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EXHIBIT 4.8

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER  THE  SECURITIES  ACT  OF  1933,  AS  AMENDED  (THE  "ACT").  THE
         SECURITIES  MAY NOT BE SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
         AN EFFECTIVE  REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT,
         OR AN OPINION OF COUNSEL IN FORM,  SUBSTANCE  AND SCOPE  CUSTOMARY  FOR
         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT
         REQUIRED  UNDER  SAID  ACT OR  UNLESS  SOLD  PURSUANT  TO  RULE  144 OR
         REGULATION S UNDER SAID ACT.

                        CALLABLE SECURED CONVERTIBLE NOTE

Del Mar, California

June 10, 2004                                                            $28,000

      FOR VALUE  RECEIVED,  PACIFICAP  ENTERTAINMENT  HOLDINGS,  INC.,  a Nevada
corporation  (hereinafter called the "Borrower"),  hereby promises to pay to the
order of NEW  MILLENNIUM  CAPITAL  PARTNERS II, LLC or  registered  assigns (the
"Holder") the sum of Twenty-Eight  Thousand Dollars ($28,000),  on June 10, 2006
(the  "Maturity  Date"),  and to pay  interest on the unpaid  principal  balance
hereof at the rate of ten percent (10%) per annum from June 10, 2004 (the "ISSUE
DATE")  until the same  becomes  due and  payable,  whether at  maturity or upon
acceleration or by prepayment or otherwise.  Any amount of principal or interest
on this  Note  which is not paid  when due shall  bear  interest  at the rate of
fifteen percent (15%) per annum from the due date thereof until the same is paid
("DEFAULT INTEREST").  Interest shall commence accruing on the issue date, shall
be computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable,  quarterly on March 31, June 30, September 30 and December
31 of each year  beginning on June 30, 2004.  All payments due hereunder (to the
extent not  converted  into  common  stock,  $.001 par value per  share,  of the
Borrower (the "COMMON STOCK") in accordance with the terms hereof) shall be made
in lawful money of the United States of America, provided that the first two (2)
year's interest payment shall be payable on the date hereof.  All payments shall
be made at such  address as the Holder shall  hereafter  give to the Borrower by
written notice made in accordance with the provisions of this Note. Whenever any
amount  expressed to be due by the terms of this Note is due on any day which is
not a business  day, the same shall  instead be due on the next  succeeding  day
which is a business day and, in the case of any  interest  payment date which is
not the date on which this Note is paid in full,  the  extension of the due date
thereof shall not be taken into account for purposes of  determining  the amount
of interest  due on such date.  As used in this Note,  the term  "business  day"
shall mean any day other than a  Saturday,  Sunday or a day on which  commercial
banks in the city of New York,  New York are  authorized  or  required by law or
executive order to remain closed.  Each  capitalized  term used herein,  and not
otherwise  defined,  shall have the  meaning  ascribed  thereto in that  certain
Securities Purchase Agreement,  dated June 10, 2004, pursuant to which this Note
was originally issued (the "PURCHASE AGREEMENT").

<PAGE>

      This Note is free from all  taxes,  liens,  claims and  encumbrances  with
respect to the issue  thereof and shall not be subject to  preemptive  rights or
other  similar  rights  of  stockholders  of the  Borrower  and will not  impose
personal  liability  upon the holder  thereof.  The  obligations of the Borrower
under  this Note  shall be secured by that  certain  Security  Agreement  by and
between the Borrower and the Holder of even date herewith.

      The following terms shall apply to this Note:

                          ARTICLE I. CONVERSION RIGHTS

      1.1 CONVERSION  RIGHT.  The Holder shall have the right from time to time,
and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the
date of payment of the Default  Amount (as defined in Article  III)  pursuant to
Section  1.6(a) or Article III, the  Optional  Prepayment  Amount (as defined in
Section  5.1 or any  payments  pursuant to Section  1.7,  each in respect of the
remaining  outstanding  principal amount of this Note to convert all or any part
of the outstanding and unpaid  principal amount of this Note into fully paid and
non-assessable  shares of Common Stock, as such Common Stock exists on the Issue
Date,  or any shares of capital  stock or other  securities of the Borrower into
which such  Common  Stock  shall  hereafter  be changed or  reclassified  at the
conversion  price (the  "CONVERSION  PRICE")  determined  as provided  herein (a
"CONVERSION");  provided, however, that in no event shall the Holder be entitled
to convert any portion of this Note in excess of that  portion of this Note upon
conversion  of  which  the sum of (1) the  number  of  shares  of  Common  Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock  which may be deemed  beneficially  owned  through  the  ownership  of the
unconverted  portion of the Notes or the  unexercised or unconverted  portion of
any other security of the Borrower (including,  without limitation, the warrants
issued  by  the  Borrower  pursuant  to the  Purchase  Agreement)  subject  to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (2) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion  of the portion of this Note with respect to which the  determination
of this  proviso is being made,  would  result in  beneficial  ownership  by the
Holder and its affiliates of more than 4.9% of the outstanding  shares of Common
Stock.  For  purposes  of the  proviso to the  immediately  preceding  sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities  Exchange Act of 1934, as amended,  and Regulations 13D-G thereunder,
except as otherwise provided in clause (1) of such proviso. The number of shares
of  Common  Stock to be  issued  upon  each  conversion  of this  Note  shall be
determined  by  dividing  the  Conversion  Amount  (as  defined  below)  by  the
applicable  Conversion  Price then in effect on the date specified in the notice
of  conversion,  in the form  attached  hereto  as  Exhibit  A (the  "NOTICE  OF
CONVERSION"), delivered to the Borrower by the Holder in accordance with Section
1.4 below;  provided that the Notice of Conversion is submitted by facsimile (or
by other means resulting in, or reasonably expected to result in, notice) to the
Borrower  before 6:00 p.m., New York, New York time on such conversion date (the
"CONVERSION  DATE").  The term  "CONVERSION  AMOUNT" means,  with respect to any
conversion of this Note, the sum of (1) the principal  amount of this Note to be
converted in such  conversion plus (2) accrued and unpaid  interest,  if any, on
such  principal  amount  at the  interest  rates  provided  in this  Note to the
Conversion Date plus (3) Default Interest, if any, on the amounts referred to in
the  immediately  preceding  clauses  (1)  and/or  (2) plus (4) at the  Holder's
option,  any amounts  owed to the Holder  pursuant  to  Sections  1.3 and 1.4(g)
hereof  or  pursuant  to  Section  2(c)  of  that  certain  Registration  Rights
Agreement,  dated as of June 10, 2004,  executed in connection  with the initial
issuance  of this  Note and the  other  Notes  issued  on the  Issue  Date  (the
"REGISTRATION RIGHTS AGREEMENT").

                                       2
<PAGE>

      1.2 CONVERSION PRICE.

            (A) CALCULATION OF CONVERSION  PRICE.  The Conversion Price shall be
the lesser of (i) the Variable Conversion Price (as defined herein) and (ii) the
Fixed Conversion Price (as defined herein) (subject,  in each case, to equitable
adjustments  for  stock  splits,  stock  dividends  or rights  offerings  by the
Borrower  relating  to  the  Borrower's  securities  or  the  securities  of any
subsidiary of the Borrower, combinations,  recapitalization,  reclassifications,
extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE"
shall mean the  Applicable  Percentage  (as defined  herein)  multiplied  by the
Market Price (as defined herein). "MARKET PRICE" means the average of the lowest
three (3) Trading  Prices (as  defined  below) for the Common  Stock  during the
twenty  (20)  Trading  Day period  ending one  Trading Day prior to the date the
Conversion  Notice is sent by the  Holder to the  Borrower  via  facsimile  (the
"CONVERSION DATE").  "TRADING PRICE" means, for any security as of any date, the
intraday trading price on the  Over-the-Counter  Bulletin Board (the "OTCBB") as
reported by a reliable  reporting  service mutually  acceptable to and hereafter
designated  by Holders of a majority in  interest of the Notes and the  Borrower
or, if the OTCBB is not the  principal  trading  market for such  security,  the
intraday trading price of such security on the principal  securities exchange or
trading  market  where  such  security  is listed or traded  or, if no  intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday  trading  prices of any market  makers for such security
that are listed in the "pink sheets" by the National  Quotation Bureau,  Inc. If
the Trading  Price cannot be  calculated  for such  security on such date in the
manner  provided  above,  the Trading  Price  shall be the fair market  value as
mutually determined by the Borrower and the holders of a majority in interest of
the Notes being  converted  for which the  calculation  of the Trading  Price is
required in order to determine the Conversion Price of such Notes. "TRADING DAY"
shall  mean any day on which the  Common  Stock is traded  for any period on the
OTCBB, or on the principal  securities  exchange or other  securities  market on
which the Common Stock is then being traded.  "APPLICABLE PERCENTAGE" shall mean
50.0%. The "FIXED CONVERSION PRICE" shall mean $.35.

            (B)  CONVERSION  PRICE DURING MAJOR  ANNOUNCEMENTS.  Notwithstanding
anything contained in Section 1.2(a) to the contrary,  in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Borrower is the surviving or
continuing  corporation  and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower's  Common Stock (or any other takeover  scheme) (the
date of the  announcement  referred  to in  clause  (i) or  (ii) is  hereinafter
referred  to as the  "ANNOUNCEMENT  DATE"),  then the  Conversion  Price  shall,
effective  upon  the  Announcement  Date and  continuing  through  the  Adjusted
Conversion Price  Termination Date (as defined below),  be equal to the lower of
(x) the  Conversion  Price which  would have been  applicable  for a  Conversion
occurring  on the  Announcement  Date and (y) the  Conversion  Price  that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date,  the  Conversion  Price shall be  determined  as set forth in this Section
1.2(a). For purposes hereof,  "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall
mean,  with  respect to any  proposed  transaction  or tender offer (or takeover
scheme) for which a public  announcement  as contemplated by this Section 1.2(b)
has been  made,  the date upon  which the  Borrower  (in the case of clause  (i)
above)  or the  person,  group or  entity  (in the case of  clause  (ii)  above)
consummates or publicly announces the termination or abandonment of the proposed
transaction  or tender  offer (or  takeover  scheme)  which  caused this Section
1.2(b) to become operative.

                                       3
<PAGE>

      1.3 AUTHORIZED  SHARES.  The Borrower covenants that during the period the
conversion  right  exists,  the Borrower  will reserve from its  authorized  and
unissued  Common  Stock a  sufficient  number of  shares,  free from  preemptive
rights,  to provide for the issuance of Common Stock upon the full conversion of
this Note and the other Notes  issued  pursuant to the Purchase  Agreement.  The
Borrower is required at all times to have  authorized and reserved two (2) times
the number of shares that is actually issuable upon full conversion of the Notes
(based  on the  Conversion  Price  of the  Notes  or the  Exercise  Price of the
Warrants  in effect from time to time) (the  "RESERVED  AMOUNT").  The  Reserved
Amount shall be increased  from time to time in accordance  with the  Borrower's
obligations  pursuant to Section  4(h) of the Purchase  Agreement.  The Borrower
represents  that upon  issuance,  such shares  will be duly and validly  issued,
fully paid and  non-assessable.  In addition,  if the  Borrower  shall issue any
securities  or make any change to its capital  structure  which would change the
number of shares of Common  Stock into which the Notes shall be  convertible  at
the then current  Conversion  Price,  the  Borrower  shall at the same time make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock  authorized  and  reserved,  free from  preemptive  rights,  for
conversion of the outstanding  Notes. The Borrower (i) acknowledges  that it has
irrevocably  instructed its transfer agent to issue  certificates for the Common
Stock  issuable upon  conversion of this Note, and (ii) agrees that its issuance
of this Note shall  constitute full authority to its officers and agents who are
charged with the duty of executing  stock  certificates to execute and issue the
necessary  certificates  for shares of Common Stock in accordance with the terms
and conditions of this Note.

      If, at any time a Holder of this Note submits a Notice of Conversion,  and
the Borrower does not have  sufficient  authorized but unissued shares of Common
Stock  available to effect such  conversion in accordance with the provisions of
this Article I (a  "CONVERSION  DEFAULT"),  subject to Section 4.8, the Borrower
shall  issue to the  Holder  all of the  shares of Common  Stock  which are then
available to effect such  conversion.  The portion of this Note which the Holder
included in its  Conversion  Notice and which  exceeds the amount  which is then
convertible  into available  shares of Common Stock (the "EXCESS AMOUNT") shall,
notwithstanding  anything to the contrary  contained herein,  not be convertible
into Common Stock in accordance with the terms hereof until (and at the Holder's
option  at any time  after)  the date  additional  shares  of  Common  Stock are
authorized  by the  Borrower  to  permit  such  conversion,  at  which  time the
Conversion  Price in respect  thereof shall be the lesser of (i) the  Conversion
Price on the Conversion  Default Date (as defined below) and (ii) the Conversion
Price on the  Conversion  Date  thereafter  elected  by the  Holder  in  respect
thereof. In addition, the Borrower shall pay to the Holder payments ("CONVERSION
DEFAULT  PAYMENTS") for a Conversion Default in the amount of (x) the sum of (1)
the then  outstanding  principal amount of this Note plus (2) accrued and unpaid
interest on the unpaid principal  amount of this Note through the  Authorization
Date (as  defined  below)  plus (3)  Default  Interest,  if any,  on the amounts
referred to in clauses (1) and/or (2),  multiplied by (y) .24, multiplied by (z)
(N/365),  where N = the number of days from the day the holder  submits a Notice
of  Conversion  giving rise to a  Conversion  Default (the  "CONVERSION  DEFAULT
DATE") to the date (the  "AUTHORIZATION  DATE") that the  Borrower  authorizes a
sufficient  number of shares of Common  Stock to effect  conversion  of the full
outstanding  principal  balance of this Note.  The  Borrower  shall use its best
efforts to  authorize a  sufficient  number of shares of Common Stock as soon as
practicable  following the earlier of (i) such time that the Holder notifies the
Borrower or that the Borrower  otherwise  becomes aware that there are or likely
will be  insufficient  authorized and unissued  shares to allow full  conversion
thereof and (ii) a Conversion  Default.  The  Borrower  shall send notice to the
Holder  of  the   authorization  of  additional  shares  of  Common  Stock,  the
Authorization  Date  and the  amount  of  Holder's  accrued  Conversion  Default
Payments.  The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient  authorized shares of Common Stock) at the applicable  Conversion
Price, at the Borrower's option, as follows:

                                       4
<PAGE>

            (A) In the event Holder  elects to take such  payment in cash,  cash
payment  shall be made to Holder by the fifth  (5th) day of the month  following
the month in which it has accrued; and

            (B) In the event Holder elects to take such payment in Common Stock,
the Holder may convert such payment  amount into Common Stock at the  Conversion
Price (as in effect at the time of  conversion)  at any time after the fifth day
of the month  following the month in which it has accrued in accordance with the
terms  of this  Article  I (so  long as there  is then a  sufficient  number  of
authorized shares of Common Stock).

