Document:

<PAGE>

                                                                     EXHIBIT 4.3

                                                No._____________________________

                                                ________________________________
                                              Name of Offeree

                   CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

                            CASH TECHNOLOGIES, INC.

                                Total Offering
                         $3,000,000 - 60 Unit Maximum

       Up to 60 Units, each Unit consisting of (i) a Secured Convertible
      Promissory Note in the principal amount of $50,000, bearing interest
at the rate of 10% per annum; and (ii) Series B Redeemable Warrants to purchase
     5,000 shares of common stock at an exercise price of $13.00 per share

                       Offering Price: $50,000 per Unit

 THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE
 OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
    THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" INCLUDED IN THIS MEMORANDUM

  THE SECURITIES ARE BEING OFFERED WITHOUT REGISTRATION IN RELIANCE ON SECTION
 4(2) OF THE SECURITIES ACT OF 1933 AND/OR REGULATION D PROMULGATED THEREUNDER.
  THIS MEMORANDUM HAS NOT BEEN REVIEWED, APPROVED OR DISAPPROVED, NOR HAS THE
 ACCURACY OR ADEQUACY OF THE INFORMATION SET FORTH HEREIN BEEN PASSED UPON, BY
 THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. ANY
             REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

     Placement Agent:
                           GunnAllen Financial, Inc.
               THE DATE OF THIS MEMORANDUM IS DECEMBER 23, 1999
<PAGE>

                            CASH TECHNOLOGIES, INC.

  Up to 60 Units, each Unit consisting of (i) a Secured Convertible Promissory
Note in the principal amount of $50,000, bearing interest at the rate of 10% per
annum; and (ii) Series B Redeemable Warrants to purchase 5,000 shares of Common
                 Stock at an exercise price of $13.00 per share

     Our company, Cash Technologies, Inc., is offering for sale to accredited
investors (as defined in Regulation D promulgated by the Securities and Exchange
Commission ("SEC")) up to 60 units (the "Units"), each Unit consisting of (i) a
Secured Convertible Promissory Note in the principal amount of $50,000, due and
payable on July 31, 2001 (the "Maturity Date") and (ii) Series B Redeemable
Warrants to purchase 5,000 shares of common stock at an exercise price of $13.00
per share which shall be exercisable until August, 2002.  GunnAllen Financial,
Inc. (the "Placement Agent") has agreed to act as exclusive placement agent for
the sale of the Units.  Each Unit will be offered at a price of $50,000.
Partial Units may be offered and sold at the discretion of the Placement Agent.
The offering price, terms of the Offering and exercise price of the warrants
have been determined by negotiation between our company and the Placement Agent
and do not necessarily bear any relationship to the assets, book value or
potential earnings of our company or any other recognized criteria of value.
Our company reserves the right, in its sole and absolute discretion, to reduce
or reject any subscription.

     The Company's Common Stock is listed on the SmallCap market of the Nasdaq
Stock Market and traded over the counter under the symbol "CHNG", and on
December 20, 1999,  the bid and ask prices of the Common Stock were $14 1/16 and
$14 7/16, respectively.  The closing price was $14 1/4.

     The Units are being offered on a "best efforts-any or all" basis by the
Placement Agent.  All proceeds received from subscribers will be forwarded by
the Placement Agent to our company which shall deposit the proceeds in a
segregated bank account.  There is no minimum number of Units required to be
accepted before a closing may occur and our company and the Placement Agent may
close on subscriptions as they are tendered and accepted and upon receipt of
good funds.  Prospective investors will not know whether all or a portion of the
Units offered hereby are subscribed for.  This offering shall terminate upon the
earlier of (i) the sale of all of the Units or (ii) February 1, 2000 (unless
extended by us and Placement Agent for an additional 30 days).

