  Account shall become the property of the Company or the Placement
Agent or any other  entity,  or be  subject  to the debts of the  Company or the
Placement Agent or any other entity.

2.  Appointment of and Acceptance by Escrow Agent.  The Placement  Agent and the
Company hereby appoint Escrow Agent to serve as Escrow Agent  hereunder.  Escrow
Agent hereby accepts such  appointment and, upon receipt by wire transfer of the
Escrow  Funds in  accordance  with Section 3 below,  agrees to hold,  invest and
disburse the Escrow Funds in accordance with this Agreement.

3. Creation of Escrow Funds. On or prior to the date of the  commencement of the
Offering,  the parties shall  establish an escrow account with the Escrow Agent,
which  escrow  account  shall be  entitled  as  follows:  Diamond  Entertainment
Corporation/May  Davis Group,  Inc. Escrow Account for the deposit of the Escrow
Funds.  The  Placement  Agent  will  instruct  subscribers  to wire funds to the
account of the Escrow Agent as follows:

Bank: First Union National Bank of New Jersey
Routing # 031201467
Account # 2020000659170
Name on Account: Butler Gonzalez, LLP/First Union Escrow Account
Name on Sub-Account:  Diamond Entertainment Corporation/May Davis Group, Inc.
                               Escrow account
Reference Sub-Account # 1077-00
Attn:    Robert Mercado (732) 452-3005
         Carmela Agugliaro (732) 452-3005

                                      C-2
<PAGE>

         4. Deposits into the Escrow Account. The Placement Agent agrees that it
shall promptly  deliver all monies received from  subscribers for the payment of
the Securities to the Escrow Agent for deposit in the Escrow Account.

         5. Disbursements from the Escrow Account.

         (a)  At  such  time  as  Escrow  Agent  has   collected  and  deposited
instruments  of payment  with regard to the purchase of the  Securities,  Escrow
Agent shall notify the Company and the  Placement  Agent.  The Escrow Agent will
continue to hold such funds until  Placement  Agent and Company  execute a Joint
Written  Direction  directing the Escrow Agent to disburse the Proceeds pursuant
to a closing  statement  signed by the Company (the  "Closing  Statement").  The
Proceeds may be  disbursed in one or more  closings to be held from time to time
during the offering period. In disbursing such funds, Escrow Agent is authorized
to rely upon such Closing  Statement  from Company and may accept any  signatory
from  the  Company  listed  on the  signature  page  to this  Agreement  and any
signature from the Placement Agent that Escrow Agent already has on file.

         For purposes of this Agreement,  the term "collected  funds" shall mean
all funds  received  by the Escrow  Agent  which  have  cleared  normal  banking
channels and are in the form of cash.

         6.  Collection  Procedure.  The Escrow  Agent is hereby  authorized  to
forward each  instrument  or wire for  collection  and,  upon  collection of the
proceeds of each instrument or wire deposit the collected proceeds in the Escrow
Account.

         Any  checks or wires  returned  unpaid  to the  Escrow  Agent  shall be
returned to the Placement  Agent. In such cases,  the Escrow Agent will promptly
notify the Company for such return.

         If the Company rejects any  subscription for which the Escrow Agent has
already collected funds, the Escrow Agent shall promptly issue a refund check or
wire to the rejected  subscriber.  If the Company rejects any  subscription  for
which  the  Escrow  Agent has not yet  collected  funds  but has  submitted  the
subscriber's wire for collection,  the Escrow Agent shall promptly issue a check
or wire the amount of the subscriber's wire to the rejected subscriber after the
Escrow  Agent has  cleared  such  funds.  The  purchase  money  returned to each
subscriber  shall be free and clear of any and all  claims of the  Company,  the
Placement  Agent or any of their  creditors.  If the  Escrow  Agent  has not yet
submitted a rejected  subscriber's  wire for collection,  the Escrow Agent shall
promptly remit the  subscriber's  wire directly to the  subscriber.  The Company
shall provide payment instructions to the Escrow Agent.

                                      C-3
<PAGE>

         7. Suspension of Performance:  Disbursement Into Court. If at any time,
there shall exist any dispute  between the Company and the Placement  Agent with
respect to  holding or  disposition  of any  portion of the Escrow  Funds or any
other  obligations of Escrow Agent hereunder,  or if at any time Escrow Agent is
unable to determine, to Escrow Agent's sole satisfaction, the proper disposition
of any portion of the Escrow Funds or Escrow Agent's proper actions with respect
to its obligations  hereunder,  or if the parties have not within 30 days of the
furnishing  by Escrow  Agent of a notice of  resignation  pursuant  to Section 9
hereof,  appointed a successor Escrow Agent to act hereunder,  then Escrow Agent
may, in its sole discretion, take either or both of the following actions:

          a.   suspend  the  performance  of any of its  obligations  (including
               without  limitation  any  disbursement  obligations)  under  this
               Escrow  Agreement  until  such  dispute or  uncertainty  shall be
               resolved  to the sole  satisfaction  of  Escrow  Agent or until a
               successor  Escrow Agent shall be appointed  (as the case may be);
               provided  however,  Escrow  Agent  shall  continue  to invest the
               Escrow Funds in accordance with Section 9 hereof; and/or

          b.   petition  (by  means  of an  interpleader  action  or  any  other
               appropriate  method) any court of competent  jurisdiction  in any
               venue convenient to Escrow Agent,  for instructions  with respect
               to such  dispute or  uncertainty,  and to the extent  required by
               law,  pay  into  such  court,  for  holding  and  disposition  in
               accordance with the instructions of such court, all funds held by
               it in the Escrow  Funds,  after  deduction  and payment to Escrow
               Agent  of all  fees  and  expenses  (including  court  costs  and
               attorneys'  fees)  payable  to,  incurred  by, or  expected to be
               incurred by Escrow Agent in connection  with  performance  of its
               duties and the exercise of its rights hereunder.

          c.   Escrow  Agent  shall  have  no  liability  to  the  Company,  the
               Placement   Agent,  or  any  person  with  respect  to  any  such
               suspension   of   performance   or   disbursement   into   court,
               specifically  including any liability or claimed  liability  that
               may arise, or be alleged to have arisen, our of or as a result of
               any delay in the  disbursement  of funds held in the Escrow Funds
               or any delay in with  respect  to any other  action  required  or
               requested of Escrow Agent.

         8.  Investment  of Escrow  Funds.  The Escrow  Agent shall  deposit the
Escrow Funds in a non interest bearing money market account.

         If Escrow Agent has not received a Joint Written  Direction at any time
that an investment  decision must be made,  Escrow Agent shall invest the Escrow
Fund, or such portion thereof,  as to which no Joint Written  Direction has been
received,  in investments  described above. The foregoing  investments  shall be
made by the Escrow Agent.  Notwithstanding  anything to the contrary  contained,

                                      C-4
<PAGE>

Escrow Agent may,  without  notice to the parties,  sell or liquidate any of the
foregoing  investments at any time if the proceeds  thereof are required for any
release of funds permitted or required hereunder,  and Escrow Agent shall not be
liable or responsible for any loss, cost or penalty resulting from any such sale
or  liquidation.  With respect to any funds received by Escrow Agent for deposit
into the Escrow Funds or any Joint  Written  Direction  received by Escrow Agent
with respect to  investment  of any funds in the Escrow Funds after ten o'clock,
a.m., New York, New York time, Escrow Agent shall not be required to invest such
funds or to effect  such  investment  instruction  until the next day upon which
banks in New Jersey are open for business.

         9.  Resignation  and Removal of Escrow  Agent.  Escrow Agent may resign
from the  performance  of its  duties  hereunder  at any time by giving ten (10)
days' prior  written  notice to the  parties or may be removed,  with or without
cause, by the parties,  acting jointly,  by furnishing a Joint Written Direction
to Escrow  Agent,  at any time by the  giving of ten (10)  days'  prior  written
notice  to  Escrow  Agent as  provided  herein  below.  Upon any such  notice of
resignation  or removal,  the  representatives  of the  Placement  Agent and the
Company  identified  in Sections  13a.(iv) and  13b.(iv),  below,  jointly shall
appoint a successor  Escrow Agent  hereunder,  which shall be a commercial bank,
trust company or other financial institution with a combined capital and surplus
in excess of  $10,000,000.00.  Upon the acceptance in writing of any appointment
of Escrow Agent  hereunder by a successor  Escrow Agent,  such successor  Escrow
Agent shall thereupon succeed to and become vested with all the rights,  powers,
privileges  and duties of the retiring  Escrow  Agent,  and the retiring  Escrow
Agent  shall be  discharged  from its duties and  obligations  under this Escrow
Agreement,  but shall not be discharged  from any liability for actions taken as
Escrow Agent  hereunder  prior to such  succession.  After any  retiring  Escrow
Agent's  resignation or removal,  the provisions of this Escrow  Agreement shall
inure to its benefit as to any actions  taken or omitted to be taken by it while
it was Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall
transmit all records pertaining to the Escrow Funds and shall pay all funds held
by it in the Escrow Funds to the successor Escrow Agent,  after making copies of
such records as the retiring  Escrow Agent deems  advisable and after  deduction
and payment to the retiring  Escrow  Agent of all fees and  expenses  (including
court costs and  attorneys'  fees)  payable to,  incurred  by, or expected to be
incurred by the retiring  Escrow Agent in connection with the performance of its
duties and the exercise of its rights hereunder.

     10.  Liability of Escrow Agent.

     a. Escrow Agent shall have no liability or  obligation  with respect to the
Escrow Funds except for Escrow Agent's willful  misconduct or gross  negligence.
Escrow Agent's sole responsibility shall be for the safekeeping, investment, and
disbursement of the Escrow Funds in accordance with the terms of this Agreement.
Escrow  Agent  shall  have no  implied  duties or  obligations  and shall not be
charged with knowledge or notice o any fact or circumstance not specifically set
forth herein. Escrow Agent may rely upon any instrument,  not only as to its due

                                      C-5
<PAGE>

execution, validity and effectiveness,  but also as to the truth and accuracy of
any  information  contained  therein,  which  Escrow  Agent  shall in good faith
believe to be genuine, to have been signed or presented by the person or parties
purporting to sign the same and conform to the provisions of this Agreement.  In
no event  shall  Escrow  Agent be  liable  for  incidental,  indirect,  special,
consequential or punitive  damages.  Escrow Agent shall not be obligated to take
any legal action or commence any proceeding in connection with the Escrow Funds,
any  account  in  which  Escrow  Funds  are  deposited,  this  Agreement  or the
Securities  Purchase  Agreement,  or to appear in,  prosecute or defend any such
legal action or proceeding.  Escrow Agent may consult legal counsel  selected by
it in any event of any  dispute or  question  as to  construction  of any of the
provisions hereof or of any other agreement or its duties hereunder, or relating
to any dispute  involving  any party  hereto,  and shall incur no liability  and
shall be fully indemnified from any liability whatsoever in acting in accordance
with the opinion or instructions of such counsel.  The Company and the Placement
Agent jointly and severally shall promptly pay, upon demand, the reasonable fees
and expenses of any such counsel.

     b. The Escrow Agent is hereby authorized, in its sole discretion, to comply
with orders  issued or process  entered by any court with  respect to the Escrow
Funds, without determination by the Escrow Agent of such court's jurisdiction in
the  matter.  If any  portion  of the  Escrow  Funds  is at any  time  attached,
garnished  or  levied  upon  under  any  court  order,  or in case the  payment,
assignment,  transfer,  conveyance  or  delivery of any such  property  shall be
stayed or  enjoined  by any court  order,  or in any case any order  judgment or
decree shall be made or entered by any court  affecting such property or ay part
thereof, then and in any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ judgment or decree
which it is advised by legal  counsel  selected by its binding  upon without the
need for appeal or other action;  and if the Escrow Agent complies with any such
order,  writ,  judgment or decree,  it shall not be liable to any of the parties
hereto or to any other person or entity by reason of such compliance even though
such order,  writ  judgment or decree may be  subsequently  reversed,  modified,
annulled, set aside or vacated.

     11.  Indemnification  of Escrow Agent. From and at all times after the date
of this  Agreement,  the parties  jointly and severally,  shall,  to the fullest
extent  permitted by law and to the extent provided  herein,  indemnify and hold
harmless Escrow Agent and each director, officer, employee,  attorney, agent and
affiliate of Escrow Agent (collectively,  the "Indemnified Parties") against any
and all actions,  claims (whether or not valid), losses,  damages,  liabilities,
costs  and  expenses  of  any  kind  or  nature  whatsoever  (including  without
limitation  reasonable  attorney's  fees,  costs and  expenses)  incurred  by or
asserted against any of the Indemnified  Parties from and after the date hereof,
whether direct, indirect or consequential,  as a result of or arising from or in
any way relating to any claim,  demand,  suit, action, or proceeding  (including
any inquiry or  investigation) by any person,  including without  limitation the
parties to this Agreement,  whether  threatened or initiated,  asserting a claim

                                      C-6
<PAGE>

for any legal or  equitable  remedy  against  any  person  under any  statute or
regulation, including, but not limited to, any federal or state securities laws,
or under any common law or  equitable  cause or  otherwise,  arising  from or in
connection with the negotiation,  preparation, execution, performance or failure
of performance of this Agreement or any transaction contemplated herein, whether
or not any such  Indemnified  Party is a party to any such action or proceeding,
suit or the target of any such inquiry or investigation; provided, however, that
no  Indemnified  Party  shall  have the right to be  indemnified  hereunder  for
liability finally determined by a court of competent jurisdiction, subject to no
further  appeal,  to have resulted  solely from the gross  negligence or willful
misconduct  of such  Indemnified  Party.  If any such  action or claim  shall be
brought or asserted against any Indemnified  Party, such Indemnified Party shall
promptly notify the Company and the Placement  Agent  hereunder in writing,  and
the Placement Agent and the Company shall assume the defense thereof,  including
the  employment  of counsel and the payment of all  expenses.  Such  Indemnified
Party shall, in its sole  discretion,  have the right to employ separate counsel
(who may be selected by such  Indemnified  Party in its sole  discretion) in any
such action and to participate  and to participate in the defense  thereof,  and
the fees and expenses of such counsel shall be paid by such  Indemnified  Party,
except that the Placement Agent and/or the Company shall be required to pay such
fees and expense if (a) the  Placement  Agent or the  Company  agree to pay such
fees and expenses,  or (b) the Placement  Agent and/or the Company shall fail to
assume the  defense of such  action or  proceeding  or shall  fail,  in the sole
discretion of such  Indemnified  Party,  to employ counsel  satisfactory  to the
Indemnified Party in any such action or proceeding,  (c) the Placement Agent and
the Company is the  plaintiff in any such action or  proceeding or (d) the named
or potential parties to any such action or proceeding (including any potentially
impleaded  parties)  include  both  Indemnified  Party the  Company  and/or  the
Placement Agent  Indemnified Party shall have been advised by counsel that there
may be one or more legal  defenses  available to it which are different  from or
additional  to those  available  to the  Company  or the  Placement  Agent.  The
Placement  Agent and the Company  shall be jointly and  severally  liable to pay
fees and expenses of counsel pursuant to the preceding sentence, except that any
obligation  to pay under  clause (a) shall apply only to the party so  agreeing.
All such fees and expenses  payable by the Company  and/or the  Placement  Agent
pursuant to the foregoing  sentence shall be paid from time to time as incurred,
both in advance of and after the final  disposition of such action or claim. The
obligations  of the parties under this section shall survive any  termination of
this  Agreement,  and  resignation  or  removal  of the  Escrow  Agent  shall be
independent of any obligation of Escrow Agent.

     The parties  agree that  neither  payment by the  Company or the  Placement
Agent of any claim by Escrow Agent for  indemnification  hereunder shall impair,
limit,  modify, or affect,  as between the Placement Agent and the Company,  the
respective  rights and obligations of Placement  Agent, on the one hand, and the
Company, on the other hand, under the Placement Agency Agreement.

                                      C-7
<PAGE>

     12. Expenses of Escrow Agent.  The Company shall reimburse Escrow Agent for
all of its reasonable  out-of-pocket expenses,  including attorneys fees, travel
expenses, telephone and facsimile transmission costs, postage (including express
mail and overnight delivery  charges),  copying charges and the like. All of the
compensation  and  reimbursement  obligations set forth in this Section shall be
payable by the Company,  upon demand by Escrow  Agent.  The  obligations  of the
Company under this Section shall survive any  termination  of this Agreement and
the resignation or removal of Escrow Agent.

     13. Warranties.

     a. Placement  Agent makes the following  representations  and warranties to
Escrow Agent:

                  (i)  Placement  Agent  and has full  power  and  authority  to
                  execute and deliver this Escrow  Agreement  and to perform its
                  obligations hereunder.

                  (ii)  This  Escrow  Agreement  has been duly  approved  by all
                  necessary  corporate action of Placement Agent,  including any
                  necessary  shareholder  approval,  has been  executed  by duly
                  authorized  officers of the Placement  Agent,  enforceable  in
                  accordance with its terms.

                  (iii)  The  execution,   delivery,   and  performance  of  the
                  Placement  Agent of this Agreement will not violate,  conflict
                  with,   or  cause  a   default   under  the   certificate   of
                  incorporation or bylaws of Placement Agent, any applicable law
                  or  regulation,  any court order or  administrative  ruling or
                  degree to which the  Placement  Agent is a party or any of its
                  property is subject, or any agreement, contract, indenture, or
                  other binding arrangement.

                  (iv)  Michael  Jacobs  has been duly  appointed  to act as the
                  representative  of the Placement  Agent hereunder and has full
                  power and  authority  to execute,  deliver,  and perform  this
                  Escrow  Agreement,  to execute and  deliver any Joint  Written
                  Direction,  to amend,  modify,  or waive any provision of this
                  Agreement,  and to  take  any  and all  other  actions  as the
                  Placement  Agent's  representative  under this Agreement,  all
                  without  further  consent or direction form, or notice to, the
                  Placement Agent or any other party.

                  (v) No party other than the parties  hereto and the  Investors
                  have, or shall have, any lien,  claim or security  interest in
                  the Escrow Funds or any part thereof.  No financing  statement
                  under  the  Uniform   Commercial   Code  is  on  file  in  any
                  jurisdiction  claiming a security  interest  in or  describing
                  (whether  specifically  or generally)  the Escrow Funds or any
                  part thereof.

                                      C-8
<PAGE>

                  (vi)  All  of  the   representations  and  warranties  of  the
                  Placement Agent  contained  herein are true and complete as of
                  the date  hereof and will be true and  complete at the time of
                  any disbursement from the Escrow Funds.

     b. The Company makes the following representations and warranties to Escrow
Agent:

                  (i) The  Company  is a  corporation  duly  organized,  validly
                  existing,  and in good standing under the laws of the State of
                  New Jersey,  and has full power and  authority  to execute and
                  deliver this Escrow  Agreement and to perform its  obligations
                  hereunder.

                  (ii)  This  Escrow  Agreement  has been duly  approved  by all
                  necessary  corporate  action  of the  Company,  including  any
                  necessary  shareholder  approval,  has been  executed  by duly
                  authorized officers of the Company,  enforceable in accordance
                  with its terms.

                  (iii) The execution,  delivery, and performance by the Company
                  of this Escrow  Agreement is in accordance with the Securities
                  Purchase  Agreement  and will not violate,  conflict  with, or
                  cause a default  under the  certificate  of  incorporation  or
                  bylaws of the Company,  any applicable law or regulation,  any
                  court  order or  administrative  ruling or decree to which the
                  Company is a party or any of its  property is subject,  or any
                  agreement,  contract, indenture, or other binding arrangement,
                  including  without  limitation  to  the  Securities   Purchase
                  Agreement,  to which the Company is a party or any of its land
                  is subject.

                  (iv) James K.T. Lu and/or Fred Odaka have been duly  appointed
                  to act as the  representatives  of the Company  hereunder  and
                  have   individually  full  power  and  authority  to  execute,
                  deliver,  and perform  this Escrow  Agreement,  to execute and
                  deliver any Joint Written Direction, to amend, modify or waive
                  any provision of this  Agreement and to take all other actions
                  as the  Company's  Representative  under this  Agreement,  all
                  without  further  consent or direction from, or notice to, the
                  Company or any other party.

                  (v) No party other than the parties  hereto and the  Investors
                  have, or shall have, any lien,  claim or security  interest in
                  the Escrow Funds or any part thereof.  No financing  statement
                  under  the  Uniform   Commercial   Code  is  on  file  in  any
                  jurisdiction  claiming a security  interest  in or  describing
                  (whether  specifically  or generally)  the Escrow Funds or any
                  part thereof.

                                      C-9
<PAGE>

                  (vi) All of the  representations and warranties of the Company
                  contained  herein are true and  complete as of the date hereof
                  and will be true and complete at the time of any  disbursement
                  from the Escrow Funds.

     14. Consent to  Jurisdiction  and Venue. In the event that any party hereto
commences  a  lawsuit  or other  proceeding  relating  to or  arising  from this
Agreement,  the parties  hereto agree that the United States  District Court for
the District of New Jersey shall have the sole and exclusive  jurisdiction  over
any  such   proceeding.   If  all  such  courts  lack  federal   subject  matter
jurisdiction,  the parties agree that the Superior Court Division of New Jersey,
Chancery  Division of Essex County shall have sole and  exclusive  jurisdiction.
Any of these  courts  shall be proper  venue for any such  lawsuit  or  judicial
proceeding and the parties hereto waive any objection to such venue. The parties
hereto consent to and agree to submit to the  jurisdiction  of any of the courts
specified  herein  and agree to accept the  service of process to vest  personal
jurisdiction over them in any of these courts.

     15.  Notice.  All notices and other  communications  hereunder  shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mails, by certified mail with return
receipt requested and postage prepaid,  when delivered  personally,  one (1) day
delivered  to  any  overnight   courier,   or  when   transmitted  by  facsimile
transmission and addressed to the party to be notified as follows:

                  If to Placement Agent, to:

                  The May Davis Group, Inc.
                  One World Trade Center
                  New York, NY 10048
                  Attention: Michael Jacobs
                  Facsimile: (212) 775-7400

                  With Copy to:

                  Butler Gonzalez, LLP
                  1000 Stuyvesant Avenue
                  Suite #6
                  Union, NJ  07083
                  Attention: David Gonzalez, Esq.
                  Facsimile: (908) 810-0973

                  If to Company, to:

                  Diamond Entertainment Corporation
                  800 Tucker Lane
                  Walnut, CA 81709
                  Attention: President
                  Facsimile: (909) 939-1989

                                      C-10
<PAGE>

                  With a copy to:

                  DeMartino Finkelstein Rosen & Virga 1818 N Street, N.W.
                  Suite 400
                  Washington, DC  20036
                  Attention: Neil R.E. Carr, Esq.
                  Facsimile: (202) 659-1290

                  If to Escrow Agent, to:

                  First Union National Bank,
                  407 Main Street
                  Metuchen, NJ 08840
                  Attention: Robert Mercado
                                 Carmela Agugliaro
                  Facsimile Number: (732) 452-3005

         Or to such other address as each party may designate for itself by like
notice.

     16. Amendment or Waiver. This Agreement may be changed, waived,  discharged
or terminated  only by a writing  signed by the parties of the Escrow Agent.  No
delay or omission by any party in exercising any right with respect hereto shall
operate as waiver.  A waiver on any one occasion shall not be construed as a bar
to, or waiver of, any right or remedy on any future occasion.