      The Holder's election shall be made in writing to the Borrower at any time
prior to 6:00  p.m.,  New  York,  New York  time,  on the third day of the month
following the month in which  Conversion  Default  payments have accrued.  If no
election is made,  the Holder shall be deemed to have  elected to receive  cash.
Nothing  herein shall limit the Holder's  right to pursue actual damages (to the
extent in excess of the Conversion  Default Payments) for the Borrower's failure
to maintain a sufficient  number of authorized  shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

      1.4 METHOD OF CONVERSION.

            (A) MECHANICS OF  CONVERSION.  Subject to Section 1.1, this Note may
be  converted  by the  Holder  in whole or in part at any time from time to time
after the Issue Date,  by (A)  submitting to the Borrower a Notice of Conversion
(by  facsimile or other  reasonable  means of  communication  dispatched  on the
Conversion  Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(b), surrendering this Note at the principal office of the Borrower.

                                       5
<PAGE>

            (B) SURRENDER OF NOTE UPON CONVERSION.  Notwithstanding  anything to
the contrary set forth herein,  upon  conversion of this Note in accordance with
the terms hereof, the Holder shall not be required to physically  surrender this
Note to the Borrower unless the entire unpaid  principal  amount of this Note is
so converted.  The Holder and the Borrower  shall maintain  records  showing the
principal  amount so converted  and the dates of such  conversions  or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Note upon each such conversion. In the
event of any  dispute or  discrepancy,  such  records of the  Borrower  shall be
controlling and determinative in the absence of manifest error.  Notwithstanding
the foregoing, if any portion of this Note is converted as aforesaid, the Holder
may not transfer this Note unless the Holder first  physically  surrenders  this
Note to the Borrower,  whereupon the Borrower will  forthwith  issue and deliver
upon the order of the Holder a new Note of like tenor,  registered as the Holder
(upon  payment  by the Holder of any  applicable  transfer  taxes) may  request,
representing  in the  aggregate the remaining  unpaid  principal  amount of this
Note. The Holder and any assignee,  by acceptance of this Note,  acknowledge and
agree that, by reason of the provisions of this paragraph,  following conversion
of a portion of this Note, the unpaid and unconverted  principal  amount of this
Note  represented  by this Note may be less than the  amount  stated on the face
hereof.

            (C) PAYMENT OF TAXES.  The Borrower shall not be required to pay any
tax which may be payable in respect of any  transfer  involved  in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Note in a name other than that of the  Holder (or in street  name),  and
the Borrower  shall not be required to issue or deliver any such shares or other
securities  or property  unless and until the person or persons  (other than the
Holder or the  custodian in whose street name such shares are to be held for the
Holder's  account)  requesting  the  issuance  thereof  shall  have  paid to the
Borrower  the  amount  of  any  such  tax  or  shall  have  established  to  the
satisfaction of the Borrower that such tax has been paid.

            (D)  DELIVERY OF COMMON STOCK UPON  CONVERSION.  Upon receipt by the
Borrower from the Holder of a facsimile  transmission (or other reasonable means
of  communication)  of a Notice  of  Conversion  meeting  the  requirements  for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or  cause  to be  issued  and  delivered  to or upon  the  order  of the  Holder
certificates  for the Common Stock issuable upon such conversion  within two (2)
business days after such receipt  (and,  solely in the case of conversion of the
entire  unpaid  principal  amount  hereof,  surrender of this Note) (such second
business day being hereinafter referred to as the "DEADLINE") in accordance with
the terms hereof and the Purchase Agreement (including,  without limitation,  in
accordance with the requirements of Section 2(g) of the Purchase  Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the  Registration  Statement  upon  conversion  of this Note  shall not bear any
restrictive legend).

            (E) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK.  Upon receipt by
the  Borrower of a Notice of  Conversion,  the Holder  shall be deemed to be the
holder  of  record of the  Common  Stock  issuable  upon  such  conversion,  the
outstanding  principal  amount and the amount of accrued and unpaid  interest on
this Note shall be reduced to reflect such conversion,  and, unless the Borrower
defaults on its obligations under this Article I, all rights with respect to the
portion of this Note being so converted  shall  forthwith  terminate  except the
right to receive the Common Stock or other securities,  cash or other assets, as
herein provided, on such conversion.  If the Holder shall have given a Notice of
Conversion as provided  herein,  the Borrower's  obligation to issue and deliver
the  certificates  for  Common  Stock  shall  be  absolute  and   unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with  respect to any  provision  thereof,  the recovery of any
judgment  against any person or any action to enforce  the same,  any failure or
delay in the  enforcement of any other  obligation of the Borrower to the holder
of record, or any setoff, counterclaim,  recoupment,  limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and  irrespective  of any other  circumstance  which might  otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion. The
Conversion  Date  specified in the Notice of Conversion  shall be the Conversion
Date so long as the Notice of Conversion is received by the Borrower before 6:00
p.m., New York, New York time, on such date.

                                       6
<PAGE>

            (F)  DELIVERY OF COMMON  STOCK BY  ELECTRONIC  TRANSFER.  In lieu of
delivering  physical  certificates  representing  the Common Stock issuable upon
conversion,  provided the  Borrower's  transfer  agent is  participating  in the
Depository  Trust Company ("DTC") Fast Automated  Securities  Transfer  ("FAST")
program,  upon  request  of the Holder and its  compliance  with the  provisions
contained in Section 1.1 and in this  Section  1.4,  the Borrower  shall use its
best efforts to cause its transfer agent to  electronically  transmit the Common
Stock  issuable  upon  conversion  to the  Holder by  crediting  the  account of
Holder's Prime Broker with DTC through its Deposit  Withdrawal  Agent Commission
("DWAC") system.

            (G) FAILURE TO DELIVER  COMMON STOCK PRIOR TO  DEADLINE.  Without in
any way limiting the Holder's right to pursue other remedies,  including  actual
damages  and/or  equitable  relief,  the  parties  agree that if delivery of the
Common Stock  issuable  upon  conversion  of this Note is more than two (2) days
after the Deadline (other than a failure due to the  circumstances  described in
Section 1.3 above, which failure shall be governed by such Section) the Borrower
shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline
that the Borrower fails to deliver such Common Stock.  Such cash amount shall be
paid to Holder by the fifth day of the month following the month in which it has
accrued  or, at the option of the Holder (by written  notice to the  Borrower by
the first day of the month  following the month in which it has accrued),  shall
be added to the  principal  amount of this Note, in which event  interest  shall
accrue  thereon in  accordance  with the terms of this Note and such  additional
principal  amount shall be convertible  into Common Stock in accordance with the
terms of this Note.

      1.5  CONCERNING  THE  SHARES.  The shares of Common  Stock  issuable  upon
conversion  of this Note may not be sold or  transferred  unless (i) such shares
are sold pursuant to an effective  registration  statement under the Act or (ii)
the Borrower or its transfer  agent shall have been furnished with an opinion of
counsel  (which  opinion  shall be in form,  substance  and scope  customary for
opinions of counsel in comparable transactions) to the effect that the shares to
be sold or transferred may be sold or transferred  pursuant to an exemption from
such registration or (iii) such shares are sold or transferred  pursuant to Rule
144 under the Act (or a  successor  rule)  ("RULE  144") or (iv) such shares are
transferred  to an  "affiliate"  (as  defined in Rule 144) of the  Borrower  who
agrees to sell or  otherwise  transfer the shares only in  accordance  with this
Section  1.5 and who is an  Accredited  Investor  (as  defined  in the  Purchase
Agreement).  Except as otherwise provided in the Purchase Agreement (and subject
to the removal  provisions  set forth  below),  until such time as the shares of
Common Stock issuable upon  conversion of this Note have been  registered  under
the Act as contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately  sold, each certificate for
shares of Common Stock  issuable upon  conversion of this Note that has not been
so included in an  effective  registration  statement  or that has not been sold
pursuant to an effective  registration  statement  or an exemption  that permits
removal of the legend,  shall bear a legend substantially in the following form,
as appropriate:

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<PAGE>

         "THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
         MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
         OF COUNSEL IN FORM,  SUBSTANCE  AND SCOPE  CUSTOMARY  FOR  OPINIONS  OF
         COUNSEL IN COMPARABLE  TRANSACTIONS,  THAT REGISTRATION IS NOT REQUIRED
         UNDER SAID ACT UNLESS SOLD  PURSUANT TO RULE 144 OR  REGULATION S UNDER
         SAID ACT."

      The legend set forth above shall be removed and the  Borrower  shall issue
to the Holder a new certificate  therefor free of any transfer legend if (i) the
Borrower or its  transfer  agent shall have  received an opinion of counsel,  in
form,  substance  and scope  customary  for  opinions  of counsel in  comparable
transactions,  to the effect that a public sale or transfer of such Common Stock
may be made  without  registration  under the Act and the  shares are so sold or
transferred,  (ii) such Holder  provides the Borrower or its transfer agent with
reasonable  assurances  that the Common Stock  issuable upon  conversion of this
Note (to the extent such securities are deemed to have been acquired on the same
date) can be sold  pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon  conversion of this Note,  such security is registered for sale by
the Holder  under an  effective  registration  statement  filed under the Act or
otherwise  may be sold  pursuant to Rule 144 without any  restriction  as to the
number of securities as of a particular date that can then be immediately  sold.
Nothing  in this  Note  shall  (i) limit  the  Borrower's  obligation  under the
Registration Rights Agreement or (ii) affect in any way the Holder's obligations
to comply with applicable  prospectus  delivery  requirements upon the resale of
the securities referred to herein.

      1.6 EFFECT OF CERTAIN EVENTS.

            (A)  EFFECT OF  MERGER,  CONSOLIDATION,  ETC.  At the  option of the
Holder,  the sale,  conveyance or disposition of all or substantially all of the
assets of the Borrower,  the  effectuation  by the Borrower of a transaction  or
series of related transactions in which more than 50% of the voting power of the
Borrower  is  disposed  of,  or the  consolidation,  merger  or  other  business
combination  of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either:  (i) be deemed to be
an Event of Default (as defined in Article  III)  pursuant to which the Borrower
shall  be  required  to pay to the  Holder  upon  the  consummation  of and as a
condition to such  transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated  pursuant to Section 1.6(b) hereof.  "PERSON"
shall mean any individual,  corporation, limited liability company, partnership,
association, trust or other entity or organization.

                                       8
<PAGE>

            (B)  ADJUSTMENT DUE TO MERGER,  CONSOLIDATION,  ETC. If, at any time
when this Note is issued and  outstanding  and prior to conversion of all of the
Notes,   there  shall  be  any  merger,   consolidation,   exchange  of  shares,
recapitalization,  reorganization,  or other similar event, as a result of which
shares of  Common  Stock of the  Borrower  shall be  changed  into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another  entity,  or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter  have the right to receive  upon  conversion  of this Note,  upon the
basis and upon the  terms and  conditions  specified  herein  and in lieu of the
shares of Common Stock immediately  theretofore  issuable upon conversion,  such
stock, securities or assets which the Holder would have been entitled to receive
in such  transaction had this Note been converted in full  immediately  prior to
such  transaction  (without  regard to any  limitations  on conversion set forth
herein), and in any such case appropriate  provisions shall be made with respect
to the  rights  and  interests  of the  Holder  of this Note to the end that the
provisions hereof (including,  without limitation,  provisions for adjustment of
the Conversion Price and of the number of shares issuable upon conversion of the
Note)  shall  thereafter  be  applicable,  as  nearly as may be  practicable  in
relation to any securities or assets thereafter  deliverable upon the conversion
hereof. The Borrower shall not effect any transaction  described in this Section
1.6(b) unless (a) it first gives,  to the extent  practicable,  thirty (30) days
prior written  notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if  there  is  no  such  record  date,   the   consummation   of,  such  merger,
consolidation,  exchange of shares,  recapitalization,  reorganization  or other
similar event or sale of assets  (during which time the Holder shall be entitled
to convert this Note) and (b) the  resulting  successor or acquiring  entity (if
not the Borrower) assumes by written  instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.

            (C) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a dividend, stock repurchase,  by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e.,  a spin-off)) (a  "DISTRIBUTION"),  then the Holder of this Note shall be
entitled,  upon  any  conversion  of this  Note  after  the date of  record  for
determining shareholders entitled to such Distribution, to receive the amount of
such  assets  which would have been  payable to the Holder  with  respect to the
shares of Common Stock  issuable upon such  conversion  had such Holder been the
holder of such shares of Common  Stock on the record date for the  determination
of shareholders entitled to such Distribution.