     THE UNITS ARE BEING OFFERED WITHOUT REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN RELIANCE UPON THE EXEMPTION FROM
REGISTRATION AFFORDED BY SECTION 4(2) AND/OR 3(b) OF THE SECURITIES ACT AND
REGULATION D PROMULGATED THEREUNDER.  THIS MEMORANDUM HAS NOT BEEN REVIEWED,
APPROVED OR DISAPPROVED, NOR HAS THE ACCURACY OR ADEQUACY OF THE INFORMATION SET
FORTH HEREIN BEEN PASSED UPON, BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC") OR ANY STATE SECURITIES ADMINISTRATOR.  ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=======================================================================================================================
                                                                      Placement Agent      Proceeds to Company(2)
                                              Price to Investors      Fee(1)
<S>                                         <C>                       <C>                  <C>
-----------------------------------------------------------------------------------------------------------------------
Per Unit                                                 $   50,000              $  5,000                $   45,000
-----------------------------------------------------------------------------------------------------------------------
Maximum Offering(3)                                      $3,000,000              $300,000                $2,700,000
=======================================================================================================================
</TABLE>
________________________
footnotes on next page

                                      ii
<PAGE>

(1) GunnAllen Financial, Inc. has agreed to act as placement agent for our
    company, for a placement agent fee in the amount of $5,000 (10%) per Unit.
    In addition, our company has agreed to reimburse the Placement Agent for its
    expenses incurred in connection with this offering.  Our company has also
    agreed to indemnify the Placement Agent against certain liabilities,
    including liabilities under the Securities Act.

(2)    Before deducting expenses of this offering, estimated at approximately
       $45,000 (not including sales commissions).

(3)    Assumes the sale of all 60 Units offered hereby.

     CERTAIN OF THE INFORMATION CONTAINED IN THIS MEMORANDUM IS CONFIDENTIAL AND
PROPRIETARY TO OUR COMPANY AND IS BEING SUBMITTED TO PROSPECTIVE ACCREDITED
INVESTORS SOLELY FOR SUCH INVESTORS' CONFIDENTIAL USE WITH THE EXPRESS
UNDERSTANDING THAT, WITHOUT PRIOR EXPRESS PERMISSION OF OUR COMPANY, SUCH
PERSONS WILL NOT RELEASE THIS DOCUMENT OR DISCUSS THE INFORMATION CONTAINED
HEREIN OR MAKE REPRODUCTIONS OF OR USE THIS MEMORANDUM FOR ANY PURPOSE OTHER
THAN EVALUATING A POTENTIAL INVESTMENT IN THE UNITS.  THIS MEMORANDUM MAY NOT BE
REPRODUCED, IN WHOLE OR IN PART, AND IT IS ACCEPTED WITH THE UNDERSTANDING THAT
IT WILL BE RETURNED IF THE RECIPIENT DOES NOT PURCHASE THE SECURITIES OFFERED
HEREBY.

     THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT.  SEE "RISK FACTORS."

     THIS OFFERING IS SUBJECT TO WITHDRAWAL, CANCELLATION OR MODIFICATION BY OUR
COMPANY WITHOUT NOTICE.  OUR COMPANY AND THE PLACEMENT AGENT RESERVE THE RIGHT,
IN THEIR SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART FOR ANY
REASON OR TO ALLOT TO ANY SUBSCRIBER LESS THAN THE NUMBER OF UNITS SUBSCRIBED
FOR.

     THIS MEMORANDUM SHOULD BE READ IN CONJUNCTION WITH THE EXHIBITS ATTACHED
HERETO.

     OFFICERS,  DIRECTORS AND STOCKHOLDERS OF OUR COMPANY AND THE PLACEMENT
AGENT AND THEIR AFFILIATES MAY PURCHASE UNITS PURSUANT TO THIS OFFERING.