     17.  Severability.  To the  extent  any  provision  of  this  Agreement  is
prohibited  by  or  invalid  under  applicable  law,  such  provision  shall  be
ineffective  to  the  extent  of  such  prohibition,   or  invalidity,   without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

     18.  Governing  Law. This Agreement  shall be construed and  interpreted in
accordance  with the  internal  laws of the State of New Jersey  without  giving
effect to the conflict of laws principles thereof.

     19 Entire  Agreement.  This  Agreement  constitutes  the  entire  Agreement
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the  obligations and duties of the
Escrow Agent with respect to the Escrow Funds.

     20. Binding  Effect.  All of the terms of this  Agreement,  as amended from
time to time,  shall be binding upon, inure to the benefit of and be enforceable
by the  respective  heirs,  successors and assigns of the Placement  Agent,  the
Company, or the Escrow Agent.

                                      C-11
<PAGE>

     21.  Execution  of  Counterparts.  This  Agreement  and any  Joint  Written
Direction  may be  executed  in  counter  parts,  which when so  executed  shall
constitute one and same agreement or direction.

     22. Termination. Upon the first to occur of the disbursement of all amounts
in the Escrow Funds pursuant to Joint Written  Directions or the disbursement of
all amounts in the Escrow  Funds into court  pursuant to Section 5 hereof,  this
Agreement shall  terminate and Escrow Agent shall have no further  obligation or
liability  whatsoever  with respect to this  Agreement or the Escrow  Funds.

     IN WITNESS  WHEREOF the parties have hereunto set their hands and seals the
day and year above set forth.

                                 ESCROW AGENT:
                                 FIRST UNION NATIONAL BANK

                                 By:  --------------------------
                                 Name:--------------------------
                                 Title: As Agent

                                 PLACEMENT AGENT:
                                 MAY DAVIS GROUP, INC.

                                 By:  --------------------------
                                 Name: Michael Jacobs
                                 Title:-------------------------

                                 COMPANY:
                                 DIAMOND ENTERTAINMENT CORPORATION

                                 By: --------------------------
                                 Name: James K.T. Lu
                                 Title: President and Chief Executive Officer

                                      C-12
<PAGE>

                                    EXHIBIT D

THE SECURITIES  REPRESENTED BY THIS WARRANT HAVE NOT BEEN  REGISTERED  UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE  SECURITIES  LAWS. THE
SECURITIES  HAVE BEEN ACQUIRED FOR INVESTMENT  PURPOSES ONLY AND NOT WITH A VIEW
TOWARD RESALE OR  DISTRIBUTION.  THIS WARRANT MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED  OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE
STATE  SECURITIES  LAWS,  OR AN OPINION OF COUNSEL IN FORM,  SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT.

                        DIAMOND ENTERTAINMENT CORPORATION
           Void after 5:00 p.m. Eastern Standard Time on May ---, 2005.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: PAW-                                   Number of Shares Issuable
Date of Issuance: May    , 2000                     Upon Exercise: ----------

         Diamond  Entertainment  Corporation,  a  New  Jersey  corporation  (the
"Company"),  hereby  certifies that, for value received,  the registered  holder
hereof or its  assigns,  is entitled,  subject to the terms set forth below,  to
purchase from the Company upon  surrender of this Warrant,  at any time or times
on or after the date hereof,  but not after 5:00 P.M.  Eastern  Standard Time on
the Expiration Date (as defined  herein)  -----------  fully paid  nonassessable
shares of Common Stock (as defined herein) of the Company (the "Warrant Shares")
at the  Warrant  Exercise  Price per  share  provided  in  Section  l(b)  below;
provided,  however,  that in no event  shall the holder be  entitled to exercise
this Warrant for a number of Warrant  Shares in excess of that number of Warrant
Shares  which  would  cause the  aggregate  number  of  shares  of Common  Stock
beneficially  owned by the holder and its affiliates to exceed 4.9% of the total
issued and outstanding  shares of the Common Stock following such exercise.  For
purposes of the foregoing proviso the aggregate number of shares of Common Stock
beneficially  owned by the holder and its affiliates shall include the number of
shares of Common Stock  issuable  upon  exercise of this Warrant with respect to
which the  determination of such proviso is being made, but shall exclude shares
of  Common  Stock  which  would be  issuable  upon  exercise  of the  remaining,
unexercised  Series A Preferred  Share Warrants (as defined below)  beneficially
owned by the holder  and its  affiliates.  Except as set forth in the  preceding
sentence,  for  purposes  of  this  paragraph,  beneficial  ownership  shall  be
calculated in accordance  with Section 13(d) of the  Securities  Exchange Act of
1934, as amended, and the rules thereunder.

                                      D-1
<PAGE>

         Section 1.        General Provisions

         (a) Securities Purchase Agreement.  This Warrant is one of the warrants
(the "Series A Preferred  Share  Warrants")  issued  pursuant to the  Securities
Purchase  Agreement  between the Company  and certain  investors,  dated May --,
2000.

         (b) Definitions.  The following words and terms as used in this Warrant
shall have the following meanings:

         "Average  Market  Price"  means,  with  respect to any security for any
period, that price which shall be computed as the arithmetic average of the last
closing bid prices for such  security for each trading day in such period on the
principal  securities  exchange or trading  market for such security  where such
security is listed,  traded or quoted as reported by Bloomberg Financial Markets
("Bloomberg"),  or if the market price cannot be  calculated  for such period on
the  foregoing  bases,  the  last  closing  bid  price of such  security  in the
over-the-counter  market on the pink sheets or  over-the-counter  bulletin board
for such  security  as  reported  by  Bloomberg,  or, if no closing bid price is
reported for such  security by  Bloomberg,  the last closing trade price of such
security as reported by Bloomberg.  If the market price cannot be calculated for
such period on any of the foregoing bases, the Average Market Price shall be the
average fair market value during such period as  reasonably  determined  in good
faith by the Board of Directors of the Company  (all as  appropriately  adjusted
for any stock dividend,  stock,  split or other similar  transaction during such
period).

         "Certificate  of  Designations"  means  the  Company's  Certificate  of
Designations for the Company's  Series A Convertible  Preferred Stock ("Series A
Preferred Shares").

         "Closing   Bid  Price"  shall  have  the  meaning  as  defined  in  the
Certificate of Designations of the Company.

         "Common Stock" means (i) the Company's  common stock,  no par value per
share,  and (ii) any capital  stock into which such Common Stock shall have been
changed or any capital stock  resulting from a  reclassification  of such Common
Stock.

         "Expiration  Date"  means the date five (5) years  from the date of the
issuance of the  Warrant  or, if such date falls on a Saturday,  Sunday or other
day on which banks are  required or  authorized  to be closed in the City of New
York or the State of New York (a "Holiday"), the next preceding date that is not
a Holiday.

         "Person"  means  an  individual,   a  limited  liability   company,   a
partnership,  a  joint  venture,  a  corporation,  a  trust,  an  unincorporated
organization and a government or any department or agency thereof.

                                      D-2
<PAGE>

         "Securities Act" means the Securities Act of 1933, as amended.

         "Warrant"  shall mean this warrant and all warrants issued in exchange,
transfer or replacement of any thereof.

         "Warrant  Exercise  Price"  shall  be  equal  to  $-----,   subject  to
adjustment as hereinafter provided.

         (c)      Other Definitional Provisions.

                  (i)  Except as  otherwise  specified  herein,  all  references
         herein  (A) to the  Company  shall be deemed to include  the  Company's
         successors and (B) to any applicable law defined or referred to herein,
         shall be deemed  references to such applicable law as the same may have
         been or may be amended or supplemented from time to time.

                  (ii) When used in this Warrant,  the words "herein," "hereof,"
         and  "hereunder,"  and words of  similar  import,  shall  refer to this
         Warrant as a whole and not to any  provision of this  Warrant,  and the
         words "Section,"  "Schedule," and "Exhibit" shall refer to Sections of,
         and Schedules and Exhibits to, this Warrant unless otherwise specified.

                  (iii)  Whenever  the context so  requires,  the neuter  gender
         includes the masculine or feminine,  and the singular  number  includes
         the plural, and vice versa.

         Section 2.        Exercise of Warrant.

         (a)  Subject  to the terms  and  conditions  hereof, this  Warrant  may
be exercised by the holder  hereof then  registered on the books of the Company,
in whole or in part,  at any time during normal  business  hours on any business
day on or after the  opening of  business  on the date  hereof and prior to 5:00
P.M.  Eastern  Standard Time on the Expiration Date by (i) delivery of a written
notice, in the form of the subscription  notice attached as Exhibit A hereto, of
such holder's election to exercise this Warrant,  which notice shall specify the
number of Warrant  Shares to be  purchased,  (ii)  payment to the  Company of an
amount equal to the Warrant  Exercise Price  multiplied by the number of Warrant
Shares as to which the Warrant is being exercised (plus any applicable  issue or
transfer  taxes) (the  "Aggregate  Exercise  Price") in cash or by check or wire
transfer,  and (iii) the surrender of this Warrant,  at the principal  executive
office of the Company; provided, that if such Warrant Shares are to be issued in
any name other than that of the registered holder of this Warrant, such issuance
shall be deemed a transfer and the provisions of Section 7 shall be applicable.

                                      D-3
<PAGE>

         (b) This  Warrant  may  also  be exercised  on  a  cashless  basis,  by
submitting the Warrant as described  above with an indication of election to use
cashless exercise, the number of shares of Common Stock to be issued on cashless
exercise shall be determined as follows:

                                   X = Y (A-B)
                                   -----------
                                        A

where "X" equals the number of shares of Common Stock to be received on cashless
exercise, "Y" equals the number of Warrants so exercised, "A" equals the Average
Market  Price of the  Common  Stock  for the  period  of five (5)  trading  days
immediately preceding the date of exercise,  and "B" equals the Warrant Exercise
Price.  For purposes of Rule  144(d)(3)(ii),  it is  understood  that the Common
Stock  issuable on exercise of this Warrant in a cashless  exercise  transaction
shall be deemed to have been acquired, and the holding period applicable thereto
shall have commenced, on the date this Warrant was issued.

         (c) In the event of any  exercise  of the  rights  represented  by this
Warrant in compliance with this Section 2, a certificate or certificates for the
Warrant Shares so purchased,  in such  denominations  as may be requested by the
holder  hereof and  registered  in the name of, or as  directed  by, the holder,
shall be delivered at the  Company's  expense to, or as directed by, such holder
as soon as  practicable  after such rights shall have been so exercised,  and in
any event no later than five (5) business days after such exercise.  In the case
of a  dispute  as to the  determination  of the  Warrant  Exercise  Price or the
Average Market Price of a security or the arithmetic  calculation of the Warrant
Shares,  the Company shall  promptly issue to the holder the number of shares of
Common Stock that is not  disputed and shall submit the disputed  determinations
or arithmetic calculations to the holder via facsimile within three (3) business
days of  receipt  of the  holder's  subscription  notice.  If the holder and the
Company are unable to agree upon the determination of the Warrant Exercise Price
or Average  Market Price or arithmetic  calculation of the Warrant Shares within
three (3) business days of such disputed determination or arithmetic calculation
being  submitted to the holder,  then the Company shall  immediately  submit via
facsimile (i) the disputed  determination  of the Warrant  Exercise Price or the
Average Market Price to an  independent,  reputable  investment  banking firm or
(ii)  the  disputed  arithmetic   calculation  of  the  Warrant  Shares  to  its
independent,  outside accountant. The Company shall cause the investment banking
firm or the  accountant,  as the case may be, to perform the  determinations  or
calculations  and notify the Company and the holder of the results no later than
forty-eight (48) hours from the time it receives the disputed  determinations or
calculations.   Such  investment   bank's  or  accountant's   determination   or
calculation,  as the case may be,  shall be deemed  conclusive  absent  manifest
error.

                                      D-4
<PAGE>

         (d) Unless the rights represented by this Warrant shall have expired or
shall have been fully  exercised,  the Company shall, as soon as practicable and
in any event no later than ten (10)  business days after any exercise and at its
own  expense,  issue a new  Warrant  identical  in all  respects  to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares  purchasable  immediately  prior  to  such  exercise  under  the  Warrant
exercised,  less the number of Warrant Shares with respect to which such Warrant
is  exercised,  and (ii) the holder  thereof  shall be deemed for all  corporate
purposes to have become the holder of record of such Warrant Shares  immediately
prior to the close of business  on the date on which the Warrant is  surrendered
and  payment of the amount due in respect of such  exercise  and any  applicable
taxes is made,  irrespective of the date of delivery of certificates  evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock  transfer  books of the Company are  properly  closed,  such
person shall be deemed to have become the holder of such  Warrant  Shares at the
opening of  business  on the next  succeeding  date on which the stock  transfer
books are open. Upon  presentation of a duly executed  Subscription  Form in the
Form of Exhibit A to this Warrant, the holder shall be entitled to exercise this
Warrant in whole or in part, if the holder shall have  previously  exercised and
surrendered  this  Warrant and the  Company  shall not have issued a new Warrant
representing the number of shares issuable following such prior exercise.

         (e) No   fractional  share  of Common Stock  are to be  issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon  exercise of this Warrant  shall be rounded up or down to the nearest whole
number.

         (f) If the Company shall fail for any reason or for no reason to  issue
to holder within  fifteen (15) business days after the time required  under this
Section 2, a  certificate  for the number of shares of Common Stock to which the
holder is  entitled  upon the  holder's  exercise of this  Warrant,  the Company
shall,  in addition to any other  remedies  under this  Agreement  or  otherwise
available to such holder including any indemnification  pursuant to Section 8 of
the Securities  Purchase  Agreement,  pay as additional  damages in cash to such
holder for each day such  issuance is not timely  effected  after the  fifteenth
(15) business day  following  the time required  under this Section 2, an amount
equal to 0.1% of the  product  of (x) the  number of shares of Common  Stock not
issued to the holder as  required  hereunder  and (y) the  Closing Bid Price (as
defined  in the  Certificate  of  Designations  for  the  Series  A  Convertible
Preferred  Stock of the Company) of the Common Stock on the last  possible  date
which the Company  could have issued such shares of Common  Stock to such holder
without violating this Section 2.

         Section 3. Covenants as to Common Stock.  The Company hereby  covenants
and agrees as follows:

         (a) This Warrant is, and any Series A Preferred  Share Warrants  issued
in  substitution  for or replacement of this Warrant will upon issuance be, duly
authorized and validly issued.

                                      D-5
<PAGE>

         (b) All Warrant  Shares  which may be issued  upon the  exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable  and free from all taxes,  liens and charges with respect
to the issue thereof.

         (c) During  the period  within  which the  rights  represented  by this
Warrant may be  exercised,  the Company  will at all times have  authorized  and
reserved at least the number of shares of Common Stock needed to provide for the
exercise of the rights  then  represented  by this  Warrant and the par value of
said  shares will at all times be less than or equal to the  applicable  Warrant
Exercise Price.

         (d) The  Company  shall  promptly  secure the  listing of the shares of
Common  Stock  issuable  upon  exercise  of  this  Warrant  upon  each  national
securities    exchange   or   automated    quotation    system,   if   any,   or
over-the-counter-bulletin  board  upon  which  shares of  Common  Stock are then
listed or quoted  (subject to official notice of the  over-the-counter  bulletin
board of issuance upon exercise of this Warrant) and shall maintain,  so long as
any other shares of Common  Stock shall be so listed or quoted,  such listing or
quotation  of all  shares of Common  Stock from time to time  issuable  upon the
exercise of this Warrant;  and the Company shall so list or obtain  quotation on
each  such  national   securities   exchange,   automated  quotation  system  or
over-the-counter  bulletin  board,  as the case may be, and shall  maintain such
listing in  quotation  of,  any other  shares of  capital  stock of the  Company
issuable  upon the  exercise of this Warrant if and so long as any shares of the
same  class  shall be listed on such  national  securities  exchange,  automated
quotation system or over-the-counter bulletin board.

         (e)  The  Company  will  not,  by  amendment  of  its   Certificate  of
Incorporation or through any reorganization,  transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the  observance or  performance of any of the terms to be
observed  or  performed  by it  hereunder,  but will at all times in good  faith
assist in the  carrying  out of all the  provisions  of this  Warrant and in the
taking of all such action as may  reasonably  be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other  impairment,  consistent with the tenor and purpose of
this Warrant.  No impairment of the designations,  preferences and rights of the
Series A Preferred  Shares  contained in the  Certificate of Designations or any
waiver thereof which has an adverse effect on the rights granted hereunder shall
be given effect until the Company has taken appropriate action  (satisfactory to
the holders of Series A Preferred Share Warrants  representing a majority of the
shares of Common  Stock  issuable  upon the  exercise of such Series A Preferred
Share  Warrants then  outstanding)  to avoid such adverse effect with respect to
this Warrant.  Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common  Stock  receivable  upon
the exercise of this Warrant above the Exercise  Price then in effect,  and (ii)
will take all such actions as may be necessary or  appropriate in order that the
Company may validly and  legally  issue fully paid and  nonassessable  shares of
Common Stock upon the exercise of this Warrant.

                                      D-6
<PAGE>

         (f) Forced  Conversion.  The Company  shall have the right to force the
Warrant Holders to exercise the Warrants if the five (5) day average Closing Bid
Price of the  Company's  Common  Stock (as  reported by  Bloomberg)  is $0.30 or
higher  ("Forced  Exercise  Event").  The Company  shall  furnish to the Warrant
Holders  written notice of the occurrence of a Forced  Exercise Event within ten
(10) days thereof,  whereupon the Warrant  Holders shall within five (5) days of
the receipt thereof exercise their Warrants in accordance with the terms hereof.

         (g) This  Warrant  will be binding  upon any entity  succeeding  to the
Company by merger,  consolidation or acquisition of all or substantially  all of
the Company's assets.

         Section 4. Taxes.  The Company  shall not be required to pay any tax or
taxes  attributable  to the  initial  issuance  of  the  Warrant  Shares  or any
permitted  transfer  involved in the issue or delivery of any  certificates  for
Warrant Shares in a name other than that of the registered holder hereof or upon
any permitted transfer of this Warrant.

         Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically  provided  herein,  no holder,  as such,  of this Warrant  shall be
entitled to vote or receive  dividends  or be deemed the holder of shares of the
Company  for any  purpose,  nor shall  anything  contained  in this  Warrant  be
construed  to confer  upon the holder  hereof,  as such,  any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization,  issue of stock,  reclassification
of stock,  consolidation,  merger,  conveyance or otherwise),  receive notice of
meetings,  receive dividends or subscription rights, or otherwise,  prior to the
issuance to the holder of this Warrant of the Warrant  Shares which he or she is
then entitled to receive upon the due exercise of this Warrant.

         In addition,  nothing  contained in this Warrant  shall be construed as
imposing  any  liabilities  on such holder to purchase  any  securities  or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this  Warrant  with  copies of the same  notices and other
information   given   to   the   stockholders   of   the   Company    generally,
contemporaneously with the giving thereof to the stockholders.

         Section 6.  Representations of Holder.  The holder of this Warrant,  by
the acceptance hereof,  represents (and any assignor shall represent) that it is
acquiring this Warrant and the Warrant Shares for its own account for investment
purposes  and  not  with  a view  to,  or  for  sale  in  connection  with,  any
distribution  hereof,  and not with any present intention of distributing any of
the same. The holder of this Warrant further  represents (and any assignor shall
represent),  by  acceptance  hereof,  that,  as of this date,  such holder is an
"accredited  investor" as such term is defined in Rule 501(a)(1) of Regulation D
promulgated by the Securities and Exchange  Commission  under the Securities Act
(an "Accredited Investor").  Upon exercise of this Warrant, the holder shall, if

                                      D-7
<PAGE>

requested  by the Company,  confirm in writing,  in a form  satisfactory  to the
Company,  that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party,  for  investment,
and not with a view  toward  distribution  or resale and that such  holder is an
Accredited  Investor.  If such holder cannot make such  representations  because
they would be  factually  incorrect,  it shall be a condition  to such  holder's
exercise of the Warrant that the Company receive such other  representations  as
the  Company  considers  reasonably  necessary  to assure the  Company  that the
issuance of its  securities  upon  exercise of the Warrant shall not violate any
United States Federal or state securities laws.

         Section 7.        Ownership and Transfer.

         (a) The Company shall maintain at its principal  executive  offices (or
such other office or agency of the Company as it may  designate by notice to the
holder hereof),  a register for this Warrant,  in which the Company shall record
the name and address of the person in whose name this  Warrant has been  issued,
as well as the name and address of each permissible transferee.  The Company may
treat the person in whose name any Warrant is  registered on the register as the
owner and holder  thereof for all  purposes,  notwithstanding  any notice to the
contrary,  but in all events  recognizing  any transfers made in accordance with
the terms of this Warrant.

         (b) This  Warrant  and the  rights  granted  to the  holder  hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly  executed  warrant  power in the form of  Exhibit B attached  hereto;
provided,  however,  that  any  transfer  or  assignment  shall  subject  to the
conditions set forth in Section 6 above and Section 7(c) below.

         (c) The holder of this  Warrant  understands  that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold,  assigned or transferred
unless (a)  subsequently  registered  thereunder,  or (b) such holder shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and  substance to the  Company,  to the effect that the  securities  to be
sold, assigned or transferred may be sold,  assigned or transferred  pursuant to
an  exemption  from  such  registration.  Any  sale of such  securities  made in
reliance on Rule 144  promulgated  under the  Securities Act may be made only in
accordance  with  the  terms  of said  Rule  and  further,  if said  Rule is not
applicable,  any  resale of such  securities  under  circumstances  in which the
seller  (or the  person  through  whom the sale is made)  may be deemed to be an
underwriter  (as  that  term is  defined  in the  Securities  Act)  may  require
compliance  with some other  exemption under the Securities Act or the rules and
regulations of the Securities and Exchange  Commission  thereunder;  and neither
the Company nor any other person is under any  obligation to register the Series
A Preferred Share Warrants under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder except as
set forth in Section 7(d) below.

                                      D-8
<PAGE>

         (d) The Company is obligated to register the Warrant  Shares for resale
under the Securities Act pursuant to the Registration  Rights Agreement dated as
of May --,  2000,  by and  between  the  Company  and the  Buyers  listed on the
signature page thereto (the  "Registration  Rights  Agreement")  and the initial
holder of this  Warrant  (and  certain  assignees  thereof)  is  entitled to the
registration  rights  in  respect  of the  Warrant  Shares  as set  forth in the
Registration Rights Agreement.

         Section 8.  Adjustment of Warrant  Exercise  Price. In order to prevent
dilution of the rights  granted under this Warrant,  the Warrant  Exercise Price
shall be adjusted from time to time as follows:

         (a)  Adjustment  of  Warrant   Exercise   Price  upon   Subdivision  or
Combination  of  Common  Stock.  If the  Company  at any time  after the date of
issuance  of this  Warrant,  subdivides  (by any stock  split,  stock  dividend,
recapitalization  or otherwise) one or more classes of its outstanding shares of
Common  Stock into a greater  number of shares,  the Warrant  Exercise  Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock  obtainable  upon  exercise of this Warrant
will be proportionately  increased. If the Company at any time after the date of
issuance  of this  Warrant  combines  (by  combination,  reverse  stock split or
otherwise) one or more classes of its outstanding  shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be  proportionately  increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.