            (D)  ADJUSTMENT DUE TO DILUTIVE  ISSUANCE.  If, at any time when any
Notes are issued and outstanding, the Borrower issues or sells, or in accordance
with this Section  1.6(d) hereof is deemed to have issued or sold, any shares of
Common  Stock for no  consideration  or for a  consideration  per share  (before
deduction of reasonable  expenses or  commissions or  underwriting  discounts or
allowances  in connection  therewith)  less than the Fixed  Conversion  Price in
effect on the date of such  issuance  (or  deemed  issuance)  of such  shares of
Common  Stock (a  "DILUTIVE  ISSUANCE"),  then  immediately  upon  the  Dilutive
Issuance,  the Fixed  Conversion  Price  will be  reduced  to the  amount of the
consideration  per share  received by the  Borrower in such  Dilutive  Issuance;
provided that only one adjustment will be made for each Dilutive Issuance.

                                       9
<PAGE>

      The Borrower shall be deemed to have issued or sold shares of Common Stock
if the Borrower in any manner issues or grants any warrants,  rights or options,
whether or not immediately  exercisable,  to subscribe for or to purchase Common
Stock or other  securities  convertible  into or  exchangeable  for Common Stock
("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common
Stock or Convertible  Securities are  hereinafter  referred to as "OPTIONS") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Fixed Conversion  Price then in effect,  then the Fixed
Conversion  Price  shall be equal to such price per share.  For  purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
the exercise of such Options" is determined by dividing (i) the total amount, if
any, received or receivable by the Borrower as consideration for the issuance or
granting of all such Options,  plus the minimum  aggregate  amount of additional
consideration,  if any,  payable to the  Borrower  upon the exercise of all such
Options,  plus, in the case of Convertible Securities issuable upon the exercise
of such  Options,  the  minimum  aggregate  amount of  additional  consideration
payable upon the  conversion  or exchange  thereof at the time such  Convertible
Securities first become  convertible or exchangeable,  by (ii) the maximum total
number of shares of Common Stock  issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable).  No further
adjustment to the Conversion Price will be made upon the actual issuance of such
Common  Stock  upon the  exercise  of such  Options  or upon the  conversion  or
exchange of Convertible Securities issuable upon exercise of such Options.

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

                                       10
<PAGE>

            (E) PURCHASE  RIGHTS.  If, at any time when any Notes are issued and
outstanding,  the  Borrower  issues  any  convertible  securities  or  rights to
purchase stock,  warrants,  securities or other property (the "PURCHASE Rights")
pro rata to the record holders of any class of Common Stock,  then the Holder of
this  Note 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 this Note (without  regard to any  limitations  on
conversion  contained herein)  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.

            (F) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section  1.6,  the  Borrower,  at  its  expense,  shall  promptly  compute  such
adjustment  or  readjustment  and  prepare  and  furnish  to  the  Holder  of  a
certificate  setting forth such adjustment or readjustment and showing in detail
the facts upon which such  adjustment  or  readjustment  is based.  The Borrower
shall,  upon the  written  request  at any time of the  Holder,  furnish to such
Holder a like  certificate  setting forth (i) such  adjustment or  readjustment,
(ii) the  Conversion  Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Note.

      1.7 TRADING MARKET  LIMITATIONS.  Unless permitted by the applicable rules
and regulations of the principal  securities market on which the Common Stock is
then listed or traded,  in no event shall the Borrower issue upon  conversion of
or otherwise  pursuant to this Note and the other Notes  issued  pursuant to the
Purchase  Agreement  more than the maximum number of shares of Common Stock that
the  Borrower  can issue  pursuant to any rule of the  principal  United  States
securities  market on which the Common Stock is then traded (the "MAXIMUM  SHARE
AMOUNT"),  which shall be 19.99% of the total shares  outstanding on the Closing
Date (as defined in the Purchase  Agreement),  subject to  equitable  adjustment
from time to time for  stock  splits,  stock  dividends,  combinations,  capital
reorganizations  and similar events relating to the Common Stock occurring after
the date  hereof.  Once the  Maximum  Share  Amount has been issued (the date of
which is  hereinafter  referred to as the  "MAXIMUM  CONVERSION  Date"),  if the
Borrower fails to eliminate any  prohibitions  under applicable law or the rules
or  regulations of any stock  exchange,  interdealer  quotation  system or other
self-regulatory  organization  with jurisdiction over the Borrower or any of its
securities on the  Borrower's  ability to issue shares of Common Stock in excess
of the Maximum Share Amount (a "TRADING MARKET  PREPAYMENT  EVENT"),  in lieu of
any  further  right  to  convert  this  Note,  and in full  satisfaction  of the
Borrower's  obligations  under this Note,  the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum  Conversion  Date (the "TRADING
MARKET PREPAYMENT  DATE"), an amount equal to 130% times the sum of (a) the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus (b) accrued and unpaid  interest on the unpaid  principal
amount of this Note to the  Trading  Market  Prepayment  Date,  plus (c) Default
Interest,  if any,  on the  amounts  referred to in clause (a) and/or (b) above,
plus  (d)  any  optional  amounts  that  may be  added  thereto  at the  Maximum
Conversion  Date by the Holder in  accordance  with the terms  hereof  (the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred to as the "REMAINING  CONVERTIBLE AMOUNT").  With
respect to each Holder of Notes,  the Maximum  Share  Amount shall refer to such
Holder's pro rata share thereof determined in accordance with Section 4.8 below.
In the event that the sum of (x) the aggregate  number of shares of Common Stock
issued upon  conversion of this Note and the other Notes issued  pursuant to the
Purchase  Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Note and the other Notes issued pursuant
to the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the  "TRIGGERING  EVENT"),  the Borrower will use its best
efforts to seek and obtain Shareholder  Approval (or obtain such other relief as
will allow conversions  hereunder in excess of the Maximum Share Amount) as soon
as practicable  following the Triggering Event and before the Maximum Conversion
Date. As used herein,  "SHAREHOLDER APPROVAL" means approval by the stockholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount.

                                       11
<PAGE>

      1.8 STATUS AS STOCKHOLDER.  Upon submission of a Notice of Conversion by a
Holder,  (i) the shares covered  thereby  (other than the shares,  if any, which
cannot be issued  because their  issuance  would exceed such Holder's  allocated
portion  of the  Reserved  Amount  or  Maximum  Share  Amount)  shall be  deemed
converted  into shares of Common Stock and (ii) the Holder's  rights as a Holder
of such converted portion of this Note shall cease and terminate, excepting only
the right to receive  certificates  for such  shares of Common  Stock and to any
remedies  provided  herein or  otherwise  available  at law or in equity to such
Holder  because of a failure by the  Borrower  to comply  with the terms of this
Note.  Notwithstanding the foregoing,  if a Holder has not received certificates
for all shares of Common Stock prior to the tenth (10th)  business day after the
expiration  of the Deadline  with respect to a conversion of any portion of this
Note for any  reason,  then  (unless the Holder  otherwise  elects to retain its
status as a holder of Common  Stock by so  notifying  the  Borrower)  the Holder
shall  regain  the  rights  of a  Holder  of  this  Note  with  respect  to such
unconverted   portions  of  this  Note  and  the  Borrower  shall,  as  soon  as
practicable,  return such unconverted Note to the Holder or, if the Note has not
been  surrendered,  adjust its records to reflect that such portion of this Note
has not been converted.  In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion  Default and any subsequent  Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent  conversions  determined in
accordance with Section 1.3) for the Borrower's failure to convert this Note.

                         ARTICLE II. CERTAIN COVENANTS

      2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any
obligation  under this Note, the Borrower shall not without the Holder's written
consent (a) pay,  declare or set apart for such  payment,  any dividend or other
distribution  (whether  in cash,  property  or other  securities)  on  shares of
capital stock other than  dividends on shares of Common Stock solely in the form
of  additional  shares of Common Stock or (b) directly or  indirectly or through
any subsidiary  make any other payment or distribution in respect of its capital
stock except for distributions  pursuant to any shareholders'  rights plan which
is approved by a majority of the Borrower's disinterested directors.

      2.2 RESTRICTION ON STOCK  REPURCHASES.  So long as the Borrower shall have
any  obligation  under this Note,  the  Borrower  shall not without the Holder's
written consent redeem,  repurchase or otherwise acquire (whether for cash or in
exchange for property or other  securities or otherwise) in any one  transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.

                                       12
<PAGE>

      2.3  BORROWINGS.  So long as the Borrower shall have any obligation  under
this Note, the Borrower shall not, without the Holder's written consent, create,
incur,  assume or suffer to exist any liability for borrowed  money,  except (a)
borrowings  in  existence  or  committed  on the date  hereof  and of which  the
Borrower  has  informed  Holder  in  writing  prior  to  the  date  hereof,  (b)
indebtedness  to trade  creditors  or  financial  institutions  incurred  in the
ordinary  course of business or (c)  borrowings,  the proceeds of which shall be
used to repay this Note.

      2.4 SALE OF ASSETS.  So long as the  Borrower  shall  have any  obligation
under this Note, the Borrower shall not,  without the Holder's  written consent,
sell,  lease or  otherwise  dispose  of any  significant  portion  of its assets
outside the ordinary  course of business.  Any consent to the disposition of any
assets may be conditioned on a specified use of the proceeds of disposition.

      2.5 ADVANCES AND LOANS.  So long as the Borrower shall have any obligation
under this Note, the Borrower shall not,  without the Holder's  written consent,
lend money,  give credit or make advances to any person,  firm, joint venture or
corporation,  including,  without limitation,  officers,  directors,  employees,
subsidiaries and affiliates of the Borrower,  except loans,  credits or advances
(a) in  existence  or  committed  on the date hereof and which the  Borrower has
informed  Holder in writing  prior to the date hereof,  (b) made in the ordinary
course of business or (c) not in excess of $50,000.

      2.6  CONTINGENT  LIABILITIES.  So  long as the  Borrower  shall  have  any
obligation under this Note, the Borrower shall not, without the Holder's written
consent, assume, guarantee, endorse, contingently agree to purchase or otherwise
become  liable upon the  obligation  of any  person,  firm,  partnership,  joint
venture or corporation,  except by the endorsement of negotiable instruments for
deposit or  collection  and except  assumptions,  guarantees,  endorsements  and
contingencies  (a) in  existence  or  committed on the date hereof and which the
Borrower  has  informed  Holder in  writing  prior to the date  hereof,  and (b)
similar transactions in the ordinary course of business.

                         ARTICLE III. EVENTS OF DEFAULT

      If any of the following  events of default  (each,  an "EVENT OF DEFAULT")
shall occur:

      3.1 FAILURE TO PAY  PRINCIPAL OR INTEREST.  The Borrower  fails to pay the
principal hereof or interest thereon when due on this Note, whether at maturity,
upon  a  Trading  Market   Prepayment   Event  pursuant  to  Section  1.7,  upon
acceleration or otherwise;

                                       13
<PAGE>

      3.2  CONVERSION  AND THE SHARES.  The  Borrower  fails to issue  shares of
Common Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note (for a period of at least sixty
(60) days, if such failure is solely as a result of the  circumstances  governed
by  Section  1.3 and the  Borrower  is using its best  efforts  to  authorize  a
sufficient  number of shares of Common Stock as soon as  practicable),  fails to
transfer  or  cause  its  transfer  agent  to  transfer  (electronically  or  in
certificated  form) any  certificate  for shares of Common  Stock  issued to the
Holder  upon  conversion  of or  otherwise  pursuant  to this  Note as and  when
required by this Note or the Registration  Rights Agreement,  or fails to remove
any restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any  certificate for any shares of Common Stock issued to the Holder
upon  conversion  of or otherwise  pursuant to this Note as and when required by
this Note or the  Registration  Rights  Agreement  (or  makes any  announcement,
statement or threat that it does not intend to honor the  obligations  described
in  this  paragraph)  and  any  such  failure  shall  continue  uncured  (or any
announcement,  statement  or threat  not to honor its  obligations  shall not be
rescinded  in  writing)  for ten (10) days  after the  Borrower  shall have been
notified thereof in writing by the Holder;

      3.3  FAILURE  TO TIMELY  FILE  REGISTRATION  OR EFFECT  REGISTRATION.  The
Borrower  fails  to file the  Registration  Statement  within  sixty  (60)  days
following  the Closing  Date (as defined in the  Purchase  Agreement)  or obtain
effectiveness  with the Securities and Exchange  Commission of the  Registration
Statement within one hundred  thirty-five  (135) days following the Closing Date
(as defined in the Purchase Agreement) or such Registration  Statement lapses in
effect (or sales  cannot  otherwise  be made  thereunder  effective,  whether by
reason of the Borrower's failure to amend or supplement the prospectus  included
therein in accordance with the  Registration  Rights Agreement or otherwise) for
more than  twenty  (20)  consecutive  days or forty (40) days in any twelve (12)
month period after the Registration Statement becomes effective;

      3.4 BREACH OF COVENANTS.  The Borrower  breaches any material  covenant or
other  material term or condition  contained in Sections 1.3, 1.6 or 1.7 of this
Note, or Sections 4(c), 4(e),  4(h),  4(i), 4(j) or 5 of the Purchase  Agreement
and such breach  continues  for a period of ten (10) days after  written  notice
thereof to the Borrower from the Holder;

      3.5  BREACH OF  REPRESENTATIONS  AND  WARRANTIES.  Any  representation  or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate  given  in  writing  pursuant  hereto  or  in  connection   herewith
(including,  without  limitation,  the Purchase  Agreement and the  Registration
Rights  Agreement),  shall be false or misleading  in any material  respect when
made and the  breach of which  has (or with the  passage  of time  will  have) a
material  adverse  effect on the rights of the Holder with respect to this Note,
the Purchase Agreement or the Registration Rights Agreement;

      3.6 RECEIVER OR TRUSTEE.  The Borrower or any  subsidiary  of the Borrower
shall make an assignment  for the benefit of creditors,  or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial  part of
its  property or  business,  or such a receiver or trustee  shall  otherwise  be
appointed;