     EACH PROSPECTIVE INVESTOR MAY MAKE INQUIRIES OF OUR COMPANY WITH RESPECT TO
OUR COMPANY'S BUSINESS OR ANY OTHER MATTERS RELATING TO OUR COMPANY AND AN
INVESTMENT IN THE SECURITIES THEREOF, AND MAY OBTAIN ANY ADDITIONAL INFORMATION
WHICH SUCH PROSPECTIVE INVESTOR DEEMS TO BE NECESSARY IN CONNECTION WITH MAKING
AN INVESTMENT DECISION IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION
CONTAINED IN THIS MEMORANDUM (TO THE EXTENT THAT OUR COMPANY POSSESSES SUCH
INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE).  IN
CONNECTION WITH SUCH INQUIRY, ANY DOCUMENTS WHICH ANY PROSPECTIVE INVESTOR
WISHES TO REVIEW WILL BE MADE AVAILABLE FOR INSPECTION AND COPYING OR PROVIDED,
UPON REQUEST, SUBJECT TO THE PROSPECTIVE INVESTOR'S AGREEMENT TO MAINTAIN SUCH
INFORMATION IN CONFIDENCE AND TO RETURN THE SAME TO OUR COMPANY IF THE RECIPIENT
DOES NOT PURCHASE THE SECURITIES OFFERED HEREUNDER.  ANY SUCH INQUIRIES OR
REQUESTS FOR ADDITIONAL INFORMATION OR DOCUMENTS SHOULD BE MADE IN WRITING TO
OUR COMPANY, ADDRESSED AS FOLLOWS: CASH TECHNOLOGIES, INC., 1434 WEST 11TH
STREET, LOS ANGELES, CA 90015, ATTN: BRUCE KORMAN, CHAIRMAN & CHIEF EXECUTIVE
OFFICER.

     NO PERSON, OTHER THAN AS PROVIDED FOR HEREIN, HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS MEMORANDUM IN CONNECTION WITH THE OFFER BEING MADE HEREBY, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY OUR COMPANY.

     THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES BY

                                      III
<PAGE>

ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO.

     THE PLACEMENT AGENT HAS CONDUCTED ONLY A LIMITED INVESTIGATION WITH RESPECT
TO THE INFORMATION CONTAINED IN THIS MEMORANDUM.  THE PLACEMENT AGENT MAKES NO
REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF THE
INFORMATION CONTAINED IN THIS MEMORANDUM.

     THIS OFFERING IS MADE, AND SALES OF UNITS WILL BE MADE, ONLY TO PURCHASERS
WHO QUALIFY AS "ACCREDITED INVESTORS" UNDER REGULATION D PROMULGATED UNDER THE
SECURITIES ACT.

     PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM
AS LEGAL, INVESTMENT OR TAX ADVICE.  PROSPECTIVE INVESTORS SHOULD CONSULT THEIR
ADVISORS AS TO LEGAL, INVESTMENT, TAX AND RELATED MATTERS CONCERNING AN
INVESTMENT BY SUCH PROSPECTIVE INVESTORS IN OUR COMPANY.

     THE STATEMENTS CONTAINED HEREIN ARE BASED ON INFORMATION BELIEVED BY OUR
COMPANY TO BE RELIABLE.  NO WARRANTY CAN BE MADE AS TO THE ACCURACY OF SUCH
INFORMATION OR THAT CIRCUMSTANCES HAVE NOT CHANGED SINCE THE DATE SUCH
INFORMATION WAS SUPPLIED.  THIS MEMORANDUM CONTAINS SUMMARIES OF CERTAIN
PROVISIONS OF DOCUMENTS RELATING TO THE PURCHASE OF UNITS, AS WELL AS SUMMARIES
OF VARIOUS PROVISIONS OF RELEVANT STATUTES AND REGULATIONS.  SUCH SUMMARIES DO
NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO
THE TEXTS OF THE ORIGINAL DOCUMENTS, STATUTES AND REGULATIONS, WHICH ARE
AVAILABLE UPON REQUEST.

     IT IS THE RESPONSIBILITY OF PROSPECTIVE INVESTORS WISHING TO PURCHASE THE
UNITS TO SATISFY THEMSELVES AS TO THE FULL OBSERVANCE OF THE LAWS OF ANY
RELEVANT TERRITORY OUTSIDE THE UNITED STATES IN CONNECTION WITH ANY SUCH
PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR
OBSERVING ANY OTHER APPLICABLE FORMALITIES.