         (b) Reorganization,  Reclassification,  Consolidation,  Merger or Sale.
Any recapitalization,  reorganization reclassification,  consolidation,  merger,
sale of all or  substantially  all of the Company's  assets to another Person or
other similar transaction which is effected in such a way that holders of Common
Stock are entitled to receive (either  directly or upon subsequent  liquidation)
stock,  securities  or assets with respect to or in exchange for Common Stock is
referred  to herein as in "Organic  Change."  Prior to the  consummation  of any
Organic  Change,  the  Company  will  make  appropriate  provision  (in form and
substance  reasonably  satisfactory to the holders of a majority of the Warrants
then  outstanding) to insure that, upon the consummation of such Organic Change,
each of the holders of the Warrants  will  thereafter  have the right to acquire
and receive in lieu of the Common  Stock,  such shares of stock,  securities  or
assets as may be issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore acquirable and receivable upon
exercise of the Warrants had such  Organic  Change not taken place.  In any such
case,  the  Company  will  make  appropriate  provision  (in form and  substance
reasonably  satisfactory  to the  holders of a  majority  of the  Warrants  then
outstanding)  with respect to such holders'  rights and interests to insure that
the  provisions  of this  Section  8(b) will  thereafter  be  applicable  to the
Warrants.

                                      D-9
<PAGE>

         (c)    Notices.

                  (i)  Immediately  upon any adjustment of the Warrant  Exercise
Price  pursuant to this Section 8, the Company will give written  notice thereof
to the holder of this Warrant, setting forth in reasonable detail and certifying
the calculation of such adjustment.

                  (ii) The  Company  will give  written  notice to the holder of
this  Warrant at least  twenty  (20) days prior to the date on which the Company
closes  its  books  or  takes a  record  (A) with  respect  to any  dividend  or
distribution   upon  the  Common  Stock,  (B)  with  respect  to  any  pro  rata
subscription  offer to holders of Common Stock or (C) for determining  rights to
vote with respect to any Organic Change, dissolution or liquidation, except that
in no  event  shall  such  notice  be  provided  to such  holder  prior  to such
information being made known to the public.

                  (iii) The Company will also give written  notice to the holder
of this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place.

         Section 9. Purchase Rights.  If at any time the Company grants,  issues
or sells any  Options,  Convertible  Securities  or rights  to  purchase  stock,
warrants,  securities  or other  property pro rata to the record  holders of any
class of Common Stock (the "Purchase  Rights"),  then the holder of this Warrant
will be entitled to acquire,  upon the terms applicable to such Purchase Rights,
the  aggregate  Purchase  Rights which such holder  could have  acquired if such
holder had held the number of shares of Common Stock  acquirable  upon  complete
exercise of this Warrant  immediately before the date on which a record is taken
for the grant,  issuance or sale of such Purchase Rights,  or, if no such record
is taken,  the date as of which the  record  holders  of Common  Stock are to be
determined for the grant, issue or sale of such Purchase Rights.

         Section 10.  Lost,  Stolen,  Mutilated or  Destroyed  Warrant.  If this
Warrant is lost, stolen,  mutilated or destroyed,  the Company shall, on receipt
of an indemnification undertaking,  issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed.

         Section  11.  Notice.  Any  notices,   consents,   waivers,   or  other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been  delivered  (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile, provided a
copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3)
days after being sent by U.S. certified mail, return receipt requested;  or (iv)
one (1) day  after  deposit  with a  nationally  recognized  overnight  delivery
service,  in each case properly  addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

                                      D-10
<PAGE>

      If to the Company:                 Diamond Entertainment Corporation
                                         800 Tucker Lane
                                         Walnut, CA 81709
                                         Attention:      James Lu, President
                                         Telephone:      (909) 839-1989
                                         Facsimile:      (909) 869-1990

      With a copy to:                    De Martino Finkelstein Rosen & Virga
                                         1818 N Street, N.W.
                                         Suite 400
                                         Washington, DC 20036
                                         Attention:      Neil R.E. Carr, Esq.
                                         Telephone:      (202) 659-0494
                                         Facsimile:      (202) 659-1290

         If to a holder of this  Warrant,  to it at the  address set forth below
such holder's  signature on the signature page hereof.  Each party shall provide
five (5) days' prior written  notice to the other party of any change in address
or facsimile number.

         Section  12.  Miscellaneous.  This  Warrant  and any term hereof may be
changed,  waived,  discharged,  or  terminated  only by an instrument in writing
signed by the party or holder hereof  against which  enforcement of such change,
waiver, discharge or termination is sought. The headings in this Warrant are for
convenience  of  reference  only and  shall not limit or  otherwise  affect  the
meaning hereof. This Warrant shall be governed by and interpreted under the laws
of the State of New York.

         Section  13.  Date.  The date of this  Warrant  is May --,  2000.  This
Warrant, in all events, shall be wholly void and of no effect after the close of
business  on  the  Expiration  Date,  except  that   notwithstanding  any  other
provisions  hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities  issued upon
the exercise of this Warrant.

                                DIAMOND ENTERTAINMENT CORPORATION

                                By:      ------------------------------
                                Name:    James K.T. Lu
                                Title:   President and Chief Executive Officer

ACCEPTED:
President and Chief Executive Officer
---------------------------------------
[HOLDER]
By:      ------------------------------
Name:    ------------------------------
Title:   ------------------------------
Address: ------------------------------
         ------------------------------
         ------------------------------

                                      D-11
<PAGE>

                                    EXHIBIT A

                              FORM OF SUBSCRIPTION

      (Complete and sign only exercise of the Warrant in whole or in part.)

TO:      Diamond Entertainment Corporation

         The undersigned,  the holder of the attached Warrant to which this Form
of  Subscription  applies,  hereby  irrevocably  elects to exercise the purchase
rights represented by such warrant for and to purchase thereunder ------- shares
of  Common  Stock,  no  par  value  per  share  (the  "Shares"),   from  Diamond
Entertainment  Corporation (or such other  securities  issuable  pursuant to the
terms of the  Warrant)  and  either:  (i)  herewith  makes  payment of  $-------
therefor in cash or by certified  or official  bank check or (ii) elects to make
payment upon a cashless basis pursuant to Section 2(b) of the Warrant and hereby
exercises  ------  Warrants and the Average  Market Price Per Share for purposes
hereof is $_------.  The  undersigned  hereby  requests that the  certificate(s)
representing  such  securities  be issued in the  name(s)  and  delivered  t the
address(es) as follows:

Name:                               -------------------------------------------
Address:                            -------------------------------------------
Social Security Number:             -------------------------------------------
Deliver to:                         -------------------------------------------
Address:                            -------------------------------------------

         This the foregoing subscription evidences an exercise of the Warrant to
purchase fewer than all of the Shares (or other securities  issuable pursuant to
the terms of the  Warrant)  to which the  undersigned  is  entitled  under  such
warrant,  please issue a new warrant,  of like tenor,  relating to the remaining
portion of the  securities  issuable  upon  exercise  of such  warrant (or other
securities  issuable pursuant to the terms of such warrant) in the name(s),  and
deliver the same to the address(es), as follow:

Name:                               -------------------------------------------
Address:                            -------------------------------------------
                                    -------------------------------------------
Dated:                              -------------------------------------------

-----------------------------       -------------------------------------------
(Name of Holder)                    (Social Security or Taxpayer Identification
                                       Number of Holder, if applicable)

-----------------------------
(Signature of Holder or Authorized
Signatory)

Signature Guaranteed:  -------------------------------------------

                                      D-12
<PAGE>

                                    EXHIBIT B

                              FORM OF WARRANT POWER

         FOR VALUE RECEIVED,  the undersigned does hereby assign and transfer to
-------------------------------------------- Federal Identification No.------, a
warrant  to  purchase  shares  of the  capital  stock of  Diamond  Entertainment
Corporation,  a New  Jersey  corporation,  represented  by  warrant  certificate
No.---------,  standing  in the  name of the  undersigned  on the  books of said
corporation.  The  undersigned  does hereby  irrevocably  constitute and appoint
----------------------------,   attorney  to  transfer   the  warrants  of  said
corporation, with full power of substitution in the premises.

Dated: -----------------------------

                                             By: -------------------------------
                                             Its:-------------------------------

                                      D-13
<PAGE>

                                    EXHIBIT E

                           TRANSFER AGENT INSTRUCTIONS
                                  May --, 2000

Continental Stock Transfer
 & Trust Company
2 Broadway
19th Floor
New York, New York  10004

Ladies and Gentlemen:

         Reference is made to that certain Securities Purchase Agreement,  dated
May  --,  2000  ("Securities   Purchase   Agreement"),   by  and  among  Diamond
Entertainment Corporation, a New Jersey corporation (the "Company"), and each of
the buyers listed in Schedule I attached to the  Securities  Purchase  Agreement
(collectively,  the  "Holders")  pursuant to which the Company is issuing to the
Holder(s) an aggregate  of 50 shares of Series A Preferred  Stock,  no par value
per share, of the Company (the "Preferred  Shares"),  which shall be convertible
into  shares of the  Company's  common  stock,  no par value per share  ("Common
Stock").  The shares of Common Stock  issuable upon  conversion of the Preferred
Shares are collectively referred to herein as the "Underlying Shares."

          This letter shall serve as our irrevocable authorization and direction
to you (provided that you are the transfer agent of the Company at such time) to
issue Underlying  Shares from time to time upon notice from the Company to issue
such Underlying  Shares. So long as you have previously  received (x) an opinion
of the Company's outside counsel substantially in the form of Exhibit I attached
hereto  (which the Company  shall  direct be  delivered  to you by such  outside
counsel upon the effectiveness of the registration statement covering resales of
Underlying  Shares) stating that a registration  statement  covering  resales of
Underlying  Shares has been declared  effective by the  Securities  and Exchange
Commission  ("SEC") under the  Securities  Act of 1933, as amended  ("Securities
Act"),  and that the  Underlying  Shares may be issued (or reissued if they have
been  issued  at a time  when  there  was  not  such an  effective  registration
statement)  or resold  without any  restrictive  legend (the  "Opinion"),  (y) a
certification  from the clearing broker for the Holder as to the compliance with
the  prospectus  delivery  requirements  and as to the fact that the sale of the
Underlying  Share was made in compliance with the Plan of Distribution set forth
in such registration statement (the "Broker  Certification"),  and (z) a copy of
such registration  statement,  then certificates  representing Underlying Shares
shall not bear any legend  restricting  transfer of Underlying Shares and should
not be subject to any stop-transfer restriction.  Provided, however, that if you
have not previously received a copy of the Opinion, the Broker Certification and
such registration statement,  then the certificates  representing the Underlying
Shares  shall be issued  upon  receipt  of an opinion  of  counsel  covering  an
exemption  from  registration  under  the  Securities  Act and  shall  bear  the
following legend:

                                      E-1
<PAGE>

           "THE  SECURITIES  REPRESENTED  BY  THIS  CERTIFICATE  HAVE  NOT  BEEN
           REGISTERED  UNDER  THE  SECURITIES  ACT  OF  1933,  AS  AMENDED,   OR
           APPLICABLE  STATE  SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
           FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT
           BE OFFERED FOR SALE, SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
           AN EFFECTIVE  REGISTRATION  STATEMENT  FOR THE  SECURITIES  UNDER THE
           SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE  SECURITIES
           LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY  ACCEPTABLE FORM, THAT
           REGISTRATION  IS NOT  REQUIRED  UNDER  SAID ACT OR  APPLICABLE  STATE
           SECURITIES LAWS.

and,  provided  further,  that the  Company  may from time to time notify you to
place stop transfer  restrictions on the certificates for the Underlying  Shares
in the event a registration  statement covering the Underlying Shares is subject
to amendment for events then current.

         Please be advised that the Holder(s) have relied upon this letter as an
inducement to enter into the Securities  Purchase  Agreement  and,  accordingly,
each of the Holder(s) are a third party beneficiary to these instructions.

Should you have any questions  concerning this matter please contact me at (909)
839-1989

                             Very truly yours,

                             DIAMOND ENTERTAINMENT CORPORATION

                             By:  ----------------------------------------------
                                  Name:    James K.T. Lu
                                  Title:   President and Chief Executive Officer

ACKNOWLEDGED AND AGREED:

CONTINENTAL STOCK TRANSFER
& TRUST COMPANY

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

cc:    Holder(s)

                                      E-2
<PAGE>

                                    Exhibit I

                       [Form of Outside Counsel's Opinion]

                                ------------, 2000

[Addressee]
--------------------
--------------------
--------------------

To Whom It May Concern:

         The Registration Statement (the "Registration  Statement") on Form ----
(File No.  333---------)  of  Diamond  Entertainment  Corporation,  a New Jersey
corporation  (the  "Company"),  was  declared  effective by the  Securities  and
Exchange Commission at --;-- --.M. Eastern Time on  ---------------,  2000. Upon
issuance  of the  Underlying  Shares  referred to in the  Company's  instruction
letter  attached  hereto,  you are  authorized  to  issue  certificates  for the
Company's common stock, no par value per share without restrictive legends.

                                                     Very truly yours,

                                      E-3
<PAGE>

                                    EXHIBIT F

                                  May --, 2000

The May Davis Group, Inc.
One World Trade Center
New York, NY  10048

Buyers Listed on Schedule I
to the Securities Purchase Agreement
c/o The May Davis Group, Inc.
One World Trade Center
New York, NY  10048

         Re:      Diamond Entertainment Corporation
                  Securities Purchase Agreement

Ladies and Gentlemen:

         We have acted as counsel for Diamond Entertainment  Corporation,  a New
Jersey  corporation  (the  "Company"),  in  connection  with  (i)  that  certain
Securities  Purchase  Agreement  between the  Company  and the Buyers  listed on
Schedule  I  ("Buyers")  to the  Purchase  Agreement,  dated  May --,  2000 (the
"Purchase  Agreement");  (ii) the  Registration  Rights  Agreement,  between the
Company  and  each  Buyer,  dated  May  --,  2000  (the   "Registration   Rights
Agreements");  (iii) the  Certificate  of Amendment to the Articles of Amendment
designating the Series A Convertible Preferred Stock filed with the Secretary of
State of New Jersey on May --, 2000 (the  "Certificate of  Designations");  (iv)
the Escrow Agreement  between the Company,  May Davis Group,  Inc. ("May Davis")
and First Union National Bank, as escrow agent (the "Escrow Agent"), dated April
14, 2000 (the "Escrow Agreement"); and (v) the Warrants, dated May --, 2000 (the
"Warrants"),  issued to May Davis and Butler  Gonzalez,  LLP  (collectively  the
"Transaction  Documents").  Capitalized  terms  used but not  otherwise  defined
herein shall have the  respective  meanings  given to such terms in the Purchase
Agreement.

         The  Securities  Purchase  Agreement  relates to the  private  offering
(pursuant to  Regulation  D under the  Securities  Act of 1933,  as amended (the
"Act") and pursuant to exemption  provisions of the state "Blue Sky" laws and/or
dealer  registration  provisions,   as  applicable,  of  the  following  states:
Colorado,  Virginia,  --------------)  of 50  shares  of  Series  A  Convertible
Preferred  Stock,  no par value per share ("Series A Preferred  Stock"),  by the
Company.  May Davis is  acting as the  placement  agent for the  Company  in the
offering pursuant to that certain Placement Agency Agreement between the Company
and May Davis, dated April 14, 2000.

                                      F-1
<PAGE>

         This opinion is being  delivered to you pursuant to Section 7(d) of the
Purchase Agreement.

         For purposes of this  opinion,  we have  examined  originals (or copies
certified  or  otherwise  identified  to our  satisfaction)  of the  Transaction
Documents, the Placement Agency Agreement and have relied on the representations
and warranties  made by the Company  therein and we have reviewed such questions
of law and have examined  copies,  certified or otherwise  authenticated  to our
satisfaction,  a specimen copy of certificates for the Series A Preferred Stock,
the  certificate  of  incorporation  and the by-laws of the Company,  minutes of
meetings  of the Board of  Directors  of the  Company  and  stockholders  of the
Company, and all other records, agreements, instruments,  certificates of public
officials, certificates of officers and representative of the Company (including
the Transfer  Agent),  and such other  documents as we have deemed  necessary or
appropriate  for the purposes of the opinions  rendered  below. We have received
such certificates,  statements, information and assurances as to matters of fact
as we have  deemed  necessary  in  order  to  render  the  opinions  hereinafter
expressly set forth; however, we are not, except as expressly set forth, passing
upon and do not assume responsibility for the accuracy, completeness or fairness
of the statements  contained in the  Transaction  Documents or the Company's SEC
Documents (as such term is defined in the Purchase Agreement).  Furthermore,  we
express no opinion with respect to the financial  statements and other financial
information included in the SEC Documents.

         In such examination, we have assumed the genuineness of all signatures,
the  authenticity  of  all  documents  submitted  to us  as  originals  and  the
conformity  with  original  documents  of  all  documents  submitted  to  us  as
certified, conformed or photostatic copies.

         We have further assumed the due  authorization,  execution and delivery
of each such document by or on behalf of all of the parties  thereto (other than
the Company) and that none of such  documents has been  subsequently  rescinded,
revoked, restated, modified or amended in any way other than as set forth in the
documents  submitted to us. As to any facts  material to such  opinion,  we have
relied, to the extent that relevant facts were not independently  established by
us and to the  extent we  deemed  reliance  proper,  on  certificates  of public
officials  and  certificates,  oaths  and  declarations  of  officers  and other
representatives of the Company,  upon which we have no reason to believe that we
and you are not entitled to so rely, and the  representations  and warranties of
the parties set forth in the Transaction Documents.

         In connection  with the  preparation of this opinion,  we have reviewed
such  questions of law as we have deemed  necessary.  We do not give any opinion
herein with respect to the laws of any  jurisdiction  other than and our opinion
is limited to the  general  federal  law of the United  States of  America,  the
General  Corporation Law of the State of New Jersey and the laws of the District
of Columbia.  Except as otherwise provided herein, we have assumed that, insofar
as the laws of another  jurisdiction  may be  applicable to any matters to which
this opinion may relate,  such laws are identical to the laws of the District of
Columbia;  however,  we express no opinion as to the extent to which the laws of
the District of Columbia or such other jurisdiction may apply.

                                      F-2
<PAGE>

         Insofar as this opinion  relates to any state statute  which  regulates
the offer and sale of  securities  or similar  transactions  (i) we have  relied
without  independent  investigation on information  furnished to us by you as to
the state of  incorporation  of each Buyer  listed on Schedule I to the Purchase
Agreement,  and (ii) we have relied solely upon an  examination of such laws and
related  rules  and  regulations  as  reported  in the  most  recent  unofficial
compilations  available to us and have not  consulted  with local counsel in any
such state.

         Whenever  we assert  herein  that a matter is known "to the best of our
knowledge,"  our  knowledge  is  limited  to  actual  knowledge  gained  without
independent  inquiry  or  investigation  by those  lawyers  in our firm who have
participated in the representation  related to the transactions  described above
in the first paragraph of this opinion.

         Based solely upon and in reliance on the foregoing,  and subject in all
respect to the qualifications,  limitations and assumptions set forth herein, it
is our opinion that:

         1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey, has all requisite power
and  authority  to own or lease  its  properties,  to carry on its  business  as
currently conducted and as proposed to be conducted,  to execute and deliver the
Securities  Purchase Agreement,  the Registration Rights Agreements,  the Escrow
Agreement and the Warrants,  and to carry out the  transactions  contemplated by
such  agreements  and is duly  qualified or licensed to do business as a foreign
corporation  and is in  good  standing  in  each  other  jurisdiction,  to  such
counsel's  knowledge,  in which the  ownership or leasing of its  properties  or
conduct of its business requires such qualification, except where the failure to
be so  qualified  or licensed  would not have a material  adverse  effect on the
business, financial condition or prospects of the Company.

         2. Each of the Transaction Documents and the Placement Agency Agreement
has been duly and validly authorized, executed and delivered by the Company, and
is the valid and binding  obligation of the Company,  enforceable  against it in
accordance with its terms, subject to any applicable  bankruptcy,  insolvency or
other laws affecting the rights of creditors  generally and to general equitable
principles  and except that the  enforcement of the  indemnification  provisions
thereof  may be limited or denied on the basis of  federal or  applicable  state
securities laws and the public policy underlying such laws.

         3. The  authorized  capital  stock of the  Company as of April 10, 2000
(before  giving  effect  to the  transactions  contemplated  by the  Transaction
Documents) is as set forth in the Securities Purchase  Agreement.  Except as set
forth on Schedule 3(c) to the Purchase  Agreement,  the Series A Preferred Stock
and the Warrants and the shares of common stock, no par value per share ("Common
Stock"),  of the Company  issuable upon conversion or exercise  thereof,  to the
best of our knowledge, there are no outstanding warrants,  options,  agreements,

                                      F-3
<PAGE>

convertible securities,  preemptive rights to subscribe for or other commitments
pursuant to which the Company is, or may become,  obligated  to issue any shares
of its capital  stock or other  securities  of the  Company.  To the best of our
knowledge,  all of the issued  and  outstanding  shares of capital  stock of the
Company  have been duly and validly  authorized  and issued,  are fully paid and
nonassessable  and have not been issued in violation of the preemptive rights of
any  security  holder of the  Company  under New Jersey  law.  The (i) shares of
Series A Preferred  Stock and (ii) the Warrants have been duly  authorized  and,
when issued and delivered in accordance with the terms of the Purchase Agreement
will be validly issued,  fully paid and nonassessable and no personal  liability
will attach to the ownership  thereof.  The shares of Common Stock issuable upon
conversion  of the Series A Preferred  Stock and upon  exercise of the  Warrants
have been duly reserved for issuance  and,  when issued in  accordance  with the
terms of the Certificate of Designations or Warrants, as applicable, and, in the
case of the Warrants,  upon payment therefor, will be validly issued, fully paid
and  nonassessable and such shares will not be issued in violation of or subject
to any  preemptive or any other similar  rights and no personal  liability  will
attach to the ownership thereof.

         4.  The  execution,   delivery,  and  performance  of  the  Transaction
Documents will not violate (a) any law or regulation; or (b) any order, writ, or
decree of any court or governmental  instrumentality  of which we have knowledge
(and we have made inquiry as to the existence  thereof);  (c) the Certificate of
Incorporation or Bylaws of the Company; or (d) to the best of our knowledge, any
agreement or instrument to which the Company is a party or which  purports to be
binding upon it or any of its assets,  of which we have  knowledge  (and we have
made inquiry of the Company as to the existence and terms thereof).

         5. No consent of any person or entity  (including,  but not limited to,
other  stockholders of the Company) and, except with respect to the State of New
York, no license,  approval, or authorization of, or registration or declaration
with, any governmental  authority,  bureau, or agency, is required in connection
with the execution, delivery, and performance of the Transaction Documents.

         6. To our  knowledge,  there is no legal  action,  suit,  proceeding or
inquiry  (whether  or not  purportedly  on behalf  of the  Company)  pending  or
threatened against or affecting the Company,  or any of its assets, that involve
any of the transactions  contemplated by the Transaction Documents, or which may
result  in a  material  adverse  change  in  the  business  operations,  assets,
prospects,  or condition (financial or otherwise) of the Company,  except as set
forth in the SEC Documents or on Schedule 3(h) to the Purchase Agreement.