      3.7  JUDGMENTS.  Any money  judgment,  writ or  similar  process  shall be
entered or filed  against the Borrower or any  subsidiary of the Borrower or any
of its  property  or other  assets  for more  than  $50,000,  and  shall  remain
unvacated,  unbonded  or  unstayed  for a period  of  twenty  (20)  days  unless
otherwise  consented to by the Holder,  which  consent will not be  unreasonably
withheld;

                                       14
<PAGE>

      3.8  BANKRUPTCY.  Bankruptcy,  insolvency,  reorganization  or liquidation
proceedings or other  proceedings for relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
subsidiary of the Borrower;

      3.9  DELISTING OF COMMON  STOCK.  The Borrower  shall fail to maintain the
listing  of the  Common  Stock on at  least  one of the  OTCBB or an  equivalent
replacement  exchange,  the Nasdaq National Market,  the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or

      3.10 DEFAULT  UNDER OTHER  NOTES.  An Event of Default has occurred and is
continuing  under  any  of the  other  Notes  issued  pursuant  to the  Purchase
Agreement,

then,  upon the occurrence and during the  continuation  of any Event of Default
specified in Section 3.1,  3.2,  3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of  the  Holders  of a  majority  of  the  aggregate  principal  amount  of  the
outstanding Notes issued pursuant to the Purchase Agreement  exercisable through
the delivery of written  notice to the  Borrower by such  Holders (the  "DEFAULT
NOTICE"),  and upon the  occurrence of an Event of Default  specified in Section
3.6 or 3.8, the Notes shall become  immediately due and payable and the Borrower
shall pay to the Holder, in full satisfaction of its obligations  hereunder,  an
amount  equal  to the  greater  of (i)  130%  times  the  sum  of (w)  the  then
outstanding  principal  amount of this Note plus (x) accrued and unpaid interest
on the  unpaid  principal  amount  of this  Note to the  date  of  payment  (the
"MANDATORY  PREPAYMENT DATE") plus (y) Default Interest,  if any, on the amounts
referred to in clauses  (w) and/or (x) plus (z) any  amounts  owed to the Holder
pursuant to Sections  1.3 and 1.4(g)  hereof or pursuant to Section  2(c) of the
Registration  Rights  Agreement (the then  outstanding  principal amount of this
Note to the date of payment plus the amounts referred to in clauses (x), (y) and
(z) shall collectively be known as the "DEFAULT SUM") or (ii) the "parity value"
of the  Default  Sum to be  prepaid,  where  parity  value means (a) the highest
number of shares  of Common  Stock  issuable  upon  conversion  of or  otherwise
pursuant to such Default Sum in accordance  with Article I, treating the Trading
Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date"
for purposes of determining the lowest applicable  Conversion Price,  unless the
Default Event arises as a result of a breach in respect of a specific Conversion
Date  in  which  case  such  Conversion  Date  shall  be the  Conversion  Date),
multiplied  by (b) the highest  Closing  Price for the Common  Stock  during the
period  beginning  on the date of first  occurrence  of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and
all other amounts payable  hereunder shall  immediately  become due and payable,
all without  demand,  presentment  or notice,  all of which hereby are expressly
waived, together with all costs, including,  without limitation,  legal fees and
expenses, of collection,  and the Holder shall be entitled to exercise all other
rights and remedies  available at law or in equity. If the Borrower fails to pay
the Default  Amount  within five (5) business  days of written  notice that such
amount is due and payable,  then the Holder shall have the right at any time, so
long as the  Borrower  remains  in default  (and so long and to the extent  that
there are sufficient  authorized shares), to require the Borrower,  upon written
notice,  to  immediately  issue,  in lieu of the Default  Amount,  the number of
shares of Common Stock of the Borrower  equal to the Default  Amount  divided by
the Conversion Price then in effect.

                                       15
<PAGE>

                           ARTICLE IV. MISCELLANEOUS

      4.1 FAILURE OR INDULGENCE  NOT WAIVER.  No failure or delay on the part of
the Holder in the  exercise of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

      4.2 NOTICES.  Any notice herein required or permitted to be given shall be
in  writing  and may be  personally  served or  delivered  by courier or sent by
United  States  mail and  shall be deemed to have been  given  upon  receipt  if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after  being  deposited  in the United  States
mail, certified,  with postage pre-paid and properly addressed, if sent by mail.
For the  purposes  hereof,  the  address of the Holder  shall be as shown on the
records of the  Borrower;  and the  address of the  Borrower  shall be 12868 Via
Latina,  Del Mar,  California 92014,  facsimile number:  858-481-2207.  Both the
Holder and the Borrower may change the address for service by service of written
notice to the other as herein provided.

      4.3 AMENDMENTS.  This Note and any provision hereof may only be amended by
an instrument in writing signed by the Borrower and the Holder.  The term "Note"
and all reference thereto,  as used throughout this instrument,  shall mean this
instrument  (and the other Notes issued  pursuant to the Purchase  Agreement) as
originally executed, or if later amended or supplemented,  then as so amended or
supplemented.

      4.4  ASSIGNABILITY.  This Note shall be binding  upon the Borrower and its
successors and assigns,  and shall inure to be the benefit of the Holder and its
successors  and assigns.  Each  transferee  of this Note must be an  "accredited
investor" (as defined in Rule 501(a) of the 1933 Act).  Notwithstanding anything
in this  Note to the  contrary,  this  Note  may be  pledged  as  collateral  in
connection with a bona fide margin account or other lending arrangement.

      4.5 COST OF  COLLECTION.  If default is made in the  payment of this Note,
the  Borrower  shall  pay the  Holder  hereof  costs  of  collection,  including
reasonable attorneys' fees.

      4.6 GOVERNING LAW. THIS NOTE SHALL BE ENFORCED,  GOVERNED BY AND CONSTRUED
IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE TO AGREEMENTS
MADE AND TO BE  PERFORMED  ENTIRELY  WITHIN  SUCH STATE,  WITHOUT  REGARD TO THE
PRINCIPLES  OF CONFLICT OF LAWS.  THE BORROWER  HEREBY  SUBMITS TO THE EXCLUSIVE
JURISDICTION  OF THE UNITED STATES  FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK
WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO
IN CONNECTION HEREWITH OR THE TRANSACTIONS  CONTEMPLATED HEREBY OR THEREBY. BOTH
PARTIES   IRREVOCABLY  WAIVE  THE  DEFENSE  OF  AN  INCONVENIENT  FORUM  TO  THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE
OF  PROCESS  UPON A PARTY  MAILED BY FIRST  CLASS  MAIL SHALL BE DEEMED IN EVERY
RESPECT  EFFECTIVE  SERVICE  OF  PROCESS  UPON THE  PARTY  IN ANY  SUCH  SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   AGREE  THAT  A  FINAL
NON-APPEALABLE  JUDGMENT IN ANY SUCH SUIT OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,  INCLUDING  ATTORNEYS'
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

                                       16
<PAGE>

      4.7  CERTAIN  AMOUNTS.  Whenever  pursuant  to this Note the  Borrower  is
required to pay an amount in excess of the outstanding  principal amount (or the
portion  thereof  required  to be paid at that  time)  plus  accrued  and unpaid
interest  plus Default  Interest on such  interest,  the Borrower and the Holder
agree that the actual  damages to the Holder from the receipt of cash payment on
this Note may be  difficult  to  determine  and the  amount to be so paid by the
Borrower  represents  stipulated  damages  and not a penalty  and is intended to
compensate  the Holder in part for loss of the  opportunity to convert this Note
and to earn a return  from the sale of  shares  of Common  Stock  acquired  upon
conversion  of this Note at a price in excess of the price paid for such  shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated  damages is not plainly  disproportionate  to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.

      4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED  AMOUNT.  The Maximum
Share Amount and Reserved  Amount shall be allocated  pro rata among the Holders
of Notes based on the principal amount of such Notes issued to each Holder. Each
increase to the Maximum Share Amount and Reserved  Amount shall be allocated pro
rata among the Holders of Notes based on the principal amount of such Notes held
by each  Holder  at the time of the  increase  in the  Maximum  Share  Amount or
Reserved Amount.  In the event a Holder shall sell or otherwise  transfer any of
such Holder's Notes,  each  transferee  shall be allocated a pro rata portion of
such transferor's  Maximum Share Amount and Reserved Amount.  Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Notes shall be allocated to the remaining Holders
of Notes, pro rata based on the principal amount of such Notes then held by such
Holders.

      4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to the
Holder  pursuant to Sections 1.3 and 1.4(g)  hereof and pursuant to Section 2(c)
of the  Registration  Rights  Agreement  ("DAMAGES  SHARES") shall be treated as
Common Stock issuable upon  conversion of this Note for all purposes  hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock issuable  hereunder,  including without limitation,
the right to be included in the  Registration  Statement  filed  pursuant to the
Registration Rights Agreement.  For purposes of calculating  interest payable on
the outstanding  principal amount hereof,  except as otherwise  provided herein,
amounts  convertible  into Damages  Shares  ("DAMAGES  AMOUNTS")  shall not bear
interest  but must be  converted  prior  to the  conversion  of any  outstanding
principal amount hereof, until the outstanding Damages Amounts is zero.

                                       17
<PAGE>

      4.10  DENOMINATIONS.  At the request of the Holder, upon surrender of this
Note, the Borrower  shall promptly issue new Notes in the aggregate  outstanding
principal amount hereof, in the form hereof,  in such  denominations of at least
$50,000 as the Holder shall request.

      4.11  PURCHASE  AGREEMENT.  By its  acceptance  of this Note,  each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.

      4.12 NOTICE OF CORPORATE EVENTS.  Except as otherwise  provided below, the
Holder of this Note shall have no rights as a Holder of Common  Stock unless and
only to the extent that it converts  this Note into Common  Stock.  The Borrower
shall  provide  the  Holder  with  prior  notification  of  any  meeting  of the
Borrower's  shareholders  (and copies of proxy  materials and other  information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire  (including by way of merger,  consolidation,
reclassification  or  recapitalization)  any  share of any  class  or any  other
securities  or property,  or to receive any other  right,  or for the purpose of
determining  shareholders  who  are  entitled  to vote in  connection  with  any
proposed sale, lease or conveyance of all or substantially  all of the assets of
the  Borrower  or any  proposed  liquidation,  dissolution  or winding up of the
Borrower,  the Borrower shall mail a notice to the Holder,  at least twenty (20)
days prior to the record  date  specified  therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  right or other event, and a brief statement  regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public  announcement  of any event
requiring notification to the Holder hereunder substantially simultaneously with
the  notification  to the Holder in  accordance  with the terms of this  Section
4.12.

      4.13  REMEDIES.  The  Borrower  acknowledges  that a  breach  by it of its
obligations  hereunder will cause  irreparable harm to the Holder,  by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Borrower  acknowledges  that the  remedy at law for a breach of its  obligations
under  this  Note will be  inadequate  and  agrees,  in the event of a breach or
threatened  breach by the  Borrower  of the  provisions  of this Note,  that the
Holder shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or injunctions restraining,  preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof,  without the necessity of
showing economic loss and without any bond or other security being required.

                                       18
<PAGE>

                             ARTICLE V. CALL OPTION

      5.1 CALL OPTION.  Notwithstanding  anything to the  contrary  contained in
this Article V, so long as (i) no Event of Default or Trading Market  Prepayment
Event shall have occurred and be continuing,  (ii) the Borrower has a sufficient
number of  authorized  shares of Common Stock  reserved  for issuance  upon full
conversion  of the Notes,  then at any time after the Issue Date,  and (iii) the
Common Stock is trading at or below $.24 per share,  the Borrower shall have the
right,  exercisable  on not less than ten (10) Trading Days prior written notice
to the Holders of the Notes (which  notice may not be sent to the Holders of the
Notes  until the  Borrower  is  permitted  to prepay the Notes  pursuant to this
Section 5.1),  to prepay all of the  outstanding  Notes in accordance  with this
Section 5.1. Any notice of prepayment hereunder (an "OPTIONAL PREPAYMENT") shall
be delivered to the Holders of the Notes at their registered addresses appearing
on the books and records of the  Borrower  and shall state (1) that the Borrower
is exercising  its right to prepay all of the Notes issued on the Issue Date and
(2) the date of prepayment (the "OPTIONAL PREPAYMENT NOTICE"). On the date fixed
for prepayment (the "OPTIONAL PREPAYMENT Date"), the Borrower shall make payment
of the Optional Prepayment Amount (as defined below) to or upon the order of the
Holders as  specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional  Prepayment  Date. If the Borrower  exercises
its right to prepay the Notes, the Borrower shall make payment to the holders of
an amount in cash (the  "OPTIONAL  PREPAYMENT  AMOUNT") equal to either (i) 130%
(for prepayments occurring within thirty (30) days of the Issue Date), (ii) 140%
for  prepayments  occurring  between  thirty-one (31) and sixty (60) days of the
Issue Date, or (iii) 150% (for  prepayments  occurring after the sixtieth (60th)
day following the Issue Date), multiplied by the sum of (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid
principal  amount of this Note to the Optional  Prepayment Date plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
amounts  owed to the  Holder  pursuant  to  Sections  1.3 and  1.4(g)  hereof or
pursuant  to  Section  2(c)  of the  Registration  Rights  Agreement  (the  then
outstanding  principal  amount  of this  Note to the  date of  payment  plus the
amounts  referred to in clauses (x), (y) and (z) shall  collectively be known as
the  "OPTIONAL   PREPAYMENT  SUM").   Notwithstanding   notice  of  an  Optional
Prepayment, the Holders shall at all times prior to the Optional Prepayment Date
maintain the right to convert all or any portion of the Notes in accordance with
Article I and any  portion of Notes so  converted  after  receipt of an Optional
Prepayment  Notice and prior to the Optional  Prepayment  Date set forth in such
notice and payment of the aggregate Optional Prepayment Amount shall be deducted
from the  principal  amount of Notes which are  otherwise  subject to prepayment
pursuant to such notice. If the Borrower delivers an Optional  Prepayment Notice
and fails to pay the Optional  Prepayment Amount due to the Holders of the Notes
within two (2)  business  days  following  the  Optional  Prepayment  Date,  the
Borrower  shall forever  forfeit its right to redeem the Notes  pursuant to this
Section 5.1.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       19
<PAGE>

      IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer this 10th day of June, 2004.