                                      IV
<PAGE>

     DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     This memorandum includes "forward-looking statements" within the meaning of
various provisions of the Securities Act and the Securities Exchange Act of 1934
(the "Exchange Act").  All statements, other than statements of historical
facts, included in this memorandum that address future activities, events, or
developments, including such things as future revenues, potential market,
product and technology development, market acceptance, responses from
competitors, capital expenditures (including the amount and nature thereof),
business strategy and measures to implement strategy, competitive strengths,
goals, expansion and growth of our company's business and operations, plans,
references to future success and other such matters, are forward-looking
statements.  These statements are based on certain assumptions and analyses made
by our company in light of its experience and its assessment of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances.  However, whether
actual results will conform to our company's expectations and predictions is
subject to a number of risks and uncertainties that may cause actual results to
differ materially, including the risks and uncertainties discussed in this
memorandum; general economic, market or business conditions; the opportunities
(or lack thereof) that may be presented to and pursued by our company;
competitive actions by other companies; litigation affecting our company and its
industry; changes in laws or government regulations; and other factors, many of
which are beyond the control of our company.  Consequently, all of the forward-
looking statements made in this memorandum are qualified by these cautionary
statements and there can be no assurance that the actual results anticipated by
our company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on our company or its business or
operations.

     Our company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "SEC" or the "Commission") under SEC File No. 000-
24569.  Reports, proxy and information statements and other information filed by
our company with the Commission pursuant to the informational requirements of
the Exchange Act may be inspected and copies at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following Regional Offices of the Commission: New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Everett McKinley Dirkson Building, 210 South Dearborn Street,
Room 1204, Chicago, Illinois 60604.

                                       V
<PAGE>

                         PRIVATE PLACEMENT PROCEDURES

     Our company has retained GunnAllen Financial, Inc. to act as its exclusive
placement agent in connection with arranging the private placement of the Units
offered hereby.  GunnAllen Financial, Inc. has agreed, as agent for our company,
to offer the Units on a "best efforts, any or all" basis.  The Units are being
offered only to accredited investors.  Our company reserves the right to approve
or disapprove each investor.  See "Plan of Distribution" and "Investor
Suitability Requirements."

     Our company undertakes to make available to every investor, during the
course of this offering, and prior to sale, the opportunity to ask questions of
and receive answers from our company concerning the terms and conditions of this
offering and to obtain any appropriate additional information (i) necessary to
verify the accuracy of the information contained in this memorandum or any other
document given, or to any statement made by our company or any person acting on
its behalf, to any prospective investor or (ii) for any other purpose relevant
to a prospective investment in the Units offered hereby, to the extent our
company possesses such information or can acquire it without unreasonable effort
or expense.

     All communications or inquiries relating to this offering should be
directed to:

<TABLE>
<CAPTION>
                                             GunnAllen Financial, Inc.
                                             1715 North Westshore Blvd.
                                                     Suite 700
                                                  Tampa, FL  33607
            <S>                                         <C>                 <C>
                 Attn:  Howard Davis                     or                      Attn:  Rick Frueh
             Telephone:  (818) 226-3986                                      Telephone:  (800) 713-3740
                Fax:  (818) 713-0431                                            Fax:  (813) 282-1275
</TABLE>

                                      VI
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                            Page
                                                                            ----
<S>                                                                        <C>

SUMMARY TERM SHEET                                                            1

RISK FACTORS                                                                  8

DESCRIPTION OF SECURITIES                                                    15

SUMMARY FINANCIAL DATA                                                       19

THE COMPANY                                                                  20

PLAN OF DISTRIBUTION                                                         23

INVESTOR SUITABILITY REQUIREMENTS                                            25

ACCESS TO INFORMATION                                                        26
</TABLE>
REPORTS TO SHAREHOLDERS
25

EXHIBIT A -  FORM 10KSB FOR THE FISCAL YEAR ENDED MAY 31, 1999 AND FORM 10QSB
             FOR THE FISCAL QUARTER ENDED AUGUST 31, 1999.