         7. The issuance and sale of the Series A Preferred Stock is exempt from
registration  under  the  Act and  the  Regulations  pursuant  to  Regulation  D
promulgated under the Act subject to the following assumptions:

                                      F-4
<PAGE>

                  (a)  other  than the  Company,  no  party to the  transactions
contemplated by the Purchase  Agreement executed by each Buyer and the Placement
Agreement,  or any document relating thereto, is subject to any statute, rule or
regulation,  or to any impediment to which contracting parties are generally not
subject,  that  requires  the Company or such party to obtain the consent of, or
make a declaration or filing with, any governmental authority;

                  (b) all terms,  provisions  and conditions of, or relating to,
the offer and the sale of the shares of Series A Preferred  Stock are  correctly
and completely set forth in the Purchase  Agreement,  which we have no reason to
doubt as of the date thereof;

                  (c) all offers  and sales of the shares of Series A  Preferred
Stock  have  been or will be made in a manner  complying  with the  terms of the
Purchase  Agreement,  Regulation D under the Act and applicable state securities
and similar laws. Without limiting the generality of the foregoing, such counsel
may  assume  (i) the  accuracy  of the  representations  and  warranties  of the
Company, the Buyers and the Placement Agent contained in the Securities Purchase
Agreement and Placement Agency Agreement,  and the full and complete performance
of all covenants of the Company, the Buyers and the Placement Agent as set forth
in the Purchase  Agreement and the  Placement  Agency  Agreement,  and (ii) that
offers and sale of the shares of Series A Preferred Stock have been made only to
"accredited investors," as that term is defined under the Act.

                  (d) neither the Company,  the Placement  Agent, nor any person
or entity acting on the Company's or the Placement Agent's behalf has offered or
sold the shares of Series A Preferred Stock by any form of general  solicitation
or general  advertising,  including,  but not limited to, (i) any advertisement,
article, notice, or other communication published in any newspaper,  magazine or
similar  media or broadcast  over  television  or radio;  or (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising.  The Placement  Agent has confined its selling  activities to those
states referenced in this firm's Blue Sky Survey;

                  (e) the Buyers are  not "underwriters"  within  the meaning of
Section 2(11) of the Act; and

                  (f) a Notice of Sale of Securities Pursuant to Regulation D or
Section 4(6) ("Form D"),  including any required  amendments to such Form D, has
been or will be filed with the Securities and Exchange  Commission in accordance
with the requirements of Rule 503 of Regulation D.

         9. The Company is not an  "investment  company"  or, to the best of our
knowledge,  an entity  controlled by an "investment  company," as such terms are
defined in the Investment Company Act of 1940, as amended.

                                      F-5
<PAGE>

         We give no other opinion except as set forth above,  and no opinion may
be inferred beyond the matters  expressly  stated herein.  This opinion is being
delivered solely to you and may not be relied upon by you for any other purpose,
or by any other  person  for any  other  purpose  without  our  express  written
consent.  You are not authorized to distribute  this opinion or copies hereof to
any  person or  entity,  including  but not  limited  to,  any state or  federal
regulatory authority,  absent any court order requiring such production.  In the
event of your  receipt  of any such  process,  we  request  that you  notify  us
immediately.

                                        Very truly yours,

                                        DE MARTINO FINKELSTEIN ROSEN & VIRGA

                                        By: ---------------------------------
                                                 Neil R.E. Carr, Esq.

cc:      Mr. James K.T. Lu

                                      F-6
<PAGE>

                                    EXHIBIT G

                        DIAMOND ENTERTAINMENT CORPORATION

                      UNANIMOUS WRITTEN CONSENT IN LIEU OF
                    SPECIAL MEETING OF THE BOARD OF DIRECTORS

         The  undersigned,  being all of the directors of Diamond  Entertainment
Corporation,  a New Jersey corporation (the  "Corporation"),  do hereby take the
following  actions and adopt the following  resolutions by written consent to be
effective  as of the  latest  date set forth  below,  and do hereby  direct  the
Secretary of the  Corporation  to make this  instrument a part of the records of
the Corporation.

         WHEREAS,   Article  4  of  the  Certificate  of  Incorporation  of  the
Corporation,  as amended (the  "Certificate of  Incorporation"),  authorizes the
Corporation to issue up to 5,000,000 shares of preferred stock, no par value per
share (the "Preferred Stock"), and the Board of Directors is authorized to issue
the  Preferred  Stock in series,  and to fix and  determine  the voting  powers,
designate preferences,  rights,  qualifications and other terms of the Preferred
Stock pursuant to Section  14A:7-2 of the New Jersey Business  Corporation  Act;
and

         WHEREAS,  the Board of Directors now wishes to designate  fifty (50) of
such shares of Preferred  Stock to be Series A Convertible  Preferred  Stock, no
par value per share (the  "Series A Preferred  Shares");  and to  designate  the
number,  rights,  preferences,  privileges  and  other  special  rights  and the
qualifications,    limitations,    restrictions,    and   other   distinguishing
characteristics of the same; and

         WHEREAS,  the Corporation  intends to offer (the "Offering") to certain
"accredited  investors" 50 Series A Preferred Shares. The shares are proposed to
be  offered  on a "best  efforts  all or none"  basis for  consideration  of ten
thousand  dollars $10,000 per share, or an aggregate  consideration of $500,000,
or such other maximum number of shares, price per share and such other aggregate
consideration  as the officers of the Corporation  shall  determine  pursuant to
Rule 506 of  Regulation  D under the  Securities  Act of 1933,  as amended  (the
"Securities Act"); and

         WHEREAS,  the  Corporation  has  engaged  May  Davis  Group,  Inc.("May
Davis"),  to act as its  placement  agent in  connection  with the  contemplated
Offering.

         NOW,  THEREFORE,  BE  IT  RESOLVED,  that  pursuant  to  the  authority
expressly  granted to and vested in the Board of Directors of the Corporation by
the Certificate of Incorporation of the Corporation, there hereby is created out
of the  5,000,000  shares of  Preferred  Stock,  no par value per share,  of the
Corporation  authorized  by Article 4 of the  Certificate  of  Incorporation,  a
series of Preferred  Stock of the  Corporation  consisting  of 50 shares,  which
shall be designated Series A Convertible  Preferred Stock,  which shall have the
following  powers,  designations,   preferences  and  relative,   participating,
optional or other rights:

                                      G-1
<PAGE>

         1.  Designations,  Amount and Par Value.  The series of Preferred Stock
shall be designated as Series A Convertible Preferred Stock ("Series A Preferred
Shares")  and the  number of shares so  designated  shall be 50.  Each  Series A
Preferred  Share shall have no par value and a stated value of $10,000 per share
(the "Stated Value").

         2.  Dividends.  The  Series  A  Preferred  Shares  shall  not  bear any
dividends.

         3. Holder's Conversion of Series A Preferred Shares. A holder of Series
A Preferred Shares shall have the right, at such holder's option, to convert the
Series A Preferred Shares into shares of the Corporation's  common stock, no par
value per share (the "Common Stock"), on the following terms and conditions:

                  (a)  Conversion  Right.  Subject to the provisions of Sections
         3(g) and 4(a)  below,  at any time or times on or after the  earlier of
         (i) 90 days after the Issuance  Date (as defined  herein),  (ii) 5 days
         after  receiving a "no-review"  status from the Securities and Exchange
         Commission  (the "SEC") in  connection  with a  registration  statement
         ("Registration  Statement")  covering the resale of Common Stock issued
         upon  conversion  of the Series A Preferred  Shares and  required to be
         filed by the Corporation  pursuant to the Registration Rights Agreement
         between the  Corporation  and its initial holders of Series A Preferred
         Shares (the "Registration  Rights Agreement"),  (iii) the date that the
         Registration  Statement is declared  effective by the SEC any holder of
         Series A  Preferred  Shares  shall be  entitled to convert any Series A
         Preferred Shares into fully paid and  nonassessable  shares (rounded to
         the  nearest  whole share in  accordance  with  Section  3(h) below) of
         Common Stock,  at the  Conversion  Rate (as defined  below);  provided,
         however,  that in no  event  other  than  upon a  Mandatory  Conversion
         pursuant to Section 3(g) hereof, or upon a Triggering Event pursuant to
         Section 5(b) hereof,  shall any holder be entitled to convert  Series A
         Preferred  Shares in excess of that number of Series A Preferred Shares
         which, upon giving effect to such conversion, would cause the aggregate
         number of shares of Common Stock  beneficially  owned by the holder and
         its affiliates to exceed 4.9% of the then issued and outstanding shares
         of Common  Stock of the  Corporation  following  such  conversion.  For
         purposes of the foregoing  proviso,  the aggregate  number of shares of
         Common Stock  beneficially owned by the holder and its affiliates shall
         include the number of shares of Common Stock  issuable upon  conversion
         of  the  Series  A  Preferred   Shares   with   respect  to  which  the
         determination  of such  proviso is being  made,  but shall  exclude the
         number  of  shares  of  Common  Stock  which  would  be  issuable  upon
         conversion of the remaining,  non-converted  Series A Preferred  Shares
         beneficially  owned by the  holder  and its  affiliates.  Except as set
         forth  in the  preceding  sentence,  for  purposes  of this  paragraph,
         beneficial  ownership  shall be calculated  in accordance  with Section
         13(d) of the  Securities  Exchange Act of 1934,  as amended  ("Exchange
         Act"), and the rules thereunder;

                                      G-2
<PAGE>

                  (b)  Conversion  Rate.  The  number of shares of Common  Stock
         issuable  upon  conversion  of each of the  Series A  Preferred  Shares
         pursuant  to  Section  (3)(a)  shall  be  determined  according  to the
         following formula (the "Conversion Rate"):

                              (.06)(N/365)(10,000) + 10,000
                              -----------------------------
                                     Conversion Price

                  For purposes of this  Certificate of Amendment,  the following
         terms shall have the following meanings:

                           (i)  "Conversion  Price" means as, of any  Conversion
                  Date (as  defined  below),  the lower of the Fixed  Conversion
                  Price and the Floating  Conversion Price, each in effect as of
                  such  date,  if  applicable,  and  subject  to  adjustment  as
                  provided herein;

                           (ii)  "Fixed  Conversion  Price"  means  120%  of the
                  Closing Bid Price on the day immediately  preceding the day of
                  the closing of the sale and issuance of the Series A Preferred
                  Shares  ("Closing  Date") subject to  adjustment,  as provided
                  herein;

                           (iii)  "Floating  Conversion  Price" means, as of any
                  date of determination,  the amount obtained by multiplying the
                  Conversion Percentage in effect as of such date by the Average
                  Market  Price for the  Common  Stock for any five (5)  trading
                  days  of  the  previous  ten  (10)  trading  days  immediately
                  preceding the date of conversion;

                           (iv)    "Conversion Percentage" means 80% as adjuste
                  as described herein;

                           (v) "Average Market Price" means, with respect to any
                  security for any period, that price which shall be computed as
                  the  arithmetic  average of the Closing Bid Prices (as defined
                  below) for such security for each trading day in such period;

                           (vi) "Closing Bid Price"  means,  for any security as
                  of any date,  the last  closing bid price on The Nasdaq  Stock
                  Market,  Inc.'s  SmallCap Market (the  "Nasdaq-Small  Cap") as
                  reported by Bloomberg Financial Markets ("Bloomberg"),  or, if
                  the  Nasdaq-SmallCap  is not the principal  trading market for
                  such security,  the last closing bid price of such security on
                  the principal securities exchange or trading market where such
                  security is listed or traded as reported by  Bloomberg,  or if
                  the foregoing do not apply, the last closing bid price of such

                                      G-3
<PAGE>

                  security in The Nasdaq Stock Market, Inc.'s OTC Bulletin Board
                  or, if not so quoted,  in the "pink  sheets" for such security
                  as  reported  by  Bloomberg,  or, if no  closing  bid price is
                  reported  for such  security by  Bloomberg,  the last  closing
                  trade price of such security as reported by Bloomberg.  If the
                  Closing Bid Price cannot be  calculated  for such  security on
                  such date on any of the foregoing bases, the Closing Bid Price
                  of such  security on such date shall be the fair market  value
                  as  reasonably  determined  in  good  faith  by the  Board  of
                  Directors of the Corporation  (all as  appropriately  adjusted
                  for  any  stock   dividend,   stock  split  or  other  similar
                  transaction during such period); and

                           (vii)  "N"  means  the  number  of  days  from,   but
                  excluding,   the  Issuance  Date  through  and  including  the
                  Conversion  Date for the Series A  Preferred  Shares for which
                  conversion is being elected; and

                           (viii)  "Issuance Date" means the date of issuance of
                  the Series A Preferred Shares.

                  (c)  Penalty -  Registration  Statement.  If the  Registration
         Statement  is not  declared  effective  by the SEC on or before the one
         hundred and  fiftieth  (150th) day  following  the  Issuance  Date (the
         "Scheduled Effective Date"), or if after the Registration Statement has
         been  declared  effective by the SEC,  sales cannot be made pursuant to
         the  Registration  Statement  (whether because of a failure to keep the
         Registration  Statement  effective,  to disclose such information as is
         necessary for sales to be made pursuant to the Registration  Statement,
         to register  sufficient shares of Common Stock or otherwise),  then, as
         partial  relief  for the  damages  to any  holder by reason of any such
         delay in or reduction of its ability to sell the  underlying  shares of
         Common Stock (which remedy shall not be exclusive of any other remedies
         at law or in equity), then:

                           (i) the  Corporation  will pay as liquidated  damages
                  (the "Liquidated Damages") in penalties to the Buyer(s) a cash
                  amount  within three (3) business days of the end of the month
                  immediately  following  the Scheduled  Effective  Date and for
                  each month  thereafter  in an amount equal to one and one half
                  percent (1 1/2 %) of the Liquidation  Value. (For example,  if
                  the  Registration  Statement  becomes  effective one (l) month
                  after the Scheduled  Effective Date, the Corporation  will pay
                  in cash to the Buyer(s) an aggregate  of Seven  Thousand  Five
                  dollars  ($7,500) in Liquidated  Damages (1 1/2% of $500,000);
                  if, as a further  example,  thereafter sales could not be made
                  pursuant to the Registration Statement for a period of one and
                  one half (1 1/2) months,  the Corporation  will pay in cash to

                                      G-4
<PAGE>

                  the Buyer(s) an  aggregate of Eleven  Thousand Two Hundred and
                  Fifty dollars ($11,250) in Liquidated  Damages ($7,500 for the
                  first month plus $3,750 for the half of second month); and if,
                  as a  further  example,  thereafter  sales  could  not be made
                  pursuant to the Registration Statement for a period of two (2)
                  months after the Scheduled  Effective  Date,  the  Corporation
                  will  pay in cash to the  Buyer(s)  an  aggregate  of  Fifteen
                  Thousand dollars  ($15,000) in Liquidated  Damages ($7,500 for
                  the first month plus $7,500 for the second month).

                  (d)  Adjustment  to  Conversion  Price -  Dilution  and  Other
         Events.  In order to prevent  dilution of the rights granted under this
         Certificate  of  Amendment,  the  Conversion  Price  will be subject to
         adjustment from time to time as provided in this Section 2(d).

                           (i)  Adjustment  of  Fixed   Conversion   Price  upon
                  Subdivision or Combination of Common Stock. If the Corporation
                  at any time  subdivides (by any stock split,  stock  dividend,
                  re-capitalization  or  otherwise)  one or more  classes of its
                  outstanding  shares of Common  Stock into a greater  number of
                  shares, the Fixed Conversion Price in effect immediately prior
                  to such subdivision will be  proportionately  reduced.  If the
                  Corporation  at any time  combines  (by  combination,  reverse
                  stock  split  or  otherwise)   one  or  more  classes  of  its
                  outstanding  shares of Common  Stock into a smaller  number of
                  shares, the Fixed Conversion Price in effect immediately prior
                  to such combination will be proportionately increased.

                           (ii) Reorganization, Reclassification, Consolidation,
                  Merger,   or  Sale.   Any   recapitalization,   reorganization
                  reclassification,   consolidation,  merger,  sale  of  all  or
                  substantially  all  of the  Corporation's  assets  to  another
                  Person (as defined below) or other similar  transaction  which
                  is  effected  in such a way that  holders of Common  Stock are
                  entitled  to  receive  (either  directly  or  upon  subsequent
                  liquidation) stock, securities or assets with respect to or in
                  exchange for Common Stock is referred to herein as an "Organic
                  Change." Prior to the consummation of any Organic Change,  the
                  Corporation  will  make  appropriate  provision  (in  form and
                  substance reasonably satisfactory to the Holders of a majority
                  of the Series A Preferred  Shares then  outstanding) to insure
                  that, upon the  consummation  of such Organic Change,  each of
                  the Holders of the Series A Preferred  Shares will  thereafter
                  have the right to acquire  and receive in lieu of the Series A
                  Preferred Shares,  such shares of stock,  securities or assets
                  as may be issued or payable with respect to or in exchange for
                  the number of shares of Common Stock  immediately  theretofore
                  acquirable and receivable upon the conversion of such holder's

                                      G-5
<PAGE>

                  Series A Preferred  Shares had such  Organic  Change not taken
                  place. In any such case, the Corporation will make appropriate
                  provision (in form and substance  reasonably  satisfactory  to
                  the  Holders of a majority  of the Series A  Preferred  Shares
                  then  outstanding)  with respect to such  holders'  rights and
                  interests to insure that the  provisions  of this Section 3(d)
                  and Section 3(e) below will  thereafter  be  applicable to the
                  Series A Preferred  Shares.  For  purposes of this  Agreement,
                  "Person"  shall  mean  an  individual,   a  limited  liability
                  company,  a  partnership,  a joint venture,  a corporation,  a
                  trust, an unincorporated  organization and a government or any
                  department or agency thereof.

                           (iii) Notices.

                                    (A)  Immediately  upon any adjustment of the
                           Conversion  Price  pursuant to this Section 3(d), the
                           Corporation  will give written notice thereof to each
                           holder of Series A Preferred Shares, setting forth in
                           reasonable  detail and certifying the  calculation of
                           such adjustment.

                                    (B) The Corporation will give written notice
                           to each Holder of Series A Preferred  Shares at least
                           twenty  (20)  days  prior to the  date on  which  the
                           Corporation  closes  its books or takes a record  (I)
                           with respect to any dividend or distribution upon the
                           Common  Stock,  (II)  with  respect  to any pro  rata
                           subscription  offer to  holders  of  Common  Stock or
                           (III) for determining  rights to vote with respect to
                           any Organic Change, dissolution or liquidation.

                                    (C) The  Corporation  will also give written
                           notice to each Holder of Series A Preferred Shares at
                           least twenty (20) days prior to the date on which any
                           Organic Change, Major Transaction (as defined below),
                           dissolution or liquidation will take place.

                  (e) Purchase  Rights.  If at any time the Corporation  grants,
         issues  or sells  any  options,  convertible  securities  or  rights to
         purchase stock, warrants,  securities or other property pro rata to the
         record  holders of any class of Common Stock (the  "Purchase  Rights"),
         then the  holders of Series A  Preferred  Shares  will be  entitled  to
         acquire,  upon  the  terms  applicable  to such  Purchase  Rights,  the
         aggregate Purchase Rights which such holder could have acquired if such
         holder had held the number of shares of Common  Stock  acquirable  upon
         complete conversion of the Series A Preferred Shares immediately before
         the date an which a record is taken for the grant,  issuance or sale of
         such Purchase  Rights,  or, if no such record is taken,  the date as of
         which the record  holders of Common Stock are to be determined  for the
         grant, issue or sale of such Purchase Rights.

                                      G-6
<PAGE>

                  (f)  Mechanics  of  Conversion.  Subject to the  Corporation's
         inability to fully satisfy its  obligations  under a Conversion  Notice
         (as defined below) as provided for in Section 6 below:

                           (i)  Holder's  Delivery   Requirements.   Subject  to
                  Section  3(a), in order to convert  Series A Preferred  Shares
                  into full shares of Common Stock on any date (the  "Conversion
                  Date"),  the holder  thereof  shall (A) deliver or transmit by
                  facsimile,  for  receipt  on or prior to 11:59  p.m.,  Eastern
                  Standard Time, on such date, a copy of a fully executed notice
                  of conversion  in the form  attached  hereto as Exhibit I (the
                  "Conversion  Notice")  to the  Corporation  or its  designated
                  transfer agent (the "Transfer Agent"),  and (B) surrender to a
                  common carrier for delivery to the Corporation or the Transfer
                  Agent as soon as practicable following such date, the original
                  certificates  representing the Series A Preferred Shares being
                  converted (or an  indemnification  undertaking with respect to
                  such shares in the case of their loss,  theft or  destruction)
                  (the  "Preferred  Stock   Certificates")  and  the  originally
                  executed  Conversion  Notice.  Each  Conversion  Notice  shall
                  specify  the  number  of  Series  A  Preferred  Shares  to  be
                  converted  and the  date on  which  such  conversion  is to be
                  effected,  which  date may not be prior to the date the holder
                  delivers such Conversion Notice.

                           (ii)  Corporation's  Response.  Upon  receipt  by the
                  Corporation  of a facsimile copy of a Conversion  Notice,  the
                  Corporation   shall   immediately   send,  via  facsimile,   a
                  confirmation  of  receipt  of such  Conversion  Notice to such
                  holder.  Upon receipt by the Corporation or the Transfer Agent
                  of the Preferred Stock  Certificates to be converted  pursuant
                  to a Conversion Notice,  together with the originally executed
                  Conversion  Notice,  the Corporation or the Transfer Agent (as
                  applicable) shall, within ten (10) business days following the
                  date of receipt,  (A) issue and surrender to a common  carrier
                  for  overnight  delivery  to the address as  specified  in the
                  Conversion  Notice,  a certificate,  registered in the name of
                  the holder or its designee, for the number of shares of Common
                  Stock to which the holder  shall be entitled or (B) credit the
                  aggregate number of shares of Common Stock to which the holder
                  shall be entitled to the  holder's or its  designee's  balance
                  account at The Depository Trust Corporation.

                           (iii) Dispute Resolution. In the case of a dispute as
                  to  the  determination  of the  Average  Market  Price  or the
                  arithmetic calculation of the Conversion Rate, the Corporation
                  shall  promptly  issue to the  holder  the number of shares of
                  Common  Stock  that  is not  disputed  and  shall  submit  the

                                      G-7
<PAGE>

                  disputed  determinations  or  arithmetic  calculations  to the
                  holder via facsimile within three (3) business days of receipt
                  of such  holder's  Conversion  Notice.  If such holder and the
                  Corporation are unable to agree upon the  determination of the
                  Average   Market  Price  or  arithmetic   calculation  of  the
                  Conversion  Rate within two (2) business days of such disputed
                  determination or arithmetic calculation being submitted to the
                  holder, then the Corporation shall within one (1) business day
                  submit via  facsimile  (A) the disputed  determination  of the
                  Average Market Price to an independent,  reputable  investment
                  bank  designated  by  the  Corporation,  or (B)  the  disputed
                  arithmetic   calculation  of  the   Conversion   Rate  to  its
                  independent,  outside accountant.  The Corporation shall cause
                  the investment bank or the accountant,  as the case may be, to
                  perform  the  determinations  or  calculations  and notify the
                  Corporation  and the  holder  of the  results  no  later  than
                  forty-eight  (48) hours from the time it receives the disputed
                  determinations  or  calculations.  Such  investment  bank's or
                  accountant's determination or calculation, as the ease may be,
                  shall be binding upon all parties absent manifest error.