                                PACIFICAP ENTERTAINMENT HOLDINGS, INC.

                                By:      /s/ Ed Litwak

                                         Ed Litwak
                                        President

                                       20EXHIBIT 4.9

                          SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (this  "AGREEMENT"),  dated as of June 8,
2004, by and among Pacificap Entertainment Holdings, Inc., a Navada corporation,
with headquarters  located at 12268 Via Latina,  Del Mar,  California 92914 (the
"COMPANY"),  and each of the purchasers set forth on the signature  pages hereto
(the "Buyers").

      WHEREAS:

      A. The Company and the Buyers are executing and delivering  this Agreement
in reliance  upon the exemption  from  securities  registration  afforded by the
rules and  regulations  as  promulgated  by the  United  States  Securities  and
Exchange  Commission  (the "SEC") under the  Securities  Act of 1933, as amended
(the "1933 ACT");

      B. Buyers  desire to purchase  and the Company  desires to issue and sell,
upon the  terms  and  conditions  set forth in this  Agreement  (i) 10%  secured
convertible notes of the Company, in the form attached hereto as EXHIBIT "A", in
the aggregate  principal  amount of Two Million Dollars  ($2,000,000)  (together
with any  note(s)  issued in  replacement  thereof or as a  dividend  thereon or
otherwise  with  respect  thereto  in  accordance  with the terms  thereof,  the
"NOTES"), convertible into shares of common stock, par value $.001 per share, of
the Company (the "COMMON STOCK"),  upon the terms and subject to the limitations
and conditions  set forth in such Notes and (ii) warrants,  in the form attached
hereto as  EXHIBIT  "B",  to  purchase  2,000,000  shares of Common  Stock  (the
"WARRANTS").

      C. Each Buyer wishes to purchase,  upon the terms and conditions stated in
this Agreement,  such principal amount of Notes and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and

      D. Contemporaneous with the execution and delivery of this Agreement,  the
parties hereto are executing and delivering a Registration Rights Agreement,  in
the form attached hereto as EXHIBIT "C" (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.

      NOW  THEREFORE,  the  Company  and each of the Buyers  severally  (and not
jointly) hereby agree as follows:

      1. PURCHASE AND SALE OF NOTES AND WARRANTS.

            A. PURCHASE OF NOTES AND  WARRANTS.  On the Closing Date (as defined
below),  the Company shall issue and sell to each Buyer and each Buyer severally
agrees to purchase from the Company such principal amount of Notes and number of
Warrants as is set forth  immediately  below such Buyer's name on the  signature
pages hereto.

<PAGE>

            B. FORM OF PAYMENT. On the Closing Date (as defined below), (i) each
Buyer shall pay the  purchase  price for the Notes and the Warrants to be issued
and sold to it at the Closing (as defined below) (the "PURCHASE  Price") by wire
transfer of immediately  available funds to the Company,  in accordance with the
Company's  written  wiring  instructions,  against  delivery of the Notes in the
principal  amount equal to the  Purchase  Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages hereto, and
(ii) the Company  shall  deliver such Notes and Warrants duly executed on behalf
of the Company, to such Buyer, against delivery of such Purchase Price.

            C. CLOSING DATE.  Subject to the satisfaction (or written waiver) of
the conditions  thereto set forth in Section 6 and Section 7 below, the date and
time of the  issuance  and sale of the Notes and the  Warrants  pursuant to this
Agreement  (the "CLOSING  DATE") shall be 12:00 noon,  Eastern  Standard Time on
June 8, 2004,  or such other  mutually  agreed  upon  time.  The  closing of the
transactions  contemplated by this Agreement (the "CLOSING")  shall occur on the
Closing Date at such location as may be agreed to by the parties.

      2. BUYERS'  REPRESENTATIONS AND WARRANTIES.  Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer that:

            A.  INVESTMENT  PURPOSE.  As  of  the  date  hereof,  the  Buyer  is
purchasing the Notes and the shares of Common Stock issuable upon  conversion of
or  otherwise  pursuant  to  the  Notes  (including,  without  limitation,  such
additional  shares of Common  Stock,  if any, as are  issuable (i) on account of
interest on the Notes,  (ii) as a result of the events described in Sections 1.3
and 1.4(g) of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment  of the  Standard  Liquidated  Damages  Amount  (as  defined in
Section  2(f) below)  pursuant to this  Agreement,  such shares of Common  Stock
being  collectively  referred  to herein  as the  "CONVERSION  SHARES")  and the
Warrants  and the shares of Common Stock  issuable  upon  exercise  thereof (the
"WARRANT  SHARES" and,  collectively  with the Notes,  Warrants  and  Conversion
Shares,  the  "SECURITIES")  for its own  account  and not with a  present  view
towards  the public  sale or  distribution  thereof,  except  pursuant  to sales
registered or exempted from registration under the 1933 Act; provided,  however,
that by making the representations  herein, the Buyer does not agree to hold any
of the  Securities for any minimum or other specific term and reserves the right
to dispose of the  Securities  at any time in  accordance  with or pursuant to a
registration statement or an exemption under the 1933 Act.

            B. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
as  that  term is  defined  in  Rule  501(a)  of  Regulation  D (an  "ACCREDITED
INVESTOR").

            C. RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific  exemptions  from the
registration requirements of United States federal and state securities laws and
that the  Company is relying  upon the truth and  accuracy  of, and the  Buyer's
compliance with, the representations,  warranties,  agreements,  acknowledgments
and  understandings  of the  Buyer set forth  herein in order to  determine  the
availability  of such exemptions and the eligibility of the Buyer to acquire the
Securities.

                                       2

<PAGE>

            D. INFORMATION.  The Buyer and its advisors,  if any, have been, and
for so long as the Notes and Warrants  remain  outstanding  will continue to be,
furnished with all materials  relating to the business,  finances and operations
of the Company and  materials  relating to the offer and sale of the  Securities
which  have  been  requested  by the  Buyer or its  advisors.  The Buyer and its
advisors,  if any, have been,  and for so long as the Notes and Warrants  remain
outstanding  will continue to be,  afforded the  opportunity to ask questions of
the Company. Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic  information and will not disclose such information
unless  such  information  is  disclosed  to the  public  prior  to or  promptly
following such disclosure to the Buyer. Neither such inquiries nor any other due
diligence   investigation   conducted  by  Buyer  or  any  of  its  advisors  or
representatives  shall  modify,  amend or  affect  Buyer's  right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities  involves a significant degree
of risk.

            E. GOVERNMENTAL  REVIEW. The Buyer understands that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any recommendation or endorsement of the Securities.

            F.  TRANSFER OR RE-SALE.  The Buyer  understands  that (i) except as
provided  in the  Registration  Rights  Agreement,  the sale or  re-sale  of the
Securities  has not been and is not being  registered  under the 1933 Act or any
applicable  state  securities  laws,  and the  Securities may not be transferred
unless  (a) the  Securities  are  sold  pursuant  to an  effective  registration
statement  under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form,  substance and scope  customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred  may be sold or  transferred  pursuant to an exemption
from such registration,  which opinion shall be accepted by the Company, (c) the
Securities are sold or  transferred  to an  "affiliate"  (as defined in Rule 144
promulgated  under the 1933 Act (or a successor rule) ("RULE 144")) of the Buyer
who agrees to sell or otherwise  transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the  Securities  are sold  pursuant to Regulation S
under the 1933 Act (or a successor rule)  ("REGULATION  S"), and the Buyer shall
have  delivered  to the  Company an  opinion  of counsel  that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in  reliance on Rule 144 may be made only in  accordance  with the terms of
said Rule and  further,  if said Rule is not  applicable,  any  re-sale  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 (in each case, other than pursuant to the
Registration  Rights Agreement).  Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.  In the
event that the Company  does not accept the  opinion of counsel  provided by the
Buyer with respect to the transfer of Securities  pursuant to an exemption  from
registration,  such as Rule 144 or  Regulation S, within three (3) business days
of delivery of the opinion to the  Company,  the Company  shall pay to the Buyer
liquidated  damages of three percent (3%) of the outstanding amount of the Notes
per month plus  accrued and unpaid  interest on the Notes,  prorated for partial
months,  in cash or shares at the option of the  Company  ("STANDARD  LIQUIDATED
DAMAGES  AMOUNT").  If the  Company  elects  to be pay the  Standard  Liquidated
Damages  Amount in shares of Common  Stock,  such shares  shall be issued at the
Conversion Price (as defined in the Notes) at the time of payment.

                                       3
<PAGE>

            G. LEGENDS.  The Buyer  understands  that the Notes and the Warrants
and,  until such time as the  Conversion  Shares and  Warrant  Shares  have been
registered  under  the  1933  Act as  contemplated  by the  Registration  Rights
Agreement or otherwise  may be sold pursuant to Rule 144 or Regulation S without
any  restriction as to the number of securities as of a particular date that can
then be immediately  sold,  the Conversion  Shares and Warrant Shares may bear a
restrictive  legend in  substantially  the following  form (and a  stop-transfer
order may be placed against transfer of the certificates for such Securities):

                  "The securities  represented by this certificate have not been
                  registered  under the Securities Act of 1933, as amended.  The
                  securities  may not be sold,  transferred  or  assigned in the
                  absence  of  an  effective   registration  statement  for  the
                  securities under said Act, or an opinion of counsel,  in form,
                  substance  and scope  customary  for  opinions  of  counsel in
                  comparable  transactions,  that  registration  is not required
                  under  said  Act  or  unless  sold  pursuant  to  Rule  144 or
                  Regulation S under said Act."

      The legend set forth above shall be removed and the Company  shall issue a
certificate  without such legend to the holder of any Security  upon which it is
stamped,  if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective  registration  statement
filed  under  the  1933 Act or  otherwise  may be sold  pursuant  to Rule 144 or
Regulation  S without any  restriction  as to the number of  securities  as of a
particular  date that can then be immediately  sold, or (b) such holder provides
the Company with an opinion of counsel,  in form,  substance and scope customary
for opinions of counsel in comparable transactions,  to the effect that a public
sale or transfer of such  Security  may be made without  registration  under the
1933 Act,  which  opinion  shall be  accepted by the Company so that the sale or
transfer is effected or (c) such holder  provides  the Company  with  reasonable
assurances  that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer  agrees  to sell all  Securities,  including  those  represented  by a
certificate(s)  from which the  legend  has been  removed,  in  compliance  with
applicable prospectus delivery requirements, if any.

            H. AUTHORIZATION;  ENFORCEMENT.  This Agreement and the Registration
Rights Agreement have been duly and validly authorized.  This Agreement has been
duly  executed  and  delivered  on  behalf  of the  Buyer,  and  this  Agreement
constitutes,  and upon  execution and delivery by the Buyer of the  Registration
Rights Agreement,  such agreement will constitute,  valid and binding agreements
of the Buyer enforceable in accordance with their terms.

            I. RESIDENCY.  The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.

                                       4
<PAGE>

      3.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company represents
and warrants to each Buyer that:

            A.  ORGANIZATION  AND  QUALIFICATION.  The  Company  and each of its
Subsidiaries  (as defined  below),  if any,  is a  corporation  duly  organized,
validly  existing and in good  standing  under the laws of the  jurisdiction  in
which it is incorporated, with full power and authority (corporate and other) to
own,  lease,  use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted.  SCHEDULE 3(A) sets forth
a list of all of the  Subsidiaries of the Company and the  jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a  foreign  corporation  to do  business  and is in good  standing  in  every
jurisdiction  in which its  ownership  or use of  property  or the nature of the
business  conducted by it makes such qualification  necessary,  except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect.  "MATERIAL  ADVERSE  EFFECT"  means any material  adverse  effect on the
business, operations, assets, financial condition or prospects of the Company or
its Subsidiaries,  if any, taken as a whole, or on the transactions contemplated
hereby or by the  agreements  or  instruments  to be entered into in  connection
herewith.  "SUBSIDIARIES"  means any corporation or other organization,  whether
incorporated  or  unincorporated,   in  which  the  Company  owns,  directly  or
indirectly, any equity or other ownership interest.

            B.  AUTHORIZATION;  ENFORCEMENT.  (i) The Company has all  requisite
corporate  power and  authority  to enter into and perform this  Agreement,  the
Registration Rights Agreement,  the Notes and the Warrants and to consummate the
transactions  contemplated  hereby and thereby and to issue the  Securities,  in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Notes and the Warrants by
the Company and the consummation by it of the transactions  contemplated  hereby
and thereby  (including  without  limitation,  the issuance of the Notes and the
Warrants and the issuance and reservation for issuance of the Conversion  Shares
and 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  of the Company,  its Board of Directors,  or its  stockholders is
required,  (iii) this  Agreement  has been duly  executed  and  delivered by the
Company by its authorized representative,  and such authorized representative is
the true and official  representative  with authority to sign this Agreement and
the  other  documents  executed  in  connection  herewith  and bind the  Company
accordingly,  and  (iv)  this  Agreement  constitutes,  and upon  execution  and
delivery by the Company of the Registration Rights Agreement,  the Notes and the
Warrants,  each of such instruments will constitute,  a legal, valid and binding
obligation of the Company 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 (i) 3,000,000 shares of Common Stock, of which
23,069,557  shares are  issued  and  outstanding,  no shares  are  reserved  for
issuance  pursuant to the  Company's  stock option plans,  1,500,000  shares are
reserved  for  issuance  pursuant  to  securities  (other than the Notes and the
Warrants)  exercisable  for, or convertible  into or exchangeable  for shares of
Common Stock and 53,000,000  shares are reserved for issuance upon conversion of
the Notes and the Additional  Notes (as defined in Section 4(l)) and exercise of
the Warrants and the  Additional  Warrants (as defined in Section 4(l)) (subject
to  adjustment  pursuant to the  Company's  covenant  set forth in Section  4(h)
below);  and (ii) 50,000,000  shares of preferred  stock, of which no shares are
issued and outstanding.  All of such outstanding shares of capital stock are, or
upon  issuance  will  be,  duly  authorized,  validly  issued,  fully  paid  and
nonassessable.  No  shares  of  capital  stock of the  Company  are  subject  to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or  encumbrances  imposed  through the actions or failure to act of
the Company.  Except as disclosed in SCHEDULE  3(C), as of the effective date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character  whatsoever  relating to,
or  securities  or rights  convertible  into or  exchangeable  for any shares of
capital  stock of the Company or any of its  Subsidiaries,  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  Subsidiaries,
(ii) there are no agreements or  arrangements  under which the Company or any of
its  Subsidiaries  is  obligated  to  register  the  sale of any of its or their
securities  under the 1933 Act (except the  Registration  Rights  Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Notes, the Warrants,  the
Conversion Shares or Warrant Shares. The Company has furnished to the Buyer true
and correct copies of the Company's  Articles of  Incorporation  as in effect on
the date hereof  ("ARTICLES OF  INCORPORATION"),  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 of the Company and the material
rights of the holders thereof in respect thereto.  The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial  Officer on behalf of the Company as of the Closing
Date.