EXHIBIT B -  FORM OF SUBSCRIPTION AGREEMENT AND CONFIDENTIAL PURCHASER
             QUESTIONNAIRE

EXHIBIT C -  FORM OF SECURED PROMISSORY NOTE

EXHIBIT D -  FORM OF SERIES B REDEEMABLE WARRANT

EXHIBIT E -  FORM OF REGISTRATION RIGHTS AGREEMENT

EXHIBIT F -  FORM OF SECURITY AGREEMENT

                                      VII
<PAGE>

                               SUMMARY TERM SHEET

The following information is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this memorandum, including in the
exhibits attached hereto.  Each prospective investor is urged to read this
memorandum in its entirety.  In particular, you should consider the disclosures
concerning our company, and the risks associated with investment in our company,
described in the Form 10KSB for the fiscal year ended May 31, 1999 and Form
10QSB for the quarter ended August 31, 1999 ( together sometimes referred to as
the "SEC Reports") as filed with the SEC included as Exhibit A to this
memorandum as well as other reports filed by our company with the SEC from time
to time.

Business of the Company

                       Cash Technologies, Inc., was incorporated in Delaware in
                       1995 and operates through its wholly-owned subsidiaries,
                       National Cash Processors, Inc., a Delaware corporation,
                       incorporated in May, 1994, which became a subsidiary of
                       the Company in January, 1996, CoinBank Automated Systems,
                       Inc., a Delaware corporation, incorporated in November,
                       1995, and CoinBank Automation Handels GmbH, Salzburg,
                       Austria. While the Company has, in recent years, expanded
                       its operations into other technologies, it began and
                       continues to do business as a cash and coin processor
                       through its National Cash Processors, Inc. subsidiary.
                       In 1996, the Company began its development of an enhanced
                       version of an automated teller machine which was
                       designated the ATM-X.  The ATM-X was designed to provide
                       a range of services not typically offered by ATM
                       machines, such as electronic bill payment, instant
                       activated phone cards, event ticketing and others. In
                       December of 1997, the Company filed a patent application
                       describing its transaction processing and networking
                       technologies. The technology, which was later named EMMA
                       (E-commerce Message Management Architecture), allows for
                       the seamless integration of conventional ATM and credit
                       card (point-of-sale) networks with non-bank networks on
                       the Internet.

Securities Being Offered

                       Up to 60 Units, each Unit consisting of (i) a secured
                       convertible promissory note in the principal amount of
                       $50,000 (each, a "Note"); (ii) Series B Redeemable
                       Warrants (the "Warrants") to purchase 5,000 shares of
                       common stock (the "Warrant Shares" and together with the
                       Notes and Warrants, the "Securities").  Forms of the Note
                       and the Warrants are attached to this memorandum as
                       Exhibits D and E.

Purchase Price
                       $50,000 per Unit.  Partial Units may be offered and sold
                       at the discretion of the Placement Agent.

Security

                       The Notes will be secured by a security interest in all
                       of the  assets of Cash Technologies and its subsidiaries.
                       A form of the security agreement is attached to this
                       memorandum as Exhibit G.

Notes:

     Interest

                       10% per annum.  The interest rate is subject to
                       adjustment in the event of a payment default, as
                       described below. Interest is payable quarterly commencing
                       March 31, 2000.

                                       1
<PAGE>

     Maturity

                       The Notes mature on  July 31, 2001.

     Conversion Rights

                       The Notes are convertible at anytime after the date of
                       issue by the holder into shares of Common Stock of our
                       company at the conversion price of $9.50 per share.  The
                       number of shares to be received is determined by dividing
                       the principal amount of the Note by $9.50.

     Registration Rights

                       Our company has agreed to grant to the purchasers of the
                       Units certain "piggyback" and "demand" registration
                       rights relating to the Note Shares.  See the form of
                       registration rights agreement attached to this memorandum
                       as Exhibit F.