                           (iv) Record Holder. The person or persons entitled to
                  receive the shares of Common Stock  issuable upon a conversion
                  of Series A Preferred Shares shall be treated for all purposes
                  as the record holder or holders of such shares of Common Stock
                  following such conversion.

                           (v) Corporation's  Failure to Timely Convert.  If the
                  Corporation  shall fail to issue to a holder  within seven (7)
                  business days following the date of receipt by the Corporation
                  or the Transfer Agent of the Preferred  Stock  Certificates to
                  be converted  pursuant to a Conversion  Notice,  a certificate
                  for the number of shares of Common  Stock to which such holder
                  is  entitled  upon  such  holder's   conversion  of  Series  A
                  Preferred Shares, in addition to all other available  remedies
                  which  such  holder  may  pursue   hereunder   and  under  the
                  securities  purchase agreement between the Corporation and the
                  initial  holders of the Series A Preferred  Shares pursuant to
                  which such  holders  purchased  the Series A Preferred  Shares
                  (the    "Securities    Purchase     Agreement")     (including
                  indemnification   pursuant   to   Section  8   thereof),   the
                  Corporation  shall pay  additional  damages to such  holder on
                  each day after the seven (7th) business day following the date
                  of receipt by the  Corporation  or the  Transfer  Agent of the
                  Preferred Stock  Certificates to be converted  pursuant to the
                  Conversion  Notice,  for which such  conversion  is not timely
                  effected,   an  amount   calculated  in  accordance  with  the
                  following schedule:

                                      G-8
<PAGE>

                                                    Late Payment for Each
                     Principal Amount Being       Series A Preferred Share
                     No. Business Days Late              Converted
                     ----------------------       ------------------------

                               1                            $100
                               2                            $200
                               3                            $300
                               4                            $400
                               5                            $500
                               6                            $600
                               7                            $700
                               8                            $800
                               9                            $900
                              10                          $1,000

                              11             $1,000 + $200   for
                                             each  Business Days
                                             Late Beyond 10 days

                  (g)  Mandatory  Conversion.  If any Series A Preferred  Shares
         remain  outstanding on April 14, 2002, then all such Series A Preferred
         Shares  shall be  converted  as of such  date in  accordance  with this
         Section 2 as if the holders of such Series A Preferred Shares had given
         the Conversion  Notice on April 14, 2002,  and the Conversion  Date had
         been fixed as of April 14,  2002,  for all  purposes of this Section 2,
         and all holders of Series A Preferred  Shares shall  thereupon and with
         two  (2)  business  days  thereafter   surrender  all  Preferred  Stock
         Certificates, duly endorsed for cancellation, to the Corporation or the
         Transfer Agent.  No person shall  thereafter have any rights in respect
         of Series A  Preferred  Shares,  except the right to receive  shares of
         Common Stock on conversion thereof as provided in this Section 2.

                  (h) Fractional  Shares.  The  Corporation  shall not issue any
         fraction of a share of Common Stock upon any conversion.  All shares of
         Common Stock (including  fractions thereof) issuable upon conversion of
         more  than one  share  of the  Series A  Preferred  Shares  by a holder
         thereof shall be  aggregated  for purposes of  determining  whether the
         conversion  would  result in the  issuance  of a fraction of a share of
         Common Stock. If, after the  aforementioned  aggregation,  the issuance
         would result in the issuance of a fraction of a share of Common  Stock,
         the Corporation shall round such fraction of a share of Common Stock up
         or down to the nearest whole share.

                  (i) Notwithstanding anything to the contrary set forth in this
         Certificate of Designations,  the Corporation shall not be obligated to
         issue in excess of 11,875,000  conversion Shares upon conversion of the
         Series A Preferred Shares.

                                      G-9
<PAGE>

         4. Corporation's Right to Redeem at its Election.

                  (a) At any time,  commencing 120 days after the Issuance Date,
         as long as the Corporation has not breached any of the representations,
         warranties,   and  covenants   contained   herein  or  in  any  related
         agreements,   the  Corporation   shall  have  the  right,  in  it  sole
         discretion,  to redeem ("Redemption at Corporation's  Election"),  from
         time to time,  any or all of the Series A Preferred  Shares  which have
         not previously  been redeemed at a price equal to the Redemption  Price
         at Corporation's  Election below,  provided (i) Corporation shall first
         provide  thirty  (30)  days  advance  written  notice  as  provided  in
         subparagraph 4(a)(ii) below (which can be given any time on or after 90
         days after the Issuance Date, and (ii) that the Corporation  shall only
         be entitled to redeem  Series A Preferred  Shares  having an  aggregate
         Stated Value of at least One Hundred  Thousand Dollars  ($100,000).  If
         the  Corporation  elects to redeem  some,  but not all, of the Series A
         Preferred  Shares,  the Corporation shall redeem a pro-rata amount from
         each Holder of the Series A Preferred Shares.

                           (i) Redemption Price At Corporation's  Election.  The
                  "Redemption   Price  at   Corporation's   Election"  shall  be
                  calculated as 120% of the  Liquidation  Value, as that term is
                  defined in Section 10 hereof.

                           (ii)   Mechanics  of  Redemption   at   Corporation's
                  Election. The Corporation shall effect each such redemption by
                  giving at least thirty (30) days prior written notice ("Notice
                  of Redemption at  Corporation's  Election") to (A) the holders
                  of the Series A Preferred  Shares  selected for  redemption at
                  the address and facsimile  number of such holder  appearing in
                  the  Corporation's  Series A Preferred Shares register and (B)
                  the   Transfer   Agent,   which   Notice  of   Redemption   At
                  Corporation's  Election shall be deemed to have been delivered
                  three (3) business  days after the  Corporation's  mailing (by
                  overnight or two (2) day courier, with a copy by facsimile) of
                  such Notice of  Redemption  at  Corporation's  Election.  Such
                  Notice of Redemption At Corporation's  Election shall indicate
                  (i) the  number of shares of Series A  Preferred  Shares  that
                  have been  selected for  redemption,  (ii) the date which such
                  redemption is to become  effective (the "Date of Redemption At
                  Corporation's  Election") and (iii) the applicable  Redemption
                  Price At  Corporation's  Election,  as defined  in  subsection
                  (a)(i) above.  Notwithstanding the above, a holder may convert
                  into Common Stock,  prior to the close of business on the Date
                  of  Redemption  at  Corporation's   Election,   any  Series  A
                  Preferred  Shares which it is  otherwise  entitled to convert,
                  including Series A Preferred Shares that has been selected for
                  redemption  at   Corporation's   election   pursuant  to  this
                  subsection 4(a).

                                      G-10
<PAGE>

                  (b)  Corporation  Must  Have  Immediately  Available  Funds or
         Credit  Facilities.  The Corporation  shall not be entitled to send any
         Notice of Redemption at Corporation's Election and begin the redemption
         procedure under Sections 4(a) unless it has:

                           (i) the full amount of the redemption  price in cash,
                  available in a demand or other  immediately  available account
                  in a bank or similar financial institution; or

                           (ii) immediately available credit facilities,  in the
                  full  amount of the  redemption  price  with a bank or similar
                  financial institution; or

                           (iii) an agreement with a standby underwriter willing
                  to purchase from the Corporation a sufficient number of shares
                  of stock to  provide  proceeds  necessary  to redeem any stock
                  that is not converted prior to redemptions; or

                           (iv) a combination of the  items set  forth  in  (i),
                  (ii), and (iii)  above,  aggregating  the full amount  of  the
                  redemption price.

                  (c) Payment of Redemption Price. Each Holder submitting Series
         A Preferred Shares being redeemed under this Section 4 shall send their
         Series A Preferred Share Certificates to be redeemed to the Corporation
         or its Transfer  Agent,  and the  Corporation  shall pay the applicable
         redemption  price to that Holder  within five (5) business  days of the
         Date of Redemption at Corporation's Election.

         5.       Redemption at Option of Holders.

                  (a) Redemption Option Upon Major  Transaction.  In addition to
         all other rights of the holders of Series A Preferred  Shares contained
         herein,  after a Major  Transaction (as defined below),  the holders of
         Series A  Preferred  Shares  then  outstanding  shall have the right in
         accordance  with Section 5(f), at the option of the holders of at least
         two-thirds (2/3) of the Series A Preferred Shares then outstanding,  to
         require the Corporation to redeem all of the Series A Preferred  Shares
         then  outstanding at a price per Series A Preferred  Share equal to the
         greater of (i) 100% of the Liquidation Value (as defined below) of such
         shares and (ii) the price  calculated in accordance with the Redemption
         Rate  (as  defined  below)  calculated  as of the  date  of the  public
         announcement  of such Major  Transaction  or the next date on which the
         exchange or market on which the Common  Stock is traded is open if such
         public  announcement is made (A) after 1:00 p.m.  Eastern Standard Time
         on such date or (B) on a date on which the  exchange or market on which
         the Common Stock is traded or quoted is closed.

                                      G-11
<PAGE>

                  (b) Redemption  Option Upon  Triggering  Event. In addition to
         all other rights of the holders of Series A Preferred  Shares contained
         herein,  after a Triggering  Event (as defined  below),  the holders of
         Series A  Preferred  Shares  the  outstanding  shall  have the right in
         accordance  with Section 5(g), at the option of the holders of at least
         two-thirds (2/3) of the Series A Preferred Shares then outstanding,  to
         require the Corporation to redeem all of the Series A Preferred  Shares
         then  outstanding at a price per Series A Preferred  Share equal to the
         greater of (i) 125% of the Liquidation Value of such share and (ii) the
         price  calculated in accordance with the Redemption Rate as of the date
         immediately  preceding such  Triggering  Event on which the exchange or
         market on which the Common Stock is traded or quoted is open.

                  (c) "Redemption  Rate." The "Redemption Rate" shall, as of any
         date of determination, be equal to (i) the Conversion Rate in effect as
         of such date as calculated  pursuant to Section 3(b) multiplied by (ii)
         the Closing Bid Price of the Common Stock on such date.

                  (d) "Major Transaction." A "Major Transaction" shall be deemed
         to have occurred at such time as any of the following events:

                           (i) the  consummation of any merger,  reorganization,
         restructuring,  consolidation,  or similar  transaction by or involving
         the  Corporation  except  (A)  a  merger  or  consolidation  where  the
         Corporation is the survivor,  or where the holders of the capital stock
         of the Corporation  immediately  prior to such merger or  consolidation
         own at least  50% of the  outstanding  capital  stock of the  surviving
         entity,  (B)  pursuant to a migratory  merger  effected  solely for the
         purpose  of  changing  the   jurisdiction  of   incorporation   of  the
         Corporation,  or (C) any such  transaction in which each of the holders
         of the Series A Preferred  Shares  receives cash at least equal to 120%
         of the  Liquidation  Value of such shares in  accordance  with  Section
         5(d)(ii) hereof;

                           (ii) sale of all or  substantially  all of the assets
         of the Corporation on a consolidated  basis or any similar  transaction
         or related  transactions which effectively  results in a sale of all or
         substantially  all of the assets of the  Corporation  on a consolidated
         basis,  unless, upon consummation of such transaction,  the Corporation
         reserves  an amount in cash at least  equal to 125% of the  Liquidation
         Value of the  Series A  Preferred  Shares for  payment  to the  holders
         thereof.

                  (e) "Triggering  Event." A "Triggering  Event" shall be deemed
         to have occurred at such time as any of the following events:

                                      G-12
<PAGE>

                           (i)  either  (A)  the  failure  of  the  Registration
         Statement to be declared effective by the SEC or to cover the resale of
         all of the shares of Common Stock issued or issuable upon conversion of
         the Series A Preferred  Shares at any time after ninety (90) days after
         the Scheduled Effective Date (provided that for purposes of determining
         the Closing Bid Price under Section 5(c) above,  the  Triggering  Event
         shall be deemed to have  occurred  on the first day of such ninety (90)
         day period) or (B) for any period of ninety (90) consecutive days after
         the date that is ninety (90) days after the  Scheduled  Effective  Date
         that Common Stock issued or issuable  upon  conversion  of the Series A
         Preferred  Shares cannot be sold under the  Registration  Statement for
         any reason  (provided that for purposes of determining  the Closing Bid
         Price under Section 5(c) above, the Triggering Event shall be deemed to
         have occurred on the first day of such ninety (90) day period);

                           (ii) if for  any  reason  the  Corporation  fails  to
         perform  or  observe  any  covenant,   agreement,  or  other  provision
         contained in Section 9 or 10 hereof;

                           (iii)  the  Corporation's  notice to the  holders  of
         Series A  Preferred  Shares  as a  class,  including  by way of  public
         announcement,  at any time, of its intention not to comply,  other than
         in accordance  with the terms hereof,  with requests for  conversion of
         any Series A Preferred Shares for shares of Common Stock;

                           (iv) if for  any  reason  the  Corporation  fails  to
         perform  or  observe  any  covenant,   agreement,  or  other  provision
         contained  herein  or  in  the  Securities  Purchase   Agreement,   the
         Registration  Rights Agreement,  or in any related agreement,  and such
         failure is not cured  within 30 days after the  Corporation  knows,  or
         should have known with the  exercise of  reasonable  diligence,  of the
         occurrence  thereof,  and such failure has had, or could  reasonably be
         expected  to have,  a  material  adverse  effect  on (A) the  financial
         condition,  operating results,  business,  properties, or operations of
         the  Corporation  and its  subsidiaries  taken as a whole  taking  into
         account  any  proceeds  reasonably  expected  to  be  received  by  the
         Corporation  or  its  subsidiaries  in  the  foreseeable   future  from
         insurance  policies  or rights of  indemnification  or (B) the Series A
         Preferred Shares; or

                           (v) any  representation or warranty  contained in the
         Securities  Purchase Agreement or the Registration  Rights Agreement is
         false or misleading on or as of the date made and which either reflects
         or has had a material  adverse effect on and which,  upon the date that
         the  holders  require the  Corporation  to redeem the Class A Preferred
         Shares continues to have a material adverse effect on (A) the financial
         condition,  operating results,  business,  properties, or operations of
         the  Corporation  and its  subsidiaries  taken as a whole  taking  into
         account  any  proceeds  reasonably  expected  to  be  received  by  the
         Corporation  or  its  subsidiaries  in  the  foreseeable   future  from
         insurance  policies  or rights of  indemnification  or (B) the Series A
         Preferred Shares.

                                      G-13
<PAGE>

                  (f)  Mechanics  of  Redemption  at Option of Buyer  Upon Major
         Transaction.  No sooner than  fifteen (15) days nor later than ten (10)
         days prior to the consummation of a Major Transaction, but not prior to
         the public  announcement  of such Major  Transaction,  the  Corporation
         shall  deliver  written  notice  thereof via  facsimile  and  overnight
         courier  ("Notice  of Major  Transaction")  to each  holder of Series A
         Preferred  Shares.  At any time  after  receipt  of a  Notice  of Major
         Transaction,  the holders of at least  two-thirds (2/3) of the Series A
         Preferred Shares then outstanding may require the Corporation to redeem
         all of the  holders'  Series A  Preferred  Shares then  outstanding  in
         accordance  with Section 5(a) by delivering  written notice thereof via
         facsimile  and  overnight  courier  ("Notice of Redemption at Option of
         Buyer Upon Major  Transaction")  to the  Corporation,  which  Notice of
         Redemption at Option of Buyer Upon Major Transaction shall indicate (i)
         the number of Series A Preferred Shares that such holders are voting in
         favor of  redemption  and  (ii) the  applicable  redemption  price,  as
         calculated pursuant to Section 5(a) above. Unless the Corporation shall
         fail to fully  redeem all of the  holder's  Series A  Preferred  Shares
         pursuant to this Section 5, any notice delivered by the holder pursuant
         to this subsection shall be irrevocable.

                  (g) Mechanics of Redemption at Option of Buyer Upon Triggering
         Event. As soon as  practicable,  but in any event no more than five (5)
         business  days  after  the  occurrence  of  a  Triggering   Event,  the
         Corporation  shall  deliver  written  notice  thereof via facsimile and
         overnight  courier  ("Notice  of  Triggering  Event") to each holder of
         Series A  Preferred  Shares.  At any time after  receipt of a Notice of
         Triggering  Event,  the  holders  of at least  two-thirds  (2/3) of the
         Series A Preferred  Shares then outstanding may require the Corporation
         to redeem all of the Series A  Preferred  Shares  then  outstanding  in
         accordance  with Section 5(b) by delivering  written notice thereof via
         facsimile  and  overnight  courier  ("Notice of Redemption at Option of
         Buyer Upon  Triggering  Event")  to the  Corporation,  which  Notice of
         Redemption at Option of Buyer Upon Triggering  Event shall indicate (i)
         the number of Series A Preferred Shares that such holders are voting in
         favor of  redemption  and  (ii) the  applicable  redemption  price,  as
         calculated pursuant to Section 5(b) above. Unless the Corporation shall
         fail to fully  redeem all of the  holder's  Series A  Preferred  Shares
         pursuant to this Section 5, any notice delivered by the holder pursuant
         to this subsection shall be irrevocable.

                  (h)  Payment  of  Redemption  Price.  Upon  the  Corporation's
         receipt  of a  Notice(s)  of  Redemption  at Option of Buyer Upon Major
         Transaction  or a  Notice(s)  of  Redemption  at Option  of Buyer  Upon
         Triggering  Event,  as the case may be,  from the  holders  of at least
         two-thirds (2/3) of the Series A Preferred Shares then outstanding, the
         Corporation  shall  immediately  notify each holder by facsimile of the
         Corporation's  receipt of such requisite  notices necessary to effect a

                                      G-14
<PAGE>

         redemption  and  each  holder  of  Series  A  Preferred   Shares  shall
         thereafter  promptly send such holder's Preferred Stock Certificates to
         be redeemed to the Corporation or its Transfer  Agent.  The Corporation
         shall pay the applicable  redemption  price, as calculated  pursuant to
         Section 5(a) or 5(b) above,  in cash to such holder  within thirty (30)
         days after the Corporation's  receipt of the requisite notices required
         to  effect a  redemption;  provided  that a  holder's  Preferred  Stock
         Certificates  shall have been so  delivered to the  Corporation  or its
         Transfer Agent;  provided  further that if the Corporation is unable to
         redeem all of the Series A  Preferred  Shares,  the  Corporation  shall
         redeem an amount from each holder of Series A Preferred Shares equal to
         such  holder's  pro-rata  amount  (based  on the  number  of  Series  A
         Preferred Shares held by such holder relative to the number of Series A
         Preferred  Shares  outstanding) of all Series A Preferred  Shares being
         redeemed.  If the Corporation  shall fall to redeem all of the Series A
         Preferred  Shares  submitted for  redemption  (other than pursuant to a
         dispute  as to  the  determination  of the  Closing  Bid  Price  or the
         arithmetic   calculation  of  the  Redemption   Rate),  the  applicable
         redemption  price  payable  in  respect  of such  unredeemed  Series  A
         Preferred Shares shall bear interest at the rate of 2.5% per month (pro
         rated for partial  months)  until paid in full.  Until the  Corporation
         pays such unpaid  applicable  redemption  price in full to each holder,
         holders of at least  two-thirds  (2/3) of the Series A Preferred Shares
         then  outstanding,  including  shares  of  Series  A  Preferred  Shares
         submitted for  redemption  pursuant to this Section 4 and for which the
         applicable  redemption  price has not been paid,  shall have the option
         (the "Void  Optional  Redemption  Option")  to, in lieu of  redemption,
         require the  Corporation  to promptly  return to each holder all of the
         Series A Preferred  Shares that were  submitted for  redemption by such
         holder  under this  Section 5 and for which the  applicable  redemption
         price has not been  paid,  by  sending  written  notice  thereof to the
         Corporation via facsimile (the "Void Optional Redemption Notice"). Upon
         the Corporation's  receipt of such Void Optional  Redemption  Notice(s)
         and prior to payment of the full  applicable  redemption  price to each
         holder,  (i) the  Notice(s)  of  Redemption  at  Option  of Buyer  Upon
         Triggering Event or the Notice(s) of Redemption at Option of Buyer Upon
         Major  Transaction,  as the  case may be,  shall be null and void  with
         respect to those Series A Preferred Shares submitted for redemption and
         for which the applicable  redemption  price has not been paid, (ii) the
         Corporation  shall  immediately  return any  Certificates  for Series A
         Preferred  Shares  submitted  to the  Corporation  by each  holder  for
         redemption  under  this  Section  4(h)  and for  which  the  applicable
         redemption price had not been paid, (iii) the Fixed Conversion Price of
         such returned Series A Preferred Shares shall be adjusted to the lesser
         of (A) the Fixed Conversion Price as in effect on the date on which the
         Void Option  Redemption  Notice(s) is delivered to the  Corporation and
         (B) the lowest  Closing Bid Price  during the period  beginning  on the
         date on which the Notice(s) of Redemption of Option of Buyer Upon Major

                                      G-15
<PAGE>

         Transaction  or the  Notice(s)  of  Redemption  at Option of Buyer Upon
         Triggering  Event,  as the case may be, is delivered to the Corporation
         and ending on the date on which the Void Optional Redemption  Notice(s)
         is delivered to the  Corporation;  provided that no adjustment shall be
         made if such  adjustment  would  result  in an  increase  of the  Fixed
         Conversion Price then in effect, and (iv) the Conversion  Percentage in
         effect  at such time and  thereafter  shall be  reduced  by a number of
         percentage  points equal to the product of (A) two and  one-half  (2.5)
         and (B) the  number of months  (prorated  for  partial  months)  in the
         period  beginning on the date on which the  Notice(s) of  Redemption at
         Option of Buyer Upon Major  Transaction  or the Notice(s) of Redemption
         at  Option  of Buyer  Upon  Triggering  Event,  as the case may be,  is
         delivered to the  Corporation  and ending on the date on which the Void
         Optional   Redemption   Notice(s)  is  delivered  to  the  Corporation.
         Notwithstanding  the  foregoing,  in the event of a  dispute  as to the
         determination of the Closing Bid Price or the arithmetic calculation of
         the Redemption Rate, such dispute shall be resolved pursuant to Section
         3(f)(iii) above with the term "Closing Bid Price" being substituted for
         the term "Average  Market Price" and the term  "Redemption  Rate" being
         substituted for the term "Conversion Rate."