                                       5
<PAGE>

            D. ISSUANCE OF SHARES.  The Conversion Shares and Warrant Shares are
duly  authorized and reserved for issuance and, upon conversion of the Notes and
exercise of the Warrants in  accordance  with their  respective  terms,  will be
validly issued,  fully paid and non-assessable,  and free from all taxes, liens,
claims  and  encumbrances  with  respect to the issue  thereof  and shall not be
subject to preemptive  rights or other  similar  rights of  stockholders  of the
Company and will not impose personal liability upon the holder thereof.

            E.   ACKNOWLEDGMENT  OF  DILUTION.   The  Company   understands  and
acknowledges  the  potentially  dilutive  effect to the  Common  Stock  upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the Note
or  exercise  of  the  Warrants.  The  Company  further  acknowledges  that  its
obligation to issue Conversion  Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this  Agreement,  the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership  interests of other stockholders of
the Company.

            F. NO CONFLICTS.  The  execution,  delivery and  performance of this
Agreement,  the Registration Rights Agreement, the Notes and the Warrants by the
Company and the  consummation  by the Company of the  transactions  contemplated
hereby and thereby (including,  without limitation, the issuance and reservation
for issuance of the Conversion  Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of  Incorporation
or  By-laws  or (ii)  violate  or  conflict  with,  or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse of
time or both  could  become a  default)  under,  or give to others any rights of
termination,   amendment,   acceleration  or  cancellation  of,  any  agreement,
indenture,  patent,  patent license or instrument to which the Company or any of
its  Subsidiaries  is a party,  or (iii) result in a violation of any law, rule,
regulation,  order,  judgment or decree (including  federal and state securities
laws and  regulations and regulations of any  self-regulatory  organizations  to
which the Company or its  securities  are subject)  applicable to the Company or
any of its  Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected  (except for such conflicts,  defaults,
terminations,  amendments, accelerations,  cancellations and violations as would
not, individually or in the aggregate,  have a Material Adverse Effect). Neither
the Company  nor any of its  Subsidiaries  is in  violation  of its  Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its  Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action  that would 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 by  which  any  property  or  assets  of  the  Company  or  any of its
Subsidiaries  is bound or affected,  except for possible  defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries,  if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities,  in violation of
any  law,  ordinance  or  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,  governmental agency, regulatory agency, self regulatory organization
or stock  market  or any  third  party in order for it to  execute,  deliver  or
perform any of its obligations  under this Agreement,  the  Registration  Rights
Agreement,  the Notes or the  Warrants in  accordance  with the terms  hereof or
thereof or to issue and sell the Notes and Warrants in accordance with the terms
hereof and to issue the Conversion  Shares upon  conversion of the Notes and the
Warrant  Shares upon exercise of the  Warrants.  Except as disclosed in SCHEDULE
3(F), 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 is not in
violation of the listing  requirements  of the  Over-the-Counter  Bulletin Board
(the "OTCBB") and does not reasonably  anticipate  that the Common Stock will be
delisted  by  the  OTCBB  in  the  foreseeable   future.  The  Company  and  its
Subsidiaries are unaware of any facts or circumstances  which might give rise to
any of the foregoing.

                                       6
<PAGE>

            G. SEC  DOCUMENTS;  FINANCIAL  STATEMENTS.  Except as  disclosed  in
SCHEDULE  3(G),  the Company has timely  filed all  reports,  schedules,  forms,
statements and other documents  required to be filed by it with the SEC pursuant
to the reporting requirements 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  (other than  exhibits to such  documents)  incorporated  by reference
therein,  being  hereinafter  referred  to herein as the "SEC  DOCUMENTS").  The
Company  has  delivered  to each  Buyer  true  and  complete  copies  of the SEC
Documents,  except for such  exhibits and  incorporated  documents.  As of their
respective  dates, the SEC Documents  complied in all material respects with the
requirements  of the  1934  Act  and  the  rules  and  regulations  of  the  SEC
promulgated  thereunder  applicable  to the SEC  Documents,  and none of the SEC
Documents,  at the time they  were  filed  with the SEC,  contained  any  untrue
statement of a material  fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the  circumstances  under  which they were  made,  not  misleading.  None of the
statements  made in any such SEC  Documents  is,  or has  been,  required  to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent  filings  prior the date  hereof).  As of their
respective  dates,  the financial  statements of the Company included in the SEC
Documents  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
United States 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 not  include  footnotes  or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the  consolidated  results of their  operations  and
cash  flows  for the  periods  then  ended  (subject,  in the case of  unaudited
statements,  to normal year-end audit  adjustments).  Except as set forth in the
financial  statements of the Company included in the SEC Documents,  the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the  ordinary  course of business  subsequent  to December  31, 2003 and (ii)
obligations  under contracts and commitments  incurred in the ordinary course of
business and not required under generally accepted  accounting  principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.

            H. ABSENCE OF CERTAIN  CHANGES.  Since December 31, 2003,  there has
been no material  adverse  change and no  material  adverse  development  in the
assets,  liabilities,  business,  properties,  operations,  financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.

            I.  ABSENCE  OF  LITIGATION.   There  is  no  action,  suit,  claim,
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 or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material  Adverse Effect.  SCHEDULE
3(I)  contains  a  complete  list and  summary  description  of any  pending  or
threatened   proceeding   against  or  affecting  the  Company  or  any  of  its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.

                                       7
<PAGE>

            J. PATENTS, COPYRIGHTS, ETC.

                  (I) The Company and each of its Subsidiaries owns or possesses
the requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark applications,
service  marks,  service  names,  trade  names  and  copyrights   ("INTELLECTUAL
PROPERTY")  necessary to enable it to conduct its business as now operated (and,
except  as set  forth in  SCHEDULE  3(J)  hereof,  to the best of the  Company's
knowledge,  as presently contemplated to be operated in the future); there is no
claim or action by any person  pertaining to, or proceeding  pending,  or to the
Company's knowledge threatened,  which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and,  except as set forth in SCHEDULE 3(J)
hereof, to the best of the Company's knowledge,  as presently contemplated to be
operated in the future); to the best of the Company's  knowledge,  the Company's
or its Subsidiaries'  current and intended  products,  services and processes do
not  infringe on any  Intellectual  Property or other rights held by any person;
and the Company is unaware of any facts or  circumstances  which might give rise
to any of the  foregoing.  The Company and each of its  Subsidiaries  have taken
reasonable  security measures to protect the secrecy,  confidentiality and value
of their Intellectual Property.

                  (II)  All of the  Company's  computer  software  and  computer
hardware,  and other  similar or related  items of  automated,  computerized  or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently  are being,  sold or licensed by the Company
to customers (collectively,  "INFORMATION TECHNOLOGY"), are Year 2000 Compliant.
For  purposes of this  Agreement,  the term "YEAR 2000  Compliant"  means,  with
respect to the Company's Information Technology, that the Information Technology
is designed to be used prior to,  during and after the calendar  Year 2000,  and
the  Information  Technology  used during each such time period will  accurately
receive, provide and process date and time data (including,  but not limited to,
calculating,  comparing and sequencing) from, into and between the 20th and 21st
centuries,  including the years 1999 and 2000, and leap-year  calculations,  and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of the date or time  data,  to the  extent  that  other  information
technology,  used in  combination  with  the  Information  Technology,  properly
exchanges  date and time data with it. The Company has  delivered  to the Buyers
true and correct copies of all analyses,  reports,  studies and similar  written
information,  whether  prepared  by the  Company or another  party,  relating to
whether the Information Technology is Year 2000 Compliant, if any.

            K. NO MATERIALLY ADVERSE CONTRACTS, ETC. 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.  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.

            L. TAX STATUS. Except as set forth on SCHEDULE 3(L), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign 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  provisions
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.  The  Company has not  executed a waiver  with  respect to the statute of
limitations  relating to the  assessment or collection of any foreign,  federal,
state or local tax.  Except as set forth on SCHEDULE 3(L), none of the Company's
tax returns is presently being audited by any taxing authority.

                                       8
<PAGE>

            M. CERTAIN  TRANSACTIONS.  Except as set forth on SCHEDULE  3(M) and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries  makes  payments in the ordinary  course of business  upon terms no
less  favorable  than the Company or any of its  Subsidiaries  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 or any of its  Subsidiaries  (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.

            N. DISCLOSURE. All information relating to or concerning the Company
or any of its  Subsidiaries  set forth in this  Agreement  and  provided  to the
Buyers  pursuant to Section  2(d) hereof and  otherwise in  connection  with the
transactions  contemplated  hereby is true and correct in all material  respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein,  in light of the circumstances under
which they were made, not misleading.  No event or circumstance  has occurred or
exists with  respect to the Company or any of its  Subsidiaries  or its or their
business,  properties,  prospects,  operations or financial  conditions,  which,
under  applicable  law,  rule  or  regulation,  requires  public  disclosure  or
announcement  by the  Company but which has not been so  publicly  announced  or
disclosed  (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective  registration  statement filed
by the Company under the 1933 Act).

            O.  ACKNOWLEDGMENT  REGARDING  BUYERS'  PURCHASE OF SECURITIES.  The
Company  acknowledges  and  agrees  that the  Buyers  are  acting  solely in the
capacity of arm's  length  purchasers  with  respect to this  Agreement  and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is 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  statement  made  by  any  Buyer  or any  of  their  respective
representatives or agents in connection with this Agreement and the transactions
contemplated  hereby is not advice or a recommendation  and is merely incidental
to the Buyers'  purchase of the Securities.  The Company  further  represents to
each Buyer that the  Company's  decision to enter into this  Agreement  has been
based   solely  on  the   independent   evaluation   of  the   Company  and  its
representatives.

            P. 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 in any security or solicited  any offers to
buy any security under  circumstances that would require  registration under the
1933 Act of the issuance of the  Securities  to the Buyers.  The issuance of the
Securities to the Buyers will not be integrated  with any other  issuance of the
Company's  securities (past,  current or future) for purposes of any shareholder
approval provisions applicable to the Company or its securities.

                                       9
<PAGE>

            Q. NO BROKERS. The Company has taken no action which would give rise
to any  claim by any  person  for  brokerage  commissions,  transaction  fees or
similar  payments  relating to this Agreement or the  transactions  contemplated
hereby.

            R. PERMITS;  COMPLIANCE. The Company and each of its Subsidiaries is
in possession of all  franchises,  grants,  authorizations,  licenses,  permits,
easements, variances, exemptions,  consents, certificates,  approvals and orders
necessary to own,  lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "COMPANY PERMITS"), and there is
no action  pending or, to the  knowledge  of the Company,  threatened  regarding
suspension or  cancellation of any of the Company  Permits.  Neither the Company
nor any of its  Subsidiaries is in conflict with, or in default or violation of,
any of  the  Company  Permits,  except  for  any  such  conflicts,  defaults  or
violations  which,  individually  or in the  aggregate,  would not reasonably be
expected to have a Material Adverse Effect. Since December 31, 2003, neither the
Company nor any of its Subsidiaries  has received any notification  with respect
to possible  conflicts,  defaults or violations of applicable  laws,  except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.

            S. ENVIRONMENTAL MATTERS.

                  (I) Except as set forth in  SCHEDULE  3(S),  there are, to the
Company's  knowledge,  with respect to the Company or any of its Subsidiaries or
any predecessor of the Company,  no past or present  violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities,   circumstances,   conditions,  events,  incidents,  or  contractual
obligations which may give rise to any common law environmental liability or any
liability  under the  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act of 1980 or similar  federal,  state,  local or  foreign  laws and
neither the Company nor any of its  Subsidiaries  has  received  any notice with
respect to any of the foregoing,  nor is any action pending or, to the Company's
knowledge,  threatened  in  connection  with  any of  the  foregoing.  The  term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment  (including,  without
limitation,  ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions,  discharges,
releases or threatened releases of chemicals,  pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all  authorizations,  codes,  decrees,  demands  or  demand  letters,
injunctions,  judgments,  licenses,  notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

                  (II)  Other  than  those  that  are or  were  stored,  used or
disposed of in  compliance  with  applicable  law, no  Hazardous  Materials  are
contained on or about any real property  currently owned,  leased or used by the
Company or any of its Subsidiaries,  and no Hazardous Materials were released on
or about any real property  previously  owned,  leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its  Subsidiaries,  except in the normal  course of the
Company's or any of its Subsidiaries' business.

                                       10
<PAGE>

                  (III)  Except  as set  forth in  SCHEDULE  3(S),  there are no
underground storage tanks on or under any real property owned, leased or used by
the  Company  or  any of its  Subsidiaries  that  are  not  in  compliance  with
applicable law.

            T. TITLE TO PROPERTY. 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(T) or such
as would not have a Material  Adverse  Effect.  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 would not have
a Material Adverse Effect.

            U. INSURANCE.  Except as set forth in SCHEDULE 3(U), 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 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 have a Material  Adverse  Effect.  The Company
has  provided  to Buyer true and  correct  copies of all  policies  relating  to
directors' and officers' liability coverage,  errors and omissions coverage, and
commercial general liability coverage.

            V.  INTERNAL  ACCOUNTING  CONTROLS.  The  Company  and  each  of its
Subsidiaries  maintain a system of internal accounting controls  sufficient,  in
the  judgment  of the  Company's  board  of  directors,  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.

            W. FOREIGN CORRUPT  PRACTICES.  Neither the Company,  nor any of its
Subsidiaries,  nor any director, officer, agent, employee or other person acting
on behalf of the  Company or any  Subsidiary  has,  in the course of his actions
for, or on behalf of, the  Company,  used any  corporate  funds for any unlawful
contribution,  gift,  entertainment  or  other  unlawful  expenses  relating  to
political activity;  made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate,  payoff,  influence payment,  kickback or
other  unlawful  payment  to any  foreign or  domestic  government  official  or
employee.

                                       11
<PAGE>

            X. SOLVENCY.  The Company  (after giving effect to the  transactions
contemplated by this Agreement) is solvent (i.e.,  its assets have a fair market
value in excess of the amount  required to pay its probable  liabilities  on its
existing  debts as they become  absolute and matured) and  currently the Company
has no  information  that would lead it to reasonably  conclude that the Company
would  not,  after  giving  effect  to  the  transaction  contemplated  by  this
Agreement, have the ability to, nor does it intend to take any action that would
impair its  ability to, pay its debts from time to time  incurred in  connection
therewith as such debts mature.  The Company did not receive a qualified opinion
from its  auditors  with respect to its most recent  fiscal year end and,  after
giving  effect to the  transactions  contemplated  by this  Agreement,  does not
anticipate or know of any basis upon which its auditors  might issue a qualified
opinion in respect of its current fiscal year.

            Y. NO INVESTMENT COMPANY.  The Company is not, and upon the issuance
and sale of the  Securities as  contemplated  by this  Agreement  will not be an
"investment  company" required to be registered under the Investment Company Act
of  1940  (an  "INVESTMENT  COMPANY").  The  Company  is  not  controlled  by an
Investment Company.

            Z. BREACH OF REPRESENTATIONS  AND WARRANTIES BY THE COMPANY.  If the
Company  breaches any of the  representations  or  warranties  set forth in this
Section  3, and in  addition  to any  other  remedies  available  to the  Buyers
pursuant  to this  Agreement,  the Company  shall pay to the Buyer the  Standard
Liquidated  Damages Amount in cash or in shares of Common Stock at the option of
the  Company,  until  such  breach is cured.  If the  Company  elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.

      4. COVENANTS.

            A. BEST EFFORTS. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this Agreement.

            B. FORM D; BLUE SKY LAWS.  The Company  agrees to file a Form D with
respect to the Securities 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  Securities  for sale to the Buyers at the
applicable  closing  pursuant to this Agreement under  applicable  securities or
"blue sky" laws of the states of the  United  States (or to obtain an  exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.

                                       12
<PAGE>

            C. REPORTING STATUS;  ELIGIBILITY TO USE FORM S-3, SB-2 OR FORM S-1.
The Company's  Common Stock is  registered  under Section 12(g) of the 1934 Act.
The Company  represents and warrants that it meets the  requirements for the use
of Form S-3 (or if the Company is not eligible for the use of Form S-3 as of the
Filing Date (as defined in the Registration  Rights Agreement),  the Company may
use the  form of  registration  for  which  it is  eligible  at that  time)  for
registration of the sale by the Buyer of the Registrable  Securities (as defined
in the Registration  Rights  Agreement).  So long as the Buyer beneficially owns
any of the Securities,  the Company shall timely 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 permit such termination.
The  Company  further  agrees to file all  reports  required  to be filed by the
Company with the SEC in a timely manner so as to become eligible, and thereafter
to maintain its eligibility,  for the use of Form S-3. The Company shall issue a
press release  describing the materials  terms of the  transaction  contemplated
hereby as soon as  practicable  following  the Closing Date but in no event more
than two (2) business  days of the Closing  Date,  which press  release shall be
subject  to prior  review by the  Buyers.  The  Company  agrees  that such press
release shall not disclose the name of the Buyers unless expressly  consented to
in writing by the Buyers or unless required by applicable law or regulation, and
then only to the extent of such requirement.

            D. USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Notes and the Warrants in the manner set forth in SCHEDULE  4(D) attached
hereto and made a part hereof and shall not,  directly or  indirectly,  use such
proceeds for any loan to or  investment in any other  corporation,  partnership,
enterprise  or other person  (except in connection  with its currently  existing
direct or indirect Subsidiaries)

            E. FUTURE OFFERINGS.  Subject to the exceptions described below, the
Company will not, without the prior written consent of a majority-in-interest of
the Buyers,  not to be  unreasonably  withheld,  negotiate or contract  with any
party to obtain  additional  equity financing  (including debt financing with an
equity  component)  that involves (A) the issuance of Common Stock at a discount
to the market  price of the Common  Stock on the date of issuance  (taking  into
account the value of any  warrants or options to acquire  Common Stock issued in
connection  therewith) or (B) the issuance of  convertible  securities  that are
convertible  into an  indeterminate  number of shares of Common Stock or (C) the
issuance of warrants during the period (the "LOCK-UP  PERIOD")  beginning on the
Closing Date and ending on the later of (i) two hundred  seventy (270) days from
the  Closing  Date and (ii) one  hundred  eighty  (180)  days  from the date the
Registration  Statement  (as defined in the  Registration  Rights  Agreement) is
declared effective (plus any days in which sales cannot be made thereunder).  In
addition,  subject to the  exceptions  described  below,  the  Company  will not
conduct any equity financing  (including debt with an equity component) ("FUTURE
OFFERINGS")  during the period  beginning on the Closing Date and ending two (2)
years after the end of the Lock-up  Period unless it shall have first  delivered
to each Buyer,  at least twenty (20)  business days prior to the closing of such
Future  Offering,  written  notice  describing  the  proposed  Future  Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection  therewith,  and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the  aggregate  principal  amount of
Notes purchased by it hereunder bears to the aggregate principal amount of Notes
purchased  hereunder) of the securities  being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding  sentence are collectively  referred to as
the "CAPITAL RAISING  LIMITATIONS").  In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the notice
to the Buyers concerning the proposed Future Offering, the Company shall deliver
a new notice to each Buyer  describing  the amended terms and  conditions of the
proposed Future Offering and each Buyer  thereafter  shall have an option during
the fifteen  (15) day period  following  delivery of such new notice to purchase
its pro  rata  share  of the  securities  being  offered  on the  same  terms as
contemplated  by such  proposed  Future  Offering,  as  amended.  The  foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not apply to any
transaction   involving  (i)  issuances  of  securities  in  a  firm  commitment
underwritten  public offering  (excluding a continuous offering pursuant to Rule
415 under the 1933 Act) or (ii) issuances of securities as  consideration  for a
merger, consolidation or purchase of assets, or in connection with any strategic
partnership  or joint  venture  (the  primary  purpose  of which is not to raise
equity  capital),  or in connection  with the  disposition  or  acquisition of a
business,  product or license by the Company.  The Capital  Raising  Limitations
also shall not apply to the issuance of  securities  upon exercise or conversion
of the Company's options,  warrants or other convertible  securities outstanding
as of the date hereof or to the grant of additional options or warrants,  or the
issuance of additional securities,  under any Company stock option or restricted
stock plan approved by the shareholders of the Company.

                                       13
<PAGE>

            F. EXPENSES.  At the Closing, the Company shall reimburse Buyers for
expenses  incurred  by them in  connection  with the  negotiation,  preparation,
execution,  delivery and performance of this Agreement and the other  agreements
to  be  executed  in  connection  herewith  ("Documents"),   including,  without
limitation,  attorneys' and consultants' fees and expenses, transfer agent fees,
fees  for  stock  quotation  services,   fees  relating  to  any  amendments  or
modifications  of the  Documents or any consents or waivers of provisions in the
Documents,  fees for the  preparation  of opinions of counsel,  escrow fees, and
costs of  restructuring  the  transactions  contemplated by the Documents.  When
possible,  the Company must pay these fees directly,  otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately  upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company  fails to reimburse  the Buyer in full within three (3)
business days of the written  notice or submission of invoice by the Buyer,  the
Company  shall pay  interest on the total amount of fees to be  reimbursed  at a
rate of 15% per annum.

            G. FINANCIAL  INFORMATION.  The Company agrees to send the following
reports to each Buyer until such Buyer transfers,  assigns,  or sells all of the
Securities:  (i) within  ten (10) days after the filing  with the SEC, a copy of
its Annual  Report on Form 10-KSB its  Quarterly  Reports on Form 10-QSB and any
Current  Reports on Form 8-K; (ii) within one (1) day after  release,  copies of
all press releases issued by the Company or any of its  Subsidiaries;  and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company,  copies of any notices or other information the Company makes available
or gives to such stockholders.

            H. AUTHORIZATION AND RESERVATION OF SHARES. The Company shall at all
times have  authorized,  and reserved for the purpose of issuance,  a sufficient
number of shares of Common Stock to provide for the full  conversion or exercise
of the outstanding  Notes and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection  therewith  (based on the  Conversion  Price of the
Notes or Exercise  Price (as defined in the  Warrants) of the Warrants in effect
from time to time) and as otherwise required by the Notes. The Company shall not
reduce  the  number of  shares  of  Common  Stock  reserved  for  issuance  upon
conversion  of Notes and  exercise of the  Warrants  without the consent of each
Buyer.  The Company  shall at all times  maintain the number of shares of Common
Stock so reserved for issuance at an amount ("RESERVED AMOUNT") equal to no less
than  two (2)  times  the  number  that  is then  actually  issuable  upon  full
conversion of the Notes and  Additional  Notes and upon exercise of the Warrants
and the Additional  Warrants (based on the Conversion  Price of the Notes or the
Exercise Price of the Warrants in effect from time to time).  If at any time the
number  of  shares  of  Common  Stock   authorized  and  reserved  for  issuance
("AUTHORIZED  AND RESERVED  SHARES") is below the Reserved  Amount,  the Company
will  promptly take all  corporate  action  necessary to authorize and reserve a
sufficient number of shares,  including,  without limitation,  calling a special
meeting of  stockholders  to authorize  additional  shares to meet the Company's
obligations  under this Section 4(h), in the case of an  insufficient  number of
authorized shares, obtain stockholder approval of an increase in such authorized
number of shares, and voting the management shares of the Company in favor of an
increase  in the  authorized  shares of the Company to ensure that the number of
authorized  shares is  sufficient  to meet the Reserved  Amount.  If the Company
fails to obtain such stockholder  approval within thirty (30) days following the
date on which the number of Reserved  Amount exceeds the Authorized and Reserved
Shares,  the Company shall pay to the Borrower the Standard  Liquidated  Damages
Amount,  in cash or in shares of Common Stock at the option of the Buyer. If the
Buyer  elects to be paid the  Standard  Liquidated  Damages  Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the time of
payment.  In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times,  the Company must deliver to
the Buyer at the end of every month a list  detailing (1) the current  amount of
shares  authorized by the Company and reserved for the Buyer;  and (2) amount of
shares  issuable upon  conversion of the Notes and upon exercise of the Warrants
and as payment of  interest  accrued on the Notes for one year.  If the  Company
fails to provide  such list  within  five (5)  business  days of the end of each
month, the Company shall pay the Standard  Liquidated Damages Amount, in cash or
in  shares  of  Common  Stock at the  option  of the  Buyer,  until  the list is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock,  such shares shall be issued at the Conversion  Price
at the time of payment.

                                       14
<PAGE>

            I.  LISTING.  The Company shall  promptly  secure the listing of the
Conversion Shares and Warrant Shares upon each national  securities  exchange or
automated  quotation  system, if any, upon which shares of Common Stock are then
listed  (subject to official  notice of issuance) and, so long as any Buyer owns
any of the  Securities,  shall  maintain,  so long as any other shares of Common
Stock  shall be so listed,  such  listing of all  Conversion  Shares and Warrant
Shares from time to time  issuable  upon  conversion of the Notes or exercise of
the Warrants.  The Company will obtain and, so long as any Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTCBB or
any equivalent replacement exchange, the Nasdaq National Market ("NASDAQ"),  the
Nasdaq  SmallCap  Market  ("NASDAQ  SMALLCAP"),  the  New  York  Stock  Exchange
("NYSE"),  or the  American  Stock  Exchange  ("AMEX")  and will  comply  in all
respects with the Company's  reporting,  filing and other  obligations under the
bylaws or rules of the National  Association of Securities  Dealers ("NASD") and
such exchanges, as applicable.  The Company shall promptly provide to each Buyer
copies of any  notices it  receives  from the OTCBB and any other  exchanges  or
quotation  systems  on which  the  Common  Stock is then  listed  regarding  the
continued  eligibility  of the Common  Stock for listing on such  exchanges  and
quotation systems.

            J. CORPORATE  EXISTENCE.  So long as a Buyer  beneficially  owns any
Notes or Warrants,  the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's  assets,  except in the event
of a  merger  or  consolidation  or  sale  of  all or  substantially  all of the
Company's  assets,  where the surviving or successor  entity in such transaction
(i) assumes the Company's  obligations  hereunder and under the  agreements  and
instruments  entered into in connection  herewith and (ii) is a publicly  traded
corporation  whose  Common  Stock is listed for  trading  on the OTCBB,  Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.