         6.       Inability to Fully Convert.

                  (a) Holder's Option if Corporation Cannot Fully Convert. If at
         any  time  after  the  earlier  to occur  of (i)  effectiveness  of the
         Registration  Statement  or (ii) ninety  (90) days after the  Scheduled
         Effective Date, upon the Corporation's  receipt of a Conversion Notice,
         the  Corporation  does not  issue  shares  of  Common  Stock  which are
         registered for resale under the Registration Statement within seven (7)
         business  days of the time  required in  accordance  with  Section 3(f)
         hereof, for any reason or for no reason, including, without limitation,
         because the Corporation (x) does not have a sufficient number of shares
         of Common Stock authorized and available,  (y) is otherwise  prohibited
         by applicable law or by the rules or regulations of any stock exchange,
         inter-dealer  quotation  system or other  self-regulatory  organization
         with  jurisdiction  over the Corporation or its securities from issuing
         all of the Common  Stock  which is to be issued to a holder of Series A
         Preferred Shares pursuant to a Conversion Notice or (z) fails to have a
         sufficient number of shares of Common Stock registered and eligible for
         resale under the  Registration  Statement,  then the Corporation  shall
         issue  as many  shares  of  Common  Stock  as it is able  to  issue  in
         accordance with Stockholder's Conversion Notice and pursuant to Section
         3(f) above and,  with  respect to the  unconverted  Series A  Preferred
         Shares, the holder, solely at such holder's option, can, in addition to
         any other remedies such holder may have hereunder, under the Securities
         Purchase Agreement (including indemnification under Section 8 thereof),
         under the Registration Rights Agreement, at law or in equity, elect to:

                           (i)  require  the  Corporation  to  redeem  from such
         holder those  Series A Preferred  Shares for which the  Corporation  is
         unable  to  issue  Common  Stock  in  accordance   with  such  holder's
         Conversion  Notice  ("Mandatory  Redemption")  at a price per  Series A
         Preferred Share (the "Mandatory Redemption Price") equal to the greater
         of (x)  120%  of the  Liquidation  Value  of  such  share  and  (y) the
         Redemption Rate as of such Conversion Date;

                                      G-16
<PAGE>

                           (ii) void its  Conversion  Notice  and retain or have
         returned,  as  the  case  may  be  the  Certificates  representing  the
         unconverted  Series  A  Preferred  Shares  that  were  to be  converted
         pursuant to such holder's Conversion Notice.

         7.  Reissuance  of  Certificates.  In  the  event  of a  conversion  or
redemption  pursuant to this  Certificate  of  Amendment of less than all of the
Series  A  Preferred  Shares   represented  by  a  particular   Preferred  Stock
Certificate,  the Corporation shall promptly cause to be issued and delivered to
the holder of such  Series A  Preferred  Shares a  Preferred  Stock  Certificate
representing  the  remaining  Series A Preferred  Shares  which have not been so
converted or redeemed.

         8. Reservation of Shares.  The Corporation shall, so long as any of the
Series A Preferred Shares are outstanding, reserve and keep available out of its
authorized  and  unissued  shares of Common  Stock,  solely  for the  purpose of
effecting the conversion of the Series A Preferred Shares,  11,875,000 shares of
the Common  Stock to effect  the  conversion  of all of the  Series A  Preferred
Shares.  If at any time,  the  Corporation  does not have  available  11,875,000
authorized and unissued  shares of Common Stock to satisfy  conversion of all of
the Series A Preferred Shares outstanding, the Corporation shall call and hold a
special shareholders  meeting with thirty (30) days of such occurrence,  for the
sole  purpose  of  increasing  the  number of  authorized  shares.  Furthermore,
management of the  Corporation  shall  recommend to the  shareholders to vote in
favor of increasing  the number of common shares  authorized.  Management  shall
also vote all of its  shares in favor of  increasing  the  number of  authorized
shares of Common Stock.

         9. Voting  Rights.  Holders of Series A Preferred  Shares shall have no
voting  rights,  except as  required  by law,  including  but not limited to the
General  Corporation Law of the State of New Jersey and as expressly provided in
this Certificate of Amendment.

         10. Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation,  dissolution, or winding up of the Corporation,  the
holders of the Series A  Preferred  Shares  shall be entitled to receive in cash
out of the assets of the  Corporation,  whether  from  capital or from  earnings
available for distribution to its stockholders (the "Preferred  Funds"),  before
any  amount  shall be paid to the  holders  of any of the  capital  stock of the
Corporation  of any class  junior in rank to the  Series A  Preferred  Shares in
respect  of  the  preferences  as to  the  distributions  and  payments  on  the
liquidation, dissolution and winding up of the Corporation, an amount per Series
A Preferred  Share equal to the sum off (i) $10,000 and (ii) an amount  equal to
the  product  of (.06)  (N/365)  ($10,000)  (such sum being  referred  to as the
"Liquidation Value");  provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Series A Preferred  Shares and holders
of shares of other classes or series of preferred stock of the Corporation  that
are of equal rank with the Series A Preferred Shares as to payments of Preferred

                                      G-17
<PAGE>

Funds (thc "Pari Passu Shares"),  then each holder of Series A Preferred  Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full  amount of  Preferred  Funds  payable to such  holder as a  liquidation
preference,  in accordance with their  respective  Certificate of  Designations,
Preferences  and Rights as a percentage  or the full amount of  Preferred  Funds
payable to all holders of Series A Preferred  Shares and Pari Passu Shares.  The
purchase or  redemption by the  Corporation  of stock of any class in any manner
permitted  by  law,  shall  not  for  the  purposes  hereof,  be  regarded  as a
liquidation,   dissolution  or  winding  up  of  the  Corporation.  Neither  the
consolidation  or merger of the Corporation  with or into any other Person,  nor
the sale or transfer by the  Corporation of less than  substantially  all of its
assets,  shall,  for  the  purposes  hereof,  be  deemed  to  be a  liquidation,
dissolution  or winding up of the  Corporation.  No holder of Series A Preferred
Shares shall be entitled to receive any amounts  with  respect  thereto upon any
liquidation, dissolution or winding up of the Corporation other than the amounts
provided for herein.

         11.  Preferred Rank. All shares of Common Stock shall be of junior rank
to  all  Series  A  Preferred  Shares  in  respect  to  the  preferences  as  to
distributions and payments upon the liquidation,  dissolution, and winding up of
the  Corporation.  The rights of the shares of Common  Stock shall be subject to
the preferences and relative rights of the Series A Preferred Shares. The Series
A Preferred  Shares shall be senior in rights and liquidation  preference to the
Common  Stock or and any series of  Preferred  Stock  hereinafter  issued by the
Corporation.  Without the prior  express  written  consent of the holders of not
less than two-thirds (2/3) of the then issued and outstanding Series A Preferred
Shares,  the Corporation  shall not hereafter  authorize or issue  additional or
other  capital  stock that is of senior or equal rank to the Series A  Preferred
Shares in respect of the preferences as to  distributions  and payments upon the
liquidation,  dissolution and winding up of the  Corporation.  Without the prior
express written consent of the holders off not less than two-thirds (2/3) of the
then issued and outstanding Series A Preferred Shares, the Corporation shall not
hereafter  authorize or make any amendment to the  Corporation's  Certificate of
Incorporation  or Bylaws,  or make any resolution of the board of directors with
the New  Jersey  Secretary  of State  containing  any  provisions,  which  would
adversely  affect or  otherwise  impair the rights or  relative  priority of the
holders of the Series A Preferred  Shares  relative to the holders of the Common
Stock or the  holders of any other class of capital  stock.  In the event of the
merger or consolidation of the Corporation with or into another corporation, the
Series A Preferred  Shares shall maintain their relative  powers,  designations,
and  preferences  provided for herein and no merger  shall  result  inconsistent
therewith.

         12.      Restriction on Redemption and Dividends.

                  (a) Restriction on Dividend.  If any Series A Preferred Shares
         are  outstanding,  without  the prior  express  written  consent of the
         holders  of not less  than  two-thirds  (2/3)  of the then  outstanding

                                      G-18
<PAGE>

         Series A  Preferred  Shares,  the  Corporation  shall not  directly  or
         indirectly  declare,  pay or make any dividends or other  distributions
         upon any of the Common Stock so long as written notice thereof has been
         given to  holders  of the  Series A  Preferred  Shares at least 30 days
         prior  to the  earlier  of (a) the  record  date  taken  for or (b) the
         payment of any such dividend or other distribution. Notwithstanding the
         foregoing,  this Section 12(a) shall not prohibit the Corporation  from
         declaring  and  paying a  dividend  in cash with  respect to the Common
         Stock  so long as the  Corporation:  (i)  pays  simultaneously  to each
         holder of  Series A  Preferred  Shares  an amount in cash  equal to the
         amount such holder would have received had all of such holder's  Series
         A Preferred Shares been converted to Common Stock pursuant to Section 2
         hereof one business day prior to the record date for any such dividend,
         and (ii) after  giving  effect to the payment of any  dividend  and any
         other  payments  required  in  connection  therewith  including  to the
         holders of the Series A Preferred  Shares under clause 12(a)(i) hereof,
         the Corporation has in cash or cash  equivalents an amount equal to the
         aggregate of: (A) all of its liabilities reflected on its most recently
         available balance sheet, (B) the amount of any indebtedness incurred by
         the  Corporation  or any of its  subsidiaries  since  its  most  recent
         balance sheet and (C) 125% of the amount  payable to all holders of any
         shares of any class of preferred  stock of the  Corporation  assuming a
         liquidation  of the  Corporation  as the  date  of  its  most  recently
         available balance sheet.

                  (b)  Restriction  on  Redemption.  If any  Series A  Preferred
         Shares are  outstanding,  without the prior express  written consent of
         the holders of not less than two-thirds  (2/3) of the then  outstanding
         Series A  Preferred  Shares,  the  Corporation  shall not  directly  or
         indirectly  redeem,  purchase or  otherwise  acquire from any person or
         entity' other than from a direct or indirect wholly-owned subsidiary of
         the Corporation, or permit any subsidiary of the Corporation to redeem,
         purchase or otherwise acquire from any person or entity other than from
         the Corporation or another direct or indirect  wholly-owned  subsidiary
         of  the  Corporation,  any  of the  Corporation's  or any  subsidiary's
         capital   stock  or  other  equity   securities   (including,   without
         limitation,  warrants, options and other rights to acquire such capital
         stock or other equity securities).

         13.  Vote to  Change  the  Terms of  Series  A  Preferred  Shares.  The
affirmative  vote at a meeting  duly  called  for such  purpose  or the  written
consent without a meeting,  of the holders of not less than two-thirds  (2/3) of
the then outstanding Series A Preferred Shares, shall be required for any change
to  this  Certificate  of  Designations  or  the  Corporation's  Certificate  of
Incorporation  which  would  amend,  alter,  change or repeal any of the powers,
designations, preferences and rights of the Series A Preferred Shares.

                                      G-19
<PAGE>

         14. Lost or Stolen  Certificates.  Upon receipt by the  Corporation  of
evidence  satisfactory  to the  Corporation of the loss,  theft,  destruction or
mutilation  of any  Preferred  Stock  Certificates  representing  the  Series  A
Preferred  Shares,  and,  in the case of  loss,  theft  or  destruction,  of any
indemnification undertaking by the holder to the Corporation and, in the case of
mutilation,   upon   surrender  and   cancellation   of  the   Preferred   Stock
Certificate(s),  the  Corporation  shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided,  however, the Corporation shall
not be  obligated  to  re-issue  Preferred  Stock  Certificates  if  the  holder
contemporaneously  requests the  Corporation  to convert such Series A Preferred
Shares into Common Stock.

         15. Withholding Tax Obligations. Notwithstanding anything herein to the
contrary, to the extent that the Corporation receives advice in writing from its
counsel that there is a  reasonable  basis to believe  that the  Corporation  is
required by applicable  federal laws or regulations  and delivers a copy of such
written advice to the holders of the Series A Preferred Shares so affected,  the
Corporation  may reasonably  condition the making of any  distribution  (as such
term is defined under applicable  federal tax law and regulations) in respect of
any Series A Preferred  Shares on the holder of such  Series A Preferred  Shares
depositing  with the  Corporation  an amount of cash  sufficient  to enable  the
Corporation to satisfy its withholding tax obligations (the  "Withholding  Tax")
with respect to such distribution,  Notwithstanding the foregoing or anything to
the  contrary,  if any  holder of the  Series A  Preferred  Shares  so  affected
receives advice in writing from its counsel that there is a reasonable  basis to
believe that the  Corporation  is not so required by applicable  federal laws or
regulations and delivers a copy of such written advice to the  Corporation,  the
Corporation  shall  not be  permitted  to  condition  the  making  of  any  such
distribution  in respect of any Series A  Preferred  Share on the holder of such
Series A Preferred  Shares  depositing  with the Corporation any Withholding Tax
with  respect to such  distribution,  provided,  however,  the  Corporation  may
reasonably  condition  the  making of any such  distribution  in  respect of any
Series A  Preferred  Share on the  holder  of such  Series  A  Preferred  Shares
executing  and  delivering  to the  Corporation,  at the election of the holder,
either:  (i) if applicable,  a properly  completed Internal Revenue Service Form
4224, or (a) an  indemnification  agreement in reasonably  acceptable form, with
respect to any federal tax liability, penalties and interest that may be imposed
upon  the  Corporation  by the  Internal  Revenue  Service  as a  result  of the
Corporation's  failure to withhold in connection with such  distribution to such
holder.  If the  conditions in the preceding two sentences are fully  satisfied,
the Corporation shall not be required to pay any additional damages set forth in
Section  3(f)(v) of this  Certificate of  Designations  if its failure to timely
deliver  any  Conversion  Shares  results  solely from the  holder's  failure to
deposit any  withholding tax hereunder or provide to the Corporation an executed
indemnification   agreement  in  the  form   reasonably   satisfactory   to  the
Corporation.

                                      G-20
<PAGE>

         FURTHER RESOLVED,  that the offer, sale and issuance of up to 50 shares
of the Preferred Stock to an unlimited number of accredited  investors  pursuant
to Rule 506 of  Regulation D under the  Securities  Act through May Davis Group,
Inc.,  ("May  Davis")  as  placement  agent  and upon  substantially  the  terms
described  above,  with such changes  thereto as the officers of the Corporation
shall  deem to be in the  best  interests  of the  Corporation  and  which  such
officers  shall have  approved,  be, and the same  hereby  are,  authorized  and
approved; and

         FURTHER RESOLVED,  that the executive officers of the Corporation,  and
each of them,  be, and the same hereby are,  authorized  and directed to execute
and deliver, for and on behalf of the Corporation, a placement agreement, by and
between the  Corporation  and May Davis Group,  Inc. ("May Davis"),  pursuant to
which May Davis will act as placement  agent on behalf of the Corporation in the
Offering,  such placement agreement to contain such terms and conditions as such
officers,  or each of them, deem to be in the best interests of the Corporation,
the execution of such placement  agreement by such officers,  or any of them, to
be conclusive evidence of their authority hereunder; and

         FURTHER RESOLVED,  that the executive officers of the Corporation,  and
each of them,  be, and the same hereby are,  authorized  and directed to execute
and deliver,  for and on behalf of the  Corporation,  an escrow agreement by and
between the Corporation,  May Davis, and an escrow agent to be determined by the
Corporation (the "Escrow  Agent"),  pursuant to which the Escrow Agent shall act
as escrow agent on behalf of the  Corporation and the investors in the Offering,
such escrow agreement to contain such terms and conditions as such officers,  or
any of them, deem to be in the best interests of the Corporation,  the execution
of such escrow  agreement by such  officers,  or any of them,  to be  conclusive
evidence of their authority hereunder; and

         FURTHER  RESOLVED,  that the  execution  and delivery by the  executive
officers of the Corporation of (i) Securities Purchase Agreements, acceptable in
form and  substance to such  executive  officers and relating to the purchase of
the  shares  of  Common  Stock  in the  Offering;  and (ii) up to 50  shares  of
Preferred Stock, be, and the same hereby are, approved; and

         FURTHER  RESOLVED,  that 50 shares of Series A Preferred Shares be, and
the same hereby are, authorized and reserved for issuance; and

         FURTHER RESOLVED,  that 11,875,000 shares of Common Stock, and the same
hereby are,  authorized  and reserved to cover the issuance of the shares of the
Company's Common Stock, no par value per share,  upon conversion of the Series A
Preferred Shares (the "Convertible Shares"), and

         FURTHER RESOLVED,  the executive officers of the Corporation,  and each
of them,  be, and the same hereby  are,  authorized  and  directed to pay to May
Davis,  pursuant  to the  terms  of  the  placement  agreement  with  May  Davis
contemplated by the foregoing resolutions,  for and on behalf of the Corporation
(i) a  commission  equal to 8% of the gross  proceeds of the Offering and (ii) a
reimbursement  of its  accountable  expenses  and the expenses of counsel to May
Davis; and

                                      G-21
<PAGE>

         FURTHER RESOLVED,  that the executive officers of the Corporation,  and
each of them,  be, and the same hereby are,  authorized  and directed to execute
and deliver,  pursuant to the terms of the  placement  agreement  with May Davis
contemplated by the foregoing resolutions, for and on behalf of the Corporation,
placement  agent's  warrants for a number of shares of Common Stock equal to one
million five  hundred  thousand  (1,500,000)  of the shares of Common Stock (the
"Placement Agent's Warrants"), at an exercise price equal to 100% of the Closing
Bid Price on the day  immediately  preceding  the closing date of the  offering,
such  warrants to be  exercisable  for a period of five years  beginning  on the
applicable  closing  date of the  Corporation's  Offering  and to  contain  such
transferability  restrictions  and such  piggy-back  registration  rights as are
deemed to be proper and  necessary;  the  execution  of such  placement  agent's
warrants by said  officers,  or any of them, to be conclusive  evidence of their
authority hereunder; and

         FURTHER  RESOLVED,  that the 1,500,000  shares of Common Stock issuable
upon exercise of the Placement Agent's  warrants,  together with such additional
shares as may be issuable in  accordance  with the  anti-dilution  provisions of
such warrants, be, and the same hereby are, authorized and reserved for issuance
upon the exercise of such warrants; and

         FURTHER RESOLVED,  that the executive officers of the Corporation,  and
each of them,  be, and the same hereby are,  authorized  and directed to execute
and deliver to Butler  Gonzalez,  LLP,  pursuant  to the terms of the  Placement
Agent's Agreement with the Corporation  (25,000) warrants for a number of shares
of Common Stock equal to twenty five  thousand  (25,000) of the shares of Common
Stock,  at an exercise price per share equal to 100% of the Closing Bid Price on
the day immediately  preceding the Closing Date, such warrants to be exercisable
for a period of five  years  beginning  on the  applicable  closing  date of the
Corporation's Offering and to contain such transferability restrictions and such
piggy-back  registration  rights as are deemed to be proper and  necessary;  the
execution of such placement  agent's warrants by said officers,  or any of them,
to be conclusive evidence of their authority hereunder; and

         FURTHER RESOLVED,  that the 25,000 shares of Common Stock issuable upon
exercise  of the  warrants  granted to Butler  Gonzalez,  LLP,  pursuant  to the
Placement  Agent's  Agreement,  together with such  additional  shares as may be
issuable in accordance with the anti-dilution  provisions of such warrants,  be,
and the same hereby are,  authorized and reserved for issuance upon the exercise
of such warrants; and

         FURTHER RESOLVED,  that the executive officers of the Corporation,  and
each of them,  be, and the same hereby are,  authorized  and directed to execute
and  deliver,  for and on  behalf  of the  Corporation,  a  registration  rights
agreement by and between the  Corporation  and the investors,  pursuant to which
the  Corporation  shall file a registration  statement on Form S-1, SB-2, or S-3
under the Securities  Act of 1933, as amended,  with the Securities and Exchange
Commission within ninety days of execution of the registration rights agreement,
relating to the offer and resale of at least  13,400,000  (11,875,000  shares of
the Conversion Shares, 1,500,0000 shares for the Placement Agent's Warrants, and
25,000 for the Butler  Gonzalez  LLP's Warrant  Shares)  registrable  securities
underlying  the shares of Series A Preferred  Shares that are the subject of the
Offering and the Warrants; and

                                      G-22
<PAGE>

         FURTHER RESOLVED, that it is desirable and in the best interests of the
Corporation  that its  securities be qualified or registered for sale in various
states;  that the executive  officers of the Corporation be, and the same hereby
are,  authorized  to  determine  the  states  and other  jurisdictions  in which
appropriate  action  shall be taken to qualify or register  for sale all or such
part of the securities of this  Corporation as said officers may deem advisable;
that said officers be, and the same hereby are,  authorized to perform on behalf
of this  Corporation  any and all  such  acts as  they  may  deem  necessary  or
advisable  in order to comply  with the  applicable  laws of any such states and
other  jurisdictions,  and in  connection  therewith  to  execute  and  file all
requisite  papers and documents,  including,  but not limited to,  applications,
reports,  surety bonds,  irrevocable  consents and appointments of attorneys for
service of  process;  and the  execution  by such  officers of any such paper or
document  or the  doing  by them of any act in  connection  with  the  foregoing
matters  shall  conclusively   establish  their  authority  therefor  from  this
Corporation  and the approval and  ratification by the Corporation of the papers
and documents so executed and the action so taken; and

         FURTHER RESOLVED,  that the form of stock certificate  substantially in
the form of the  stock  certificate  attached  hereto as  Exhibit  A (with  such
changes as the proper officers of the Corporation  shall determine in accordance
with the By-Laws and law) be, and the same  hereby is,  approved  and adopted as
the certificate to represent the shares of Series A Convertible Preferred Stock,
no par value; and

         FURTHER  RESOLVED,  that the officers of the  Corporation,  and each of
them,  be, and the same  hereby  are,  authorized  and  directed  to execute and
deliver,  for and on behalf of the  Corporation,  and affix the  corporate  seal
thereto,  where  appropriate,  such agreements and such  covenants,  guarantees,
representations, certificates and such other documents, and to pay such amounts,
deliver such notes, checks and agreements, to take such action and in general to
do all such  things as may be  necessary  or  appropriate  to give effect to the
foregoing resolutions; and

         FURTHER  RESOLVED,  that  any  acts  of  any  of  the  officers  of the
Corporation,  which acts would have been authorized by the foregoing resolutions
except  that  such  acts  were  taken  prior to the  adoption  of the  foregoing
resolutions,  be,  and the  same  hereby  are,  severally  ratified,  confirmed,
approved and adopted as acts in the name and on behalf of the Corporation.

         IN WITNESS  WHEREOF,  the undersigned have hereunto set their hands and
seal as of the date indicated below.

Dated: -----------------                         ------------------------------
                                                   James K.T. Lu

Dated: -----------------                         ------------------------------
                                                   Jeffrey I. Schillen

Dated: -----------------                         ------------------------------
                                                   Murray T. Scott

                                      G-23
<PAGE>

                                   SCHEDULE I
                               SCHEDULE OF BUYERS

                                                      Number of
                                                      Series A
    Name                  Address/Facsimile Number    Preferred   Aggregate
                               of Buyer                Shares     Proceeds $
------------------------ --------------------------   ---------  --------------

Jeffrey Hrutkay, M.D.    1463 Chesam Circle               5        50,000.00(1)
                         Boulder, Colorado 80907

Charles & Jane Adkins    9502 Lynhall Place               5        50,000.00(1)
                         Alexandria, Virginia
                         22309

Gordon D. Mogerley       Hudson Tank Terminals           30       300,000.00(2)
                         173 Export Street
                         Port Newark, New Jersey
                         07114

Michelle Levite          401 Second Avenue                2        20,000.00
                         Apt. 5G
                         New York, New York 10010

Ralph Lowry              P.O. Box 688                     3        30,000.00
                         Newton, Kansas 67114

Anthony E. Rakos         Naperville, Illinois             1        10,000.00
                         60549

Gerald Holland           22 Coult Lane                    2        20,000.00
                         Old Lyne, CT 06372

John Bolliger            1775 North Elk Road              2        20,000.00
                         Pocatello, Idaho 83204
                                                                 -----------
                                                    Total:       $500,000.00

(1)  Represents  proceeds from conversion of a  Non-Negotiable  Promissory Note,
     issued April 20, 2000 to Mr. Hrutkay and Mr. and Mrs. Adkins, which Note is
     deemed paid in full and cancelled effective as of May 10, 2000.