                                       15
<PAGE>

            K. NO INTEGRATION. The Company shall not make any offers or sales of
any security (other than the Securities) under  circumstances that would require
registration  of the Securities  being offered or sold hereunder  under the 1933
Act or cause the  offering of the  Securities  to be  integrated  with any other
offering  of  securities  by the  Company  for the  purpose  of any  stockholder
approval provision applicable to the Company or its securities.

            L.  SUBSEQUENT  INVESTMENT.  The Company and the Buyers  agree that,
upon  the  filing  by the  Company  of the  Registration  Statement  to be filed
pursuant to the Registration  Rights  Agreement (the "FILING DATE"),  the Buyers
shall purchase  additional Notes (the "FILING NOTES") in the aggregate principal
amount of Six Hundred Thousand Dollars  ($600,000) and additional  warrants (the
"FILING  WARRANTS") to purchase an aggregate of 600,000  shares of Common Stock,
for an aggregate purchase price of Six Hundred Thousand Dollars ($600,000), with
the closing of such  purchase to occur  within five (5) days of the Filing Date;
provided,  however,  that the  obligation  of each Buyer to purchase  the Filing
Notes and the Filing Warrants is subject to the  satisfaction,  at or before the
closing of such purchase and sale, of the conditions set forth in Section 7. The
Company and the Buyers further agree that, upon the declaration of effectiveness
of the Registration  Statement to be filed pursuant to the  Registration  Rights
Agreement (the "EFFECTIVE  DATE"),  the Buyers shall purchase  additional  notes
(the  "EFFECTIVENESS  NOTES"  and,  collectively  with  the  Filing  Notes,  the
"ADDITIONAL  NOTES") in the aggregate principal amount of Seven Hundred Thousand
Dollars ($700,000) and additional  warrants (the  "EFFECTIVENESS  WARRANTS" and,
collectively with the Filing Warrants, the "ADDITIONAL WARRANTS") to purchase an
aggregate of 700,000 shares of Common Stock, for an aggregate  purchase price of
Seven Hundred Thousand Dollars ($700,000),  with the closing of such purchase to
occur within five (5) days of the Effective Date;  provided,  however,  that the
obligation  of each Buyer to purchase the  Additional  Notes and the  Additional
Warrants  is  subject  to the  satisfaction,  at or before  the  closing of such
purchase  and sale,  of the  conditions  set forth in Section 7; and,  provided,
further,  that there  shall not have been a Material  Adverse  Effect as of such
effective  date. The terms of the Additional  Notes and the Additional  Warrants
shall be identical to the terms of the Notes and  Warrants,  as the case may be,
to be issued on the Closing Date.  The Common Stock  underlying  the  Additional
Notes and the Additional Warrants shall be Registrable Securities (as defined in
the  Registration  Rights  Agreement) and shall be included in the  Registration
Statement to be filed pursuant to the Registration Rights Agreement.

            M. KEY MAN  INSURANCE.  The  Company  shall use its best  efforts to
obtain,  on or before five (5) business days from the date hereof,  key man life
insurance on all of the Company's officers and division heads.

            N. BREACH OF COVENANTS. If the Company breaches any of the covenants
set forth in this Section 4, and in addition to any other remedies  available to
the Buyers pursuant to this  Agreement,  the Company shall pay to the Buyers the
Standard  Liquidated Damages Amount, in cash or in shares of Common Stock at the
option of the Company,  until such breach is cured. If the Company elects to pay
the Standard Liquidated Damages Amount in shares, such shares shall be issued at
the Conversion Price at the time of payment.

                                       16
<PAGE>

      5.  TRANSFER  AGENT  INSTRUCTIONS.  The Company  shall  issue  irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee,  for the  Conversion  Shares and Warrant Shares in
such  amounts as  specified  from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the "IRREVOCABLE TRANSFER AGENT  Instructions").  Prior to registration
of the  Conversion  Shares and Warrant  Shares under the 1933 Act or the date on
which the Conversion  Shares and Warrant Shares may be sold pursuant to Rule 144
without any  restriction as to the number of Securities as of a particular  date
that  can  then be  immediately  sold,  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 and
Warrant  Shares,  prior to  registration  of the  Conversion  Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately  sold),  will
be given by the  Company to its  transfer  agent and that the  Securities  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  shall  affect in any way the Buyer's  obligations  and
agreement  set  forth in  Section  2(g)  hereof to  comply  with all  applicable
prospectus delivery requirements,  if any, upon re-sale of the Securities.  If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope  customary for opinions in comparable  transactions,  to the effect that a
public sale or  transfer of such  Securities  may be made  without  registration
under  the 1933 Act and such  sale or  transfer  is  effected  or (ii) the Buyer
provides reasonable  assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer,  and, in the case of the  Conversion
Shares and Warrant Shares,  promptly instruct its transfer agent to issue one or
more  certificates,  free  from  restrictive  legend,  in such  name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating  the  intent  and  purpose of the  transactions  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or  threatened  breach by the Company of the  provisions of this Section,
that the Buyers shall be entitled,  in addition to all other available remedies,
to an  injunction  restraining  any breach  and  requiring  immediate  transfer,
without the  necessity  of showing  economic  loss and without any bond or other
security being required.

                                       17
<PAGE>

      6.  CONDITIONS TO THE COMPANY'S  OBLIGATION TO SELL. The obligation of the
Company  hereunder  to issue and sell the Notes and  Warrants  to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following  conditions  thereto,  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. The  applicable  Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.

            B. The  applicable  Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.

            C. The  representations and warranties of the applicable 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 applicable  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  applicable  Buyer at or prior to the Closing
Date.

            D.  No  litigation,  statute,  rule,  regulation,  executive  order,
decree,  ruling or injunction shall have been enacted,  entered,  promulgated or
endorsed by or in any court or governmental  authority of competent jurisdiction
or  any   self-regulatory   organization   having  authority  over  the  matters
contemplated  hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

      7.  CONDITIONS TO EACH BUYER'S  OBLIGATION TO PURCHASE.  The obligation of
each Buyer  hereunder  to  purchase  the Notes and  Warrants  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 such Buyer's sole
benefit and may be waived by such 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  Company  shall have  delivered  to such Buyer duly  executed
Notes (in such  denominations  as the  Buyer  shall  request)  and  Warrants  in
accordance with Section 1(b) above.

            C.  The  Irrevocable  Transfer  Agent  Instructions,   in  form  and
substance satisfactory to a majority-in-interest  of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.

            D. The  representations  and warranties of the Company shall be true
and  correct  in all  material  respects  as of the date when made and as of the
Closing  Date as  though  made at such  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  or  certificates,  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 such  Buyer
including,  but not  limited  to  certificates  with  respect  to the  Company's
Articles of Incorporation,  By-laws and Board of Directors' resolutions relating
to the transactions contemplated hereby.

                                       18
<PAGE>

            E.  No  litigation,  statute,  rule,  regulation,  executive  order,
decree,  ruling or injunction shall have been enacted,  entered,  promulgated or
endorsed by or in any court or governmental  authority of competent jurisdiction
or  any   self-regulatory   organization   having  authority  over  the  matters
contemplated  hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

            F. No event shall have occurred  which could  reasonably be expected
to have a Material Adverse Effect on the Company.

            G.  The  Conversion  Shares  and  Warrant  Shares  shall  have  been
authorized  for  quotation  on the OTCBB and trading in the Common  Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.

            H. The  Buyer  shall  have  received  an  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 same form as  EXHIBIT  "D"
attached hereto.

            I. The Buyer shall have received an officer's  certificate described
in Section 3(c) above, dated as of the Closing Date.

      8. GOVERNING LAW; MISCELLANEOUS.

            A. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED,  GOVERNED BY AND
CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE  TO
AGREEMENTS MADE AND TO BE PERFORMED  ENTIRELY WITHIN SUCH STATE,  WITHOUT REGARD
TO THE  PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE  JURISDICTION OF THE UNITED STATES FEDERAL 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. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
THAT  SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   AGREE  THAT  A  FINAL
NON-APPEALABLE  JUDGMENT IN ANY SUCH SUIT OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS  AGREEMENT  SHALL  BE  RESPONSIBLE  FOR ALL FEES  AND  EXPENSES,  INCLUDING
ATTORNEYS'  FEES,  INCURRED  BY THE  PREVAILING  PARTY IN  CONNECTION  WITH SUCH
DISPUTE.

                                       19
<PAGE>

            B.  COUNTERPARTS;  SIGNATURES  BY FACSIMILE.  This  Agreement may be
executed in one or more counterparts,  each of which shall be deemed an original
but all of which shall  constitute  one and the same  agreement and shall become
effective when  counterparts have been signed by each party and delivered to the
other party.  This Agreement,  once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.

            C. HEADINGS.  The headings of this Agreement are for  convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.

            D.  SEVERABILITY.  In the event that any provision of this Agreement
is invalid or  unenforceable  under any applicable  statute or rule of law, then
such  provision  shall be deemed  inoperative to the extent that it may conflict
therewith  and shall be deemed  modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.

            E. ENTIRE AGREEMENT;  AMENDMENTS. 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 the 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 required or permitted to be given under the
terms of this  Agreement  shall be sent by certified or registered  mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five (5) days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery  service)  or by  facsimile,  in each case  addressed  to a party.  The
addresses for such communications shall be:

                           If to the Company:

                                    Pacificap Entertainment Holdings, Inc.
                                    12268 Via Latina
                                    Del Mar, California  92914
                                    Attention: Ed Litwak, President
                                    Telephone:  858-481-2207
                                    Facsimile:   858-481-2207

                                       20
<PAGE>

                           With a copy to:

                                    Sichenzia Ross Friedman Ference LLP
                                    1065 Avenue of the Americas
                                    New York, New York  10018
                                    Attention:  Gregory Sichenzia, Esq.
                                    Telephone:  212-930-9700
                                    Facsimile:   212-930-9725

      If to a Buyer:  To the address set forth  immediately  below such  Buyer's
name on the signature pages hereto.

                           With copy to:

                                    Ballard Spahr Andrews & Ingersoll, LLP
                                    1735 Market Street
                                    51st Floor
                                    Philadelphia, Pennsylvania  19103
                                    Attention:  Gerald J. Guarcini, Esq.
                                    Telephone:  215-864-8625
                                    Facsimile:  215-864-8999
                                    Email:  guarcini@ballardspahr.com

      Each  party  shall  provide  notice  to the other  party of any  change in
address.

            G. SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and
inure to the benefit of the parties and their  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.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights  hereunder  to  any  person  that  purchases   Securities  in  a  private
transaction from a Buyer or to any of its  "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.

            H. 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.  The  representations and warranties of the Company and
the  agreements  and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder  notwithstanding any due diligence investigation conducted
by or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers,  directors,  employees and agents for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants set forth
in Sections 3 and 4 hereof or any of its  covenants and  obligations  under this
Agreement  or  the  Registration  Rights  Agreement,  including  advancement  of
expenses as they are incurred.

                                       21
<PAGE>

            J.  PUBLICITY.  The  Company  and each of the Buyers  shall have the
right to  review a  reasonable  period  of time  before  issuance  of any  press
releases,  SEC,  OTCBB or NASD  filings,  or any other  public  statements  with
respect to the transactions  contemplated hereby;  provided,  however,  that the
Company shall be entitled,  without the prior approval of each of the Buyers, to
make any press release or SEC,  OTCBB (or other  applicable  trading  market) or
NASD filings with respect to such  transactions as is required by applicable law
and  regulations  (although each of the Buyers shall be consulted by the Company
in  connection  with any such press  release  prior to its  release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).

            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.

            L. 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.

            M.  REMEDIES.  The Company  acknowledges  that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers 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 Agreement will be inadequate and agrees,  in the event of a breach or
threatened  breach by the Company of the provisions of this Agreement,  that the
Buyers shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or  injunctions  restraining,  preventing or curing any breach of this Agreement
and to  enforce  specifically  the  terms and  provisions  hereof,  without  the
necessity of showing  economic loss and without any bond or other security being
required.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       22
<PAGE>

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

PACIFICAP ENTERTAINMENT HOLDINGS, INC.

/s/ Ed Litwak
-------------
Ed Litwak
President

AJW PARTNERS, LLC

By:  SMS Group, LLC

/s/ Corey S. Ribotsky
---------------------
Corey S. Ribotsky
Manager

RESIDENCE:  Delaware

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile:  (516) 739-7115
         Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:               $133,000
         Number of Warrants:                                 133,000
         Aggregate Purchase Price:                          $133,000

                                       23
<PAGE>

AJW OFFSHORE, LTD.

By:  First Street Manager II, LLC

/s/ Corey S. Ribotsky
---------------------
Corey S. Ribotsky
Manager

RESIDENCE:   Cayman Islands

ADDRESS: AJW Offshore, Ltd.
         P.O. Box 32021 SMB
         Grand Cayman, Cayman Island, B.W.I.

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:               $252,000
         Number of Warrants:                                 252,000
         Aggregate Purchase Price:                          $252,000

                                       24
<PAGE>

AJW QUALIFIED PARTNERS, LLC

By:  AJW Manager, LLC

/s/ Corey S. Ribotsky
---------------------
Corey S. Ribotsky
Manager

RESIDENCE:   New York

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile:        (516) 739-7115
         Telephone:        (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:              $287,000
         Number of Warrants:                                287,000
         Aggregate Purchase Price:                         $287,000

                                       25
<PAGE>

NEW MILLENNIUM CAPITAL PARTNERS II, LLC

By:  First Street Manager II, LLP

/s/ Corey S. Ribotsky
---------------------
Corey S. Ribotsky
Manager

RESIDENCE:    New York

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile:        (516) 739-7115
         Telephone:        (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:              $28,000
         Number of Warrants:                                28,000
         Aggregate Purchase Price:                         $28,000

                                       26

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