(2)  Represents  proceeds from conversion of a  Non-Negotiable  Promissory Note,
     issued May 2, 2000 to Mr.  Mogerely,  which Note is deemed paid in full and
     cancelled effective as of May 10, 2000.

                                      SI-1
<PAGE>

                                  SCHEDULE 3(c)

                                 Capitalization

  As of April 10, 2000:
  Common Stock Authorized - No Par Value (1)                      100,000,000
  Common Stock Issued and Outstanding(1)                           62,334,029
  Common Stock Options and Warrants Outstanding (2)                24,254,000
  Total Common Stock Issued and Options and Warrants
     Outstanding                                                   86,588,029
                                                                  -----------
  Balance of Authorized  Common Stock remaining  after
   deducting  shares issued and outstanding and Stock
   Options and Warrants outstanding                                13,411,971
                                                                  ===========

  Convertible Preferred Stock Authorized - No Par Value             5,000,000
  Convertible Preferred Stock Issued of which 172,923
   are held in Treasury                                               483,251
                                                                  -----------
  Balance of Authorized Convertible Preferred Stock -
   No Par Value                                                     4,516,749
                                                                  ===========

     (1) The  Company on March 21,  2000 filed its  definitive  proxy  statement
dated March 27, 2000, with the U.S.  Securities and Exchange  Commission whereby
notice was given that the annual meeting of  shareholders of the Company will be
held on April 27, 2000.  Among the proposals to the shareholders to consider and
vote upon are the  proposals 1) to increase the  authorized  common stock of the
Company from  100,000,000  shares of common stocks no par value to  600,000,000,
and 2) approval  and consent in giving the Board of Directors of the Company the
authority and power to effectuate a reverse stock split up to a maximum ratio of
10 to 1 of the authorized common stock of the Company.

     (2) Includes  warrants of 5,000,000  shares of Common Stock upon conversion
of  Convertible  Notes  issued by the  Company in March and June of 1999  having
"Piggy Back  Rights" if the Company  files one or more  Registration  Statements
within six (6) years from the date of the notes whereby the Company will use its
best efforts to include all the underlying Common Stock into which the notes are
convertible in such Registration Statement,  subject to the terms and conditions
of the Subscription Agreement executed by the Payee.

                                      S3-1
<PAGE>

                                  SCHEDULE 3(e)

                                    Conflicts

There are no conflicts.

                                      S3-2
<PAGE>

                                  SCHEDULE 3(g)

                             Material Adverse Change

1.       Company Facility

         In an effort to reduce the  Company's  overhead  expenses to be more in
line with the sales levels  achieved  during  calendar year 1999, the Company at
the end of  January,  2000  moved  its  principal  executive  offices  and plant
operations to a smaller, 20,000 square feet facility in Walnut, California, from
its former  facility of  approximately  49,000 square feet  facility  located in
Cerritos,  California.  In anticipation of this move, the Company ceased payment
of its monthly  rental  payment to its former  lessor for several  months.  This
resulted in the Company  entering into a stipulation  for judgement on March 15,
2000,  whereby the lessor  received a judgment  for a total  amount of $119,000,
plus  interest of 10%.  The parties to the  stipulation  for  judgement  further
agreed that the judgement  amount would be settled by the Company paying a total
amount  of  $72,000  at 10%  interest  at  $6,600  per  month  for  twelve  (12)
consecutive  months,  beginning  April 1, 2000,  through and including  March 1,
2001.  The Company made its first monthly  payment  within the guidelines of the
payment schedule. As a result of this move, the Company reduced its current rent
by approximately $14,000 per month.

2.       Reduction of Employees

         As part of the overhead expense  reduction plan the Company reduced its
number of full time employees as follows:

                        No. of Employees      No. of Employees      Total
                          at 11/01/99           at 3/31/00        Reduction
                        ----------------      ----------------    ---------
Sales Administration             4                   1                 3
Admin/Accounting                 9                   4                 5
Mfg. Operations                 30                  11                19
                                --                  --                --
Total                           44                  17                27
                                ==                  ==                ==

         Although,  the number of permanent  employees  have been  significantly
reduced,  the Company has been able to maintain  its  operations  at its current
level.  The Company has been  utilizing  temporary  employees  when required and
expects to increase  its number of permanent  employees in the coming  months as
sales orders levels increase.

                                      S3-3
<PAGE>

                                  SCHEDULE 3(h)

                                   Litigation

         The Company has in the past been named as defendant and co-defendant in
various  legal  actions  filed  against  the  Company  in the  normal  course of
business. All past litigation have been resolved without material adverse impact
on the  Company.  For the fiscal  year ended  March 31,  2000 and for the period
through April 11, 2000, the Company is aware,  to the best of its knowledge,  of
three civil actions against the Company.

         1) One action is for a stipulation judgement entered on March 15, 2000,
whereby the Company entered into a settlement agreement with its former landlord
for unpaid rent of $72,000 with  interest at 10% per annum payable over a period
of twelve  (12)  months with  monthly  payments of $6,600 per month,  commencing
April 1, 2000, whereby the Company has made its first required payment.

         2) The second  action is for a complaint  filed  against the Company on
February 15, 2000, for unpaid  invoices by the Company for purchases of products
totaling   approximately   $39,000.  The  Company  is  currently  negotiating  a
settlement  agreement  proposing  payments  of $1,000  per week until the amount
owing is paid in full. Since, the filing of this complaint, the Company has made
weekly   payments   totaling   $7,000  leaving  a  balance  still  remaining  of
approximately $32,000.

         3) The  third  action  is  for a  judgement  against  the  Company  for
$15,300.01 for unpaid fulfillment services and financing charges incurred by its
subsidiary prior to its acquisition by the Company,  plus continuing interest at
the rate of 1.5% per month, plus attorney's fee in the amount of $2,295.00.  The
judgement  amount of  $15,300.01  was for disputed  invoices  covering  services
rendered  by  the  plaintiff   and  included   monthly   financing   charges  of
approximately  $6,000.  On of April 3, 2000,  the Company  received a settlement
proposal  from the  plaintiff's  attorney  whose  client  is  willing  to accept
payments of $1,000 per month toward the judgement amount and agrees to terminate
any additional finance charges bearing on the unpaid balance upon receipt of the
first  monthly  payment of $1,000.  The Company is currently  renegotiating  the
terms of this settlement  proposal to lower the settlement amount to exclude the
financing charges of $6,000.

                                      S3-4
<PAGE>

                                  SCHEDULE 3(n)

                              Intellectual Property

         The  Company  has  intellectual  property  and  proprietary  technology
protecting its product. In the toy product line, the Woblong(R), a double winged
flying  toy,  is  protected  by patent  claims  in the form of a utility  patent
registered with the U.S. Patent and Trademark Office.  The U.S. Patent number is
5,131,879.  In addition, a design patent was issued on March 9, 1994 - D344,989.
The Company has also  registered  the name Zoombie for this toy. The Company has
also  registered  the name  "CineChrome"  for its line of  collectible  greeting
cards.

         The name Diamond Entertainment is a registered trademark.

                                      S3-5
<PAGE>

                                  SCHEDULE 3(p)

                                      Liens

There are no liens.

                                      S3-6
<PAGE>

                                  SCHEDULE 3(v)

                              Certain Transactions

     Please refer to the following SEC documents filed with U.S.  Securities and
Exchange Commission:

1. Form  10-KSB/A#1  for the fiscal year ended March 31, 1999 2. Form 10-QSB for
the quarterly period ended June 30, 1999 3. Form 10-QSB for the quarterly period
ended September 30, 1999 4. Form 10-QSB for the quarterly  period ended December
31, 1999 5. Form DEF 14A - Proxy Statement dated March 27, 2000

                                      S3-7
<PAGE>

                                  SCHEDULE 4(d)

                                 Use of Proceeds

Accounts Payable Invoices                                          $120,000
Capital Equipment                                                    60,000
Short Term Notes Payable                                             30,000
Federal Payroll Taxes 4th Qtr - 1999                                 25,000
Working Capital                                                     200,000
Closing Fees and Expenses:
     Placement fee                                                  $40,000
     Legal fees                                                      15,000
     Escrow fees                                                      5,000
     Other fees and Expenses                                          5,000
     Total Closing Fees and Expenses                                 65,000
                                                             ---------------
Total Use of Proceeds                                              $500,000
                                                             ===============

                                      S3-8EXHIBIT 10.17

                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"),  dated as of May
11,  2000,  is made  and  entered  into  by and  between  Diamond  Entertainment
Corporation, a New Jersey corporation (the "Company"), and Anthony E. Rakos (the
"Investor").

                                   WITNESSETH:

         WHEREAS,  the Company and the  Investor  have entered into a Securities
Purchase  Agreement,  dated  as of the date  hereof  (the  "Securities  Purchase
Agreement"),  pursuant to which the Company  issued and sold to the Investor and
certain  other  Investors  identified on Schedule I to the  Securities  Purchase
Agreement,  up to $500,000 worth of the Company's  Series A Preferred  Stock, no
par value per share (the "Preferred Stock"),  which may be converted into shares
of the  Company's  common  stock,  no par value per share (the "Common  Stock"),
pursuant  to the  terms  of  the  Certificate  of  Amendment  to  the  Company's
Certificate of  Incorporation  establishing  the  designations,  preferences and
other rights of the Preferred Stock ("Certificate of Designations"); and

         WHEREAS,  pursuant to the terms of, and in partial  consideration  for,
the Investor's  agreement to enter into the Securities Purchase  Agreement,  the
Company has agreed to provide the Investor with certain registration rights with
respect to the Registrable Securities;

         NOW, THEREFORE,  in consideration of the premises, the representations,
warranties,  covenants and  agreements  contained  herein and in the  Securities
Purchase Agreement,  and for other good and valuable consideration,  the receipt
and sufficiency of which is hereby  acknowledged,  intending to be legally bound
hereby,  the parties hereto agree as follows  (capitalized terms used herein and
not defined  herein shall have the respective  meanings  ascribed to them in the
Securities Purchase Agreement):

                                    ARTICLE I
                               REGISTRATION RIGHTS

         Section 1.1 Form S-1, SB-2 or S-3 Registration Statements.

                  (a) Filing of Registration Statement. Subject to the terms and
conditions of this Agreement,  the Company shall prepare and, within ninety (90)
days following the date hereof (the "Filing Deadline"), file with the Securities
and Exchange  Commission  ("SEC") a  registration  statement on Form S-1 or SB-2
(or, if the Company is then eligible, on Form S-3) under the Securities Act (the
"Initial  Registration  Statement") for the  registration  for the resale by all
Investors who purchased  Preferred  Stock  pursuant to the  Securities  Purchase
Agreement up to  11,875,000  shares of Common  Stock and up to 1,525,000  shares
underlying  the  Warrants  issued  pursuant  to Section  4(k) of the  Securities
Purchase Agreement to May Davis Group, Inc. (the "Placement Agent"),  and Butler
Gonzalez,  LLP  ("Butler  Gonzalez")  (collectively,  the  "Initial  Registrable
Securities"). Prior to the filing of the Initial Registration Statement with the

                                       1
<PAGE>

SEC, the Company shall furnish a copy of the Initial  Registration  Statement to
Investors,  the Placement Agent and Butler Gonzalez for their review and comment
together  with a  Selling  Shareholder  Questionnaire  in form  prepared  by the
Company.  Investors,  the  Placement  Agent and Butler  Gonzalez  shall  furnish
comments  on  the  Initial  Registration   Statement  and  an  executed  Selling
Shareholder  Questionnaire  to the  Company  within five (5) days of the receipt
thereof from the  Company.  Thereafter,  if the Company  desires to issue to the
Investor and/or the Investor  desires to convert any  Registrable  Securities in
addition to the Initial  Registrable  Securities,  the Company  shall first file
with the SEC a registration statement on Form S-1 or SB-2 (or, if the Company is
then eligible,  on Form S-3) under the Securities Act (the Initial  Registration
Statement  and any  subsequent  registration  statement,  each, a  "Registration
Statement").

                  (b) Effectiveness of the Initial Registration  Statement.  The
Company shall use its  commercially  reasonable  efforts (i) to have the Initial
Registration  Statement  declared  effective  by the SEC by no  later  than  one
hundred and fifty (150) days after the date hereof (the "Registration Deadline")
and (ii) to insure that the Initial  Registration  Statement and any  subsequent
Registration  Statement  remains in effect throughout the term of this Agreement
as set  forth in  Section  4.2,  subject  to the terms  and  conditions  of this
Agreement.

                  (c) Failure to File the Initial Registration Statement. In the
event that the Initial  Registration  Statement is not filed by the Company with
the SEC by the Filing Deadline,  then the Applicable Discount (as defined in the
Certificate of Designations)  shall be reduced by an additional 2% for the first
thirty (30) days.

                  (d)  Failure  to  Maintain  Effectiveness  of  a  Registration
Statement.  Subject to Section 1.1(e) hereto,  in the event the Company fails to
maintain the  effectiveness  of any  Registration  Statement (or the  underlying
prospectus)  throughout  the  period set forth in  Section  4.2,  other than any
temporary  suspensions  permitted by Section 1.1(e),  and the Investor holds any
Registrable Securities at any time during the period of such ineffectiveness (an
"Ineffective  Period"),  the Company  shall pay to the  Investor in  immediately
available  funds into an account  designated  by the Investor an amount equal to
one  percent  (1%) of the  aggregate  Purchase  Price of all of the  Registrable
Securities  then held by the Investor  for each thirty (30)  calendar day period
(prorated for partial periods) of such Ineffective Period. The payments required
by this  Section  1.1(d)  shall  be made on the  first  Trading  Day  after  the
expiration of an Ineffective Period (or if an Ineffective Period shall last more
than thirty (30) calendar days, the  expiration of each  additional  thirty (30)
calendar day period of an Ineffective Period).

                  (e) Deferral or Suspension During a Blackout Period.  Sections
1.1(c) and (d)  notwithstanding,  if the Company  shall  furnish to the Investor
notice (a  "Blackout  Notice")  signed by the Chief  Executive  Officer or Chief
Financial  Officer of the Company  stating that he has  determined in good faith
that it would be seriously  detrimental to the Company and its  shareholders for
the  Initial  Registration  Statement  to be  filed  (or  for  any  Registration
Statement to remain in effect) and it is therefore desirable to defer the filing

                                       2
<PAGE>

of such Initial Registration Statement (or temporarily suspend the effectiveness
of any  Registration  Statement or use of the related  prospectus),  the Company
shall have the right (i)  immediately  to defer such  filing for a period of not
more than thirty (30) days  beyond the date by which such  Initial  Registration
Statement  was  otherwise  required  hereunder  to be filed or (ii)  suspend the
effectiveness of any Registration Statement for a period of not more than thirty
(30)  days (any such  deferral  or  suspension  period of up to thirty  days,  a
"Blackout  Period").  The  Investor  acknowledges  that it  would  be  seriously
detrimental to the Company and its  shareholders  for such initial  Registration
Statement  to be filed (or for any  Registration  Statement to remain in effect)
during a  Blackout  Period and  therefore  essential  to defer  such  filing (or
suspend such effectiveness)  during such Blackout Period and agrees to cease any
disposition of Registrable  Securities during such Blackout Period.  The Company
may not utilize any of its rights under this Section  1.1(e) to defer the filing
of a Registration  Statement (or suspend its  effectiveness)  more than twice in
any twelve  (12) month  period.  Following  such  deferral  or  suspension,  the
Investor  shall be  entitled  to the  payment  required  by Section  3(c) of the
Certificate of Designations establishing the designations and preferences of the
Preferred Stock.

                  (f) Liquidated  Damages.  The Company and the Investor  hereto
acknowledge and agree that the sums payable under subsections 1(c) or 1(d) above
shall  constitute  liquidated  damages and not  penalties.  The parties  further
acknowledge  that (i) the amount of loss or  damages  likely to be  incurred  is
incapable or is difficult to precisely  estimate,  (ii) the amounts specified in
such  subsections  bear a  reasonable  relationship  to, and are not  plainly or
grossly  disproportionate  to  the  probable  loss  likely  to  be  incurred  in
connection   with  any  failure  by  the  Company  to  obtain  or  maintain  the
effectiveness  of a  Registration  Statement,  (iii) one of the  reasons for the
Company  and the  Investor  reaching  an  agreement  as to such  amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are  sophisticated  business  parties and have
been  represented by  sophisticated  and able legal counsel and negotiated  this
Agreement at arm's length.

                                   ARTICLE II
                             REGISTRATION PROCEDURES

         Section  2.1  Filings;   Information.   The  Company  will  effect  the
registration  and sale of the  Registrable  Securities  in  accordance  with the
intended methods of disposition  thereof.  Without  limiting the foregoing,  the
Company in each such case will do the  following as  expeditiously  as possible,
but in no event later than the  deadline,  if any,  prescribed  therefor in this
Agreement:

                                       3
<PAGE>

                  (a) The  Company  shall  (i)  prepare  and file with the SEC a
Registration Statement on Form S-1 or SB-2 (or, if the Company is then eligible,
Form S-3)  within  ninety (90) days from the date hereof (if use of such form is
then  available to the Company  pursuant to the rules of the SEC and, if not, on
such other form  promulgated  by the SEC for which the Company  then  qualifies,
that  counsel for the  Company  shall deem  appropriate  and which form shall be
available for the sale of the Registrable Securities to be registered thereunder
in accordance  with the provisions of this Agreement and in accordance  with the
intended  method  of  distribution  of such  Registrable  Securities);  (ii) use
commercially  reasonable efforts to cause such filed  Registration  Statement to
become  effective within one hundred and fifty (150) days of the date hereof and
remain  effective during the period set forth in Section 1.1(b) hereof (pursuant
to Rule 415 under the Securities Act or otherwise);  (iii) prepare and file with
the SEC such amendments and supplements to such  Registration  Statement and the
prospectus  used in  connection  therewith  as may be  necessary  to  keep  such
Registration  Statement  effective  for the time  period  prescribed  by Section
1.1(b);  and (iv) comply with the  provisions of the Securities Act with respect
to the  disposition of all  securities  covered by such  Registration  Statement
during such period in accordance with the intended methods of disposition by the
Investor set forth in such Registration Statement.

                  (b) The  Company  shall  file  all  necessary  amendments  and
supplements to any Registration  Statement in order to effectuate the purpose of
this Agreement and the Securities Purchase Agreement.

                  (c) No later than ten (10) days prior to filing any  amendment
or  supplement  to  the  Initial   Registration   Statement  or  any  subsequent
Registration  Statement or  prospectus,  or any amendment or supplement  thereto
(excluding,  in each  case,  amendments  deemed  to  result  from the  filing of
documents  incorporated  by reference  therein),  or such  shorter  period as is
reasonable  under the  circumstances,  the Company shall deliver to the Investor
and one firm of counsel representing the Investor, in accordance with the notice
provisions of Section 4.8, copies of such Registration  Statement as proposed to
be filed,  together with exhibits  thereto,  which  documents will be subject to
review by the Investor and such counsel,  and thereafter deliver to the Investor
and such counsel,  in accordance with the notice provisions of Section 4.8, such
number of copies of the  Registration  Statement,  each amendment and supplement
thereto (in each case including all exhibits thereto),  the prospectus  included
in such Registration Statement (including each preliminary  prospectus) and such
other documents or information as the Investor or counsel may reasonably request
in order to facilitate the disposition of the Registrable Securities.

                  (d) The Company shall deliver,  in accordance  with the notice
provisions of Section 4.8, to each seller of Registrable Securities covered by a
Registration  Statement  such number of  conformed  copies of such  Registration
Statement and of each amendment and  supplement  thereto (in each case including
all exhibits and documents incorporated by reference),  such number of copies of
the  prospectus   contained  in  any  Registration   Statement  (including  each
preliminary  prospectus  and any summary  prospectus)  and any other  prospectus
filed  under Rule 424  promulgated  under the  Securities  Act  relating to such
seller's Registrable  Securities,  and such other documents,  as such seller may
reasonably request to facilitate the disposition of its Registrable Securities.

                                       4
<PAGE>

                  (e) After the filing of a Registration Statement,  the Company
shall promptly notify the Investor of any stop order issued or threatened by the
SEC in connection  therewith and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.

                  (f) The Company shall use its commercially  reasonable efforts
to  (i)  register  or  qualify  the  Registrable  Securities  under  such  other
securities  or blue sky laws of such  jurisdictions  in the United States as the
Investor may  reasonably  request in light of its intended plan of  distribution
and (ii) cause the  Registrable  Securities to be registered with or approved by
such other  governmental  agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things  that may be  reasonably  necessary  or  advisable  to
enable the Investor to consummate the disposition of the Registrable  Securities
in light of its  intended  plan of  distribution;  provided,  however,  that the
Company  will  not be  required  to  qualify  generally  to do  business  in any
jurisdiction  where it would not  otherwise  be required to qualify but for this
paragraph (f), subject itself to taxation in any such  jurisdiction,  or consent
or subject itself to general service of process in any such jurisdiction.

                  (g) The Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of Registrable  Securities:  (i)
receipt  of any  request by the SEC or any other  federal or state  governmental
authority  for  additional  information,   amendments  or  supplements  to  such
Registration  Statement or related  prospectus;  (ii) the issuance by the SEC or
any other federal or state  governmental  authority of any stop order suspending
the  effectiveness  of  such  Registration  Statement  or  notification  of  the
initiation  of  any  proceedings   for  that  purpose;   (iii)  receipt  of  any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction  or the  initiation  or  threatening  of any  proceeding  for  such
purpose;  (iv) the happening of any event that makes any statement  made in such
Registration  Statement or related  prospectus or any document  incorporated  or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in such Registration Statement,  related
prospectus or documents so that, in the case of such Registration  Statement, it
will not contain any untrue  statement  of a material  fact or omit to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading,  in the light of the circumstances under which they were
made,  and that in the case of the related  prospectus,  it will not contain any
untrue  statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements  therein,  in the light
of the  circumstances  under which they were made, not  misleading;  and (v) the
Company's  reasonable  determination  that a  post-effective  amendment  to such
Registration Statement would be appropriate,  and the Company will promptly make
available  to the  Investor  any such  supplement  or  amendment  to the related
prospectus.

                                       5
<PAGE>

                  (h) The Company shall enter into customary agreements and take
such other customary actions as are reasonably  required in order to expedite or
facilitate  the  disposition  by the  Investor  of such  Registrable  Securities
(whereupon  the  Investor  may,  at its option,  require  that any or all of the
representations, warranties and covenants of the Company also be made to and for
the benefit of the Investor).

                  (i) The Company shall make available to the Investor (and will
deliver to Investor's  counsel),  subject to restrictions  imposed by the United
States federal  government or any agency or instrumentality  thereof,  copies of
all correspondence  between the SEC and the Company, its counsel or its auditors
and will also make  available  for  inspection by the Investor and any attorney,
accountant or other  professional  retained by the Investor  (collectively,  the
"Inspectors"),  all financial and other records,  pertinent  corporate documents
and  properties  of the  Company  (collectively,  the  "Records")  as  shall  be
reasonably   necessary   to  enable  them  to  exercise   their  due   diligence
responsibility,  and cause the  Company's  officers and  employees to supply all
information  reasonably  requested  by  any  Inspectors  in  connection  with  a
Registration Statement.  Records that the Company determines,  in good faith, to
be confidential and that it notifies the Inspectors are  confidential  shall not
be  disclosed by the  Inspectors  unless (i) the  disclosure  of such Records is
necessary  to avoid or correct a  misstatement  or omission in any  Registration
Statement  or (ii) the  disclosure  or release of such  Records is  requested or
required pursuant to oral questions,  interrogatories,  requests for information
or documents or a subpoena or other order from a court of competent jurisdiction
or other legal  process;  provided,  however,  that prior to any  disclosure  or
release  pursuant to clause (ii), the Inspectors  shall provide the Company with
prompt notice of any such request or requirement so that the Company may seek an
appropriate  protective  order  or  waive  such  Inspectors'  obligation  not to
disclose such Records;  and, provided,  further,  that if failing the entry of a
protective  order or the waiver by the  Company  permitting  the  disclosure  or
release of such Records,  the Inspectors,  upon advice of counsel, are compelled
to disclose  such  Records,  the  Inspectors  may  disclose  that portion of the
Records  that  counsel  has  advised  the  Inspectors  that the  Inspectors  are
compelled to disclose.  The Investor agrees that information obtained by it as a
result of such inspections (not including any information  obtained from a third
party who, insofar as is known to the Investor after reasonable  inquiry, is not
prohibited from providing such information by a contractual,  legal or fiduciary
obligation to the Company) shall be deemed confidential and shall not be used by
it as the basis for any market  transactions  in the  securities  of the Company
unless and until  such  information  has been made  generally  available  to the
public.  The Investor further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent  jurisdiction,  give notice to
the Company and allow the  Company,  at its expense,  to  undertake  appropriate
action to prevent disclosure of the Records deemed confidential.

                  (j) The Company  shall  otherwise  comply with all  applicable
rules and regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.

                                       6
<PAGE>

                  (k) The Company may require the  Investor to promptly  furnish
in  writing to the  Company  such  information  as may be  legally  required  in
connection  with  such  registration  including,  without  limitation,  all such
information as may be requested by the SEC or the NASD.  The Investor  agrees to
provide such information  requested in connection with such registration  within
five (5) calendar days after  receiving  such written  request,  or such shorter
period as is reasonable  under the  circumstances,  and the Company shall not be
responsible for any delays in obtaining or maintaining the  effectiveness of any
Registration  Statement caused by the Investor's  failure to timely provide such
information.

                  (l) The  Company  shall use its best  efforts  either:  (i) to
secure the  inclusion  for  quotation  on The  Nasdaq  Stock  Market  Inc.'s OTC
Bulletin Board Bulletin for such  Resgistrable  Securities,  or (ii) if, despite
the Company's  best efforts to satisfy the preceding  clause (i), the Company is
unsuccessful in satisfying the preceding clause (i), to secure the inclusion for
quotation in the "pink sheets" for such  Registrable  Securities,  and,  without
limiting the generality of the foregoing,  in the case of clause (i) or (ii), to
arrange for at least two market makers to register with the National Association
of Securities Dealers,  Inc. ("NASD"),  as such with respect to such Registrable
Securities.  The  Company  shall pay all fees and  expenses in  connection  with
satisfying its obligation under this Section 2(l).

         Section 2.2 Registration Expenses. In connection with each Registration
Statement,   the  Company  shall  pay  all  registration  expenses  incurred  in
connection  with the  registration  thereunder  (the  "Registration  Expenses"),
including, without limitation: (a) all registration, filing, securities exchange
listing  and  fees  required  by  the  NASD,  (b)  all   registration,   filing,
qualification  and other fees and expenses of compliance with securities or blue
sky  laws  (including  reasonable  fees and  disbursements  of  counsel  for the
Company), (c) all word processing, duplicating, printing, messenger and delivery
expenses,  (d) the Company's internal expenses  (including,  without limitation,
all salaries and expenses of its  officers  and  employees  performing  legal or
accounting duties), and (e) reasonable fees and disbursements of counsel for the
Company  and  customary  fees and  expenses  for  independent  certified  public
accountants retained by the Company; but excluding underwriting fees, discounts,
transfer  taxes  or  commissions,  if  any,  attributable  to  the  sale  of the
Registrable  Securities,  which shall be payable by each  holder of  Registrable
Securities pro rata on the basis of the number of Registrable Securities of each
holder that are included under this Agreement.

                                       7
<PAGE>

                                   ARTICLE III
                        INDEMNIFICATION AND CONTRIBUTION

         Section 3.1       Indemnification.

                  (a)  Indemnification  by the  Company.  The Company  agrees to
indemnify and hold harmless the Investor,  its partners,  Affiliates,  officers,
directors,  employees,  counsel and duly authorized  agents,  and each Person or
entity,  if any, who  controls the Investor  within the meaning of Section 15 of
the  Securities  Act or  Section  20 of the  Exchange  Act,  together  with  the
partners,   Affiliates,   officers,  directors,   employees,  counsel  and  duly
authorized  agents of such  controlling  Person or entity  (collectively,  the "
Controlling  Persons"),  from and against any loss,  claim,  damage,  liability,
costs and expenses (including,  without limitation,  reasonable  attorneys' fees
and disbursements and costs and expenses of investigating and defending any such
claim) (collectively, "Damages"), joint or several, and any action or proceeding
in respect thereof to which the Investor,  its partners,  Affiliates,  officers,
directors, employees and duly authorized agents, and any Controlling Person, may
become subject under the Securities  Act or otherwise,  as incurred,  insofar as
such Damages (or actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue  statement or alleged untrue statement of a material fact
contained in any Registration  Statement,  preliminary  prospectus or prospectus
relating to the Registrable  Securities or arises out of, or are based upon, any
omission or alleged  omission to state  therein a material  fact  required to be
stated  therein or necessary to make the  statements  therein not  misleading in
light of the  circumstances  under which they were made,  except  insofar as any
such untrue statement, alleged untrue statement, omission or alleged omission is
made in reliance upon and in conformity  with written  information  furnished to
the Company by the Investor which is  specifically  intended by the Investor for
use  in  the  preparation  of  any  such  Registration  Statement,   preliminary
prospectus  or  prospectus,  and shall  reimburse  the  Investor,  its partners,
Affiliates,  officers, directors, employees, counsel and duly authorized agents,
and each such Controlling  Person,  for any legal and other expenses  reasonably
incurred  by  the  Investor,  its  partners,  Affiliates,  officers,  directors,
employees,  counsel and duly authorized agents, or any such Controlling  Person,
as incurred,  in  investigating  or defending or preparing to defend against any
such  Damages or actions or  proceedings;  provided,  however,  that the Company
shall not be liable to the  Investor to the extent that any such  Damages  arise
out of or are based upon an untrue statement or omission made in any preliminary
prospectus  if (i) the  Investor  failed to send or  deliver a copy of the final
prospectus  delivered  by the  Company  to the  Investor  with or  prior  to the
delivery  of  written  confirmation  of the sale by the  Investor  to the Person
asserting the claim from which such Damages arise, and (ii) the final prospectus
would have corrected such untrue  statement or alleged untrue  statement or such
omission or alleged omission.

                                       8
<PAGE>

                  (b)  Indemnification  by the Investor.  The Investor agrees to
indemnify and hold harmless the Company,  its Affiliates,  officers,  directors,
employees,  counsel and duly authorized agents, and each Controlling  Persons of
the  Company,  from and against any and all Damages,  joint or several,  and any
action or  proceeding in respect  thereof to which the  Investor,  its partners,
Affiliates,  officers, directors, employees, counsel and duly authorized agents,
and any such Controlling  Person, may become subject under the Securities Act or
otherwise,  as incurred,  insofar as such Damages (or actions or  proceedings in
respect  thereof)  arise out of, or are based  upon,  any  untrue  statement  or
alleged  untrue  statement  of a material  fact  contained  in any  Registration
Statement,  preliminary  prospectus  or prospectus  relating to the  Registrable
Securities or arises out of, or are based upon, any omission or alleged omission
to state therein a material  fact required to be stated  therein or necessary to
make the statements  therein not misleading in light of the circumstances  under
which they were made,  but only to the extent  that any such  untrue  statement,
alleged untrue statement,  omission or alleged omission is made in reliance upon
and in  conformity  with  written  information  furnished  to the Company by the
Investor  which  is  specifically  intended  by  the  Investor  for  use  in the
preparation  of any  such  Registration  Statement,  preliminary  prospectus  or
prospectus, and shall reimburse the Company, its partners, Affiliates, officers,
directors,  employees,  counsel  and  duly  authorized  agents,  and  each  such
Controlling  Person, for any legal and other expenses reasonably incurred by the
Investor, its partners, Affiliates,  officers, directors, employees, counsel and
duly  authorized  agents,  or any  such  Controlling  Person,  as  incurred,  in
investigating  or defending  or preparing to defend  against any such Damages or
actions or proceedings.

         Section  3.2 Conduct of  Indemnification  Proceedings.  Promptly  after
receipt  by any person or entity in  respect  of which  indemnity  may be sought
pursuant to Section 3.1 (an  "Indemnified  Party") of notice of any claim or the
commencement of any action,  the Indemnified  Party shall, if a claim in respect
thereof is to be made against the person or entity  against whom such  indemnity
may be sought  (the  "Indemnifying  Party"),  notify the  Indemnifying  Party in
writing  of the  claim  or the  commencement  of such  action.  In the  event an
Indemnified Party shall fail to give such notice as provided in this Section 3.2
and the  Indemnifying  Party to whom  notice  was not given was  unaware  of the
proceeding  to which such notice  would have related and was  prejudiced  by the
failure to give such  notice,  the  indemnification  provided for in Section 3.1
shall be  reduced  to the extent of any  actual  prejudice  resulting  from such
failure to so notify the Indemnifying Party; provided, however, that the failure
to notify the Indemnifying  Party shall not relieve the Indemnifying  Party from
any liability  that it may have to an  Indemnified  Party  otherwise  than under
Section 3.1. If any such claim or action shall be brought against an Indemnified
Party,  and it shall notify the  Indemnifying  Party thereof,  the  Indemnifying
Party  shall be  entitled  to  participate  therein,  and, to the extent that it
wishes,  jointly with any other similarly notified Indemnifying Party, to assume
the defense  thereof with counsel  reasonably  satisfactory  to the  Indemnified
Party.  After notice from the Indemnifying Party to the Indemnified Party of its

                                       9
<PAGE>

election to assume the defense of such claim or action,  the Indemnifying  Party
shall  not be liable to the  Indemnified  Party for any legal or other  expenses
subsequently  incurred by the  Indemnified  Party in connection with the defense
thereof other than reasonable costs of investigation;  provided,  however,  that
the  Indemnified  Party  shall  have the right to  employ  separate  counsel  to
represent the Indemnified  Party and its Controlling  Persons who may be subject
to  liability  arising  out of any claim in  respect of which  indemnity  may be
sought by the Indemnified Party against the Indemnifying Party, but the fees and
expenses of such  counsel  shall be for the account of such  Indemnified  Party,
unless (i) the Indemnifying  Party and the Indemnified Party shall have mutually
agreed to the  retention of such counsel or (ii) in the  reasonable  judgment of
the Indemnifying Party and the Indemnified Party, representation of both parties
by the same counsel would be inappropriate due to actual or potential  conflicts
of interest between them, it being  understood,  however,  that the Indemnifying
Party shall not, in connection with any one such claim or action or separate but
substantially  similar  or related  claims or  actions in the same  jurisdiction
arising out of the same general allegations or circumstances,  be liable for the
fees and expenses of more than one separate  firm of  attorneys  (together  with
appropriate local counsel) at any time for all Indemnified  Parties, or for fees
and expenses that are not reasonable.  No Indemnifying Party shall,  without the
prior written  consent of the  Indemnified  Party,  effect any settlement of any
claim or pending or threatened  proceeding  in respect of which the  Indemnified
Party is or could have been a party and  indemnity  is sought  hereunder by such
Indemnified Party, unless such settlement  includes an unconditional  release of
such  Indemnified  Party  from  all  liability  arising  out of  such  claim  or
proceeding.  Whether or not the defense of any claim or action is assumed by the
Indemnifying Party, such Indemnifying Party will not be subject to any liability
for  any  settlement  made  without  its  consent,  which  consent  will  not be
unreasonably withheld.

         Section  3.3 Other  Indemnification.  Indemnification  similar  to that
specified in the  preceding  paragraphs  of this  Article III (with  appropriate
modifications)  shall be given  by the  Company  with  respect  to any  required
registration or other qualification of securities under any federal or state law
or regulation of any  governmental  authority other than the Securities Act. The
provisions  of this  Article  III shall be in  addition  to any other  rights to
indemnification,  contribution or other remedies which an Indemnified  Party may
have pursuant to law, equity, contract or otherwise.

         Section 3.4  Contribution.  If the  indemnification  and  reimbursement
obligations  provided for in any section of this Article III is  unavailable  or
insufficient to hold harmless the Indemnified  Parties in respect of any Damages
referred to herein,  then the Indemnifying  Party, in lieu of indemnifying  such
Indemnified  Party,  shall  contribute  to the  amount  paid or  payable by such
Indemnified  Party as a result of such Damages as between the Company on the one
hand and the Investor on the other,  in such  proportion  as is  appropriate  to
reflect the relative fault of the Company and of the Investor in connection with
such  statements or omissions,  as well as other equitable  considerations.  The
relative  fault of the Company on the one hand and of the  Investor on the other
shall be determined  by reference to, among other things,  whether the untrue or
alleged untrue  statement of a material fact or the omission or alleged omission
to state a material fact relates to information  supplied by such party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent such statement or omission.

                                       10
<PAGE>

         The  Company  and the  Investor  agree  that it  would  not be just and
equitable if  contribution  pursuant to this Section 3.4 were  determined by pro
rata  allocation or by any other method of allocation that does not take account
of  the  equitable  considerations  referred  to in  the  immediately  preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
Damages  referred to in the immediately  preceding  paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably  incurred by such Indemnified Party in connection with  investigating
or defending any such action or claim.  Notwithstanding  the  provisions of this
Section 3.4, the Investor shall in no event be required to contribute any amount
in excess  of the  amount  by which  the  total  price at which the  Registrable
Securities of the Investor were sold to the public (less underwriting  discounts
and  commissions)  exceeds  the amount of any  damages  which the  Investor  has
otherwise  been  required  to pay by reason of such  untrue  or  alleged  untrue
statement  or  omission  or alleged  omission.  No Person  guilty of  fraudulent
misrepresentation  (within the meaning of Section 11(f) of the  Securities  Act)
shall be  entitled  to  contribution  from any Person who was not guilty of such
fraudulent misrepresentation.

                                   ARTICLE IV
                                  MISCELLANEOUS

         Section 4.1 No Outstanding  Registration Rights. The Company represents
and warrants to the Investor  that there is not in effect on the date hereof any
agreement  by the Company  pursuant to which any  holders of  securities  of the
Company have a right to cause the Company to register or qualify such securities
under the Securities Act or any securities or blue sky laws of any jurisdiction,
except  for  piggyback  registration  rights  granted  to the  holders  of three
convertible  notes in the aggregate  amount of $250,000 issued to Mr. James K.T.
Lu, Balmore Funds and Mr. Jeffrey I. Schillen which notes are  convertible  into
5,000,000 shares of Common Stock of the Company.

         Section  4.2  Term.  The  obligations  of the  Company  and the  rights
provided to the holders of Registrable  Securities  hereunder shall terminate at
such time as all  Registrable  Securities have been issued and have ceased to be
Registrable Securities.  Notwithstanding the foregoing,  Section 1.1(c) and (d),
Article  III,  Section  4.8, and Section 4.9 shall  survive the  termination  or
expiration of this Agreement.

         Section 4.3 Rule 144. The Company will use its commercially  reasonable
efforts  to file in a  timely  manner  information,  documents  and  reports  in
compliance  with  the  Securities  Act and the  Exchange  Act and  will,  at its
expense,  promptly take such further action as holders of Registrable Securities
may reasonably request to enable such holders of Registrable  Securities to sell
Registrable  Securities without registration under the Securities Act within the
limitation of the  exemptions  provided by (a) Rule 144 under the Securities Act
("Rule 144"),  as such Rule may be amended from time to time, or (b) any similar

                                       11
<PAGE>

rule or regulation  hereafter  adopted by the SEC. If at any time the Company is
not required to file such reports,  it will, at its expense,  forthwith upon the
written request of any holder of Registrable Securities, make available adequate
current  public  information  with respect to the Company  within the meaning of
paragraph  (c)(2) of Rule 144 or such other  information  as necessary to permit
sales  pursuant to Rule 144. Upon the request of the Investor,  the Company will
deliver to the Investor a written statement,  signed by the Company's  principal
executive  or  financial  officer,  as to  whether  it has  complied  with  such
requirements.

         Section 4.4  Certificate.  The Company will, at its expense,  forthwith
upon the request of any holder of Registrable Securities, deliver to such holder
a certificate,  signed by the Company's principal financial officer, stating (a)
the Company's name,  address and telephone number (including area code), (b) the
Company's Internal Revenue Service  identification number, (c) the Company's SEC
file number, (d) the number of shares of each class of capital stock outstanding
as shown by the most recent  report or statement  published by the Company,  and
(e) whether  the  Company  has filed the reports  required to be filed under the
Exchange Act for a period of at least ninety (90) days prior to the date of such
certificate  and in addition has filed the most recent annual report required to
be filed thereunder.

         Section 4.5 Amendment and Modification.  No provision of this Agreement
may be waived,  unless  such  waiver is set forth in a writing  executed by both
parties to this  Agreement.  The  provisions  of this  Agreement,  including the
provisions of this sentence, may not be amended,  modified or supplemented,  and
waivers or consents to departures  from the provisions  hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable  Securities.  Notwithstanding the foregoing,
the  waiver of any  provision  hereof  with  respect  to a matter  that  relates
exclusively to the rights of holders of Registrable  Securities whose securities
are being sold  pursuant to a  Registration  Statement  and does not directly or
indirectly  affect the rights of other holders of Registrable  Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such  holders;  provided  that the  provisions  of this  sentence  may not be
amended,  modified or  supplemented  except in accordance with the provisions of
the immediately  preceding  sentence.  No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this  Agreement or any rights or  obligations  of
any person under or by reason of this Agreement.

         Section 4.6 Successors and Assigns;  Entire  Agreement.  This Agreement
and all of the provisions  hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns. The
Investor may assign its rights under this Agreement to any subsequent  holder of
the  Registrable  Securities,  provided that the Company shall have the right to
require any holder of  Registrable  Securities to execute a counterpart  of this
Agreement as a condition to such holder's  claim to any rights  hereunder.  This
Agreement,  together  with the  Securities  Purchase  Agreement,  sets forth the
entire agreement and understanding  between the parties as to the subject matter
hereof  and  merges  and  supersedes  all  prior  discussions,   agreements  and
understandings of any and every nature among them.

                                       12
<PAGE>

         Section  4.7  Severability.  In the event  that any  provision  of this
Agreement  becomes or is declared  by a court of  competent  jurisdiction  to be
illegal,  unenforceable or void, this Agreement shall continue in full force and
effect  without  said  provision;  provided  that  such  severability  shall  be
ineffective if it materially  changes the economic  benefit of this Agreement to
any party.

         Section  4.8  Notices.  All  notices,  demands,   requests,   consents,
approvals,  and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein,  shall be (a) personally served,
(b) deposited in the mail,  registered or certified,  return receipt  requested,
postage  prepaid,  (c) delivered by reputable  air courier  service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile,  addressed
as set forth below or to such other  address as such party shall have  specified
most  recently by written  notice given in  accordance  herewith.  Any notice or
other communication  required or permitted to be given hereunder shall be deemed
effective  (i) upon hand  delivery  or  delivery  by  facsimile,  with  accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours where such notice is to be  received)  or (ii) on the second  business day
following  the date of  mailing  by  express  courier  service  or on the  fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address,  or upon actual receipt of such mailing,  whichever shall first
occur. The addresses for such communications shall be:

       If to the Company, to:             Diamond Entertainment Corporation
                                          800 Tucker Lane
                                          Walnut, CA 81709
                                          Attention:        President
                                          Telephone:        (909) 839-1989
                                          Facsimile:        (909) 869-1990

       With a copy(which shall not
       constitute notice), to:            De Martino Finkelstein Rosen & Virga
                                          1818 N Street, N.W.
                                          Suite 400
                                          Washington, D.C. 20036
                                          Attention:        Neil R.E. Carr, Esq.
                                          Telephone:        (202) 659-0494
                                          Facsimile:        (202) 659-1290

       If to the Investor, to:            ---------------------------------
                                          ---------------------------------
                                          ---------------------------------
                                          ---------------------------------
                                          Attention:
                                          Telephone:        (---) --------
                                          Facsimile:        (---) --------

                                       13
<PAGE>

         Either  party  hereto  may from  time to time  change  its  address  or
facsimile  number for notices under this Section 4.8 by giving at least ten (10)
days' prior written  notice of such changed  address or facsimile  number to the
other party hereto.

         Section  4.9  Governing  Law,  Jurisdiction.  This  Agreement  shall be
governed by and interpreted in accordance with the laws of the State of New York
without  regard to the principles of conflicts of law. The parties hereto hereby
submit to the  exclusive  jurisdiction  of the United  States  Federal and state
courts located in New York,  New York with respect to any dispute  arising under
this  Agreement,  the  agreements  entered  into in  connection  herewith or the
transactions contemplated hereby or thereby.

         Section 4.10 Title and Subtitles. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.

         Section 4.11  Counterparts.  This Agreement may be executed in multiple
counterparts,  each of which may be executed by less than all of the parties and
shall be deemed to be an original  instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute  one and the same  instrument.  This  Agreement,  once  executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.

         Section 4.12 Further  Assurances.  Each party shall do and perform,  or
cause to be done and  performed,  all such  further  acts and things,  and shall
execute and deliver all such other  agreements,  certificates,  instruments  and
documents,  as the other party may reasonably  request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

         Section  4.13  No  Strict  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 rules of strict construction will be applied against
any party.

            (THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.)

                                       14
<PAGE>

         IN WITNESS  WHEREOF,  the parties hereto have caused this  Registration
Rights Agreement to be executed by the  undersigned,  thereunto duly authorized,
as of the date first set forth above.

                  DIAMOND ENTERTAINMENT CORPORATION

                              /s/ James K .T. Lu
                  By:      ----------------------------------------------
                           Name:    James K. T. Lu
                           Title:   President and Chief Executive Officer

                              Anthony E. Rakos
                           ----------------------------------------------
                              [Name of Investor]

                              /s/ Anthony E. Rakos
                  By:     ----------------------------------------------
                           Name:  Anthony E. Rakos
                           Title: ---------------------------------------

                                       15

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