     Prepayment
                       The Notes are subject to prepayment, in whole or in part,
                       at the option of our company, at any time without premium
                       or penalty.

     Default Provisions

                       In the event the Notes are not paid in full when due,
                       interest shall accrue on the unpaid amount from the
                       initial date of nonpayment to the date of payment at the
                       lesser of 18% per annum or the maximum rate permitted by
                       applicable law.

     Note Holders'
     Agent

                       Each purchaser of the Units will be deemed to have
                       designated GunnAllen Financial, Inc. as agent of the
                       holders of the Notes with exclusive authority to exercise
                       any of the rights and powers granted to the holders of
                       the Notes under the Security Agreement.

Series B Redeemable Warrants:

     Exercise
                       The Series B Redeemable Warrants will be exercisable
                       until August 2002 at a price of $13.00 per Warrant Share.

     Registration Rights

     Redemption

                       Our company has agreed to grant to the purchasers of the
                       Units certain "piggyback" and "demand" registration
                       rights relating to the Warrant Shares.  See the form of
                       registration rights agreement attached to this memorandum
                       as Exhibit F.

                       In the event there is an effective registration statement
                       covering the resale of the Warrant Shares, our company
                       may, on not less than 20 days prior written notice,
                       redeem the Warrants at a price of $.01 per Warrant
                       provided that the last sale price of our company's common
                       stock as reported by the principal

                                       2
<PAGE>

                       securities exchange on which the common stock is listed
                       or admitted to trading has averaged at least $18.00 per
                       share for the 20 consecutive trading days ending at least
                       five days prior to the date on which notice is given.

                                       3
<PAGE>

  Common Stock Outstanding Upon Completion of this Offering

The authorized capitalization of our company is 20,000,000 shares of common
stock par value $.01 per share, of which 3,448,650 are issued and outstanding
and 1,000,000 shares of preferred stock, par value $.01 per share, of which
525,000 shares have been designated Series A 8% Cumulative Convertible Preferred
Stock and 118,125 are issued and outstanding. Assuming that the maximum number
of Units offered hereby are sold, upon completion of this offering, our
company's issued and outstanding common stock and preferred stock will not
change. If all of the Notes are converted into Common Stock at the conversion
price of $9.50, there will be issued and aggregate of 315,789 shares of Common
Stock. In addition, if all of the Warranties are exercised, there will be issued
an additional 300,000 shares of Common Stock.

Use of Proceeds

If the maximum number of Units offered hereby are sold, our company will receive
net proceeds of approximately $2,660,000, after deduction of Placement Agent
fees and all other estimated fees and expenses of this offering. Our company
intends to use the net proceeds primarily for further development and marketing
of the EMMA and ATM-X technology, repayment of $500,000 of debt owed to the
Placement Agent and the balance for working capital and general corporate
purposes. In the event that less than all of the Units offered hereby are sold,
our company will have less resources available for the purpose described above.

                                       4
<PAGE>

Placement Agent

GunnAllen Financial, Inc. is acting as Placement Agent in connection with this
offering and will receive a commission of 10% of the gross proceeds from the
sale of the Units offered hereby, as well as reimbursement of its expenses
relating to this offering.

Investor
Representative

GunnAllen Financial, Inc. shall be designated as the representative of the
purchasers in this offering and shall serve as their attorney in fact and
representative in respect of any matters relating to this offering, including
the waiver of any requirement or amendment of any provision of the documents
relating to this offering, whether pursuant to the requirements of a securities
exchange or otherwise.

                                       5
<PAGE>

  Restrictions on Transferability

Neither the Notes offered hereunder nor the Warrants or Warrant Shares have been
registered under the Securities Act or any state securities laws and these
securities may not be offered for sale or resold or otherwise transferred unless
they are registered under the Securities Act or an applicable exemption from
registration is available.

                                       6
<PAGE>

Sales to Investors

The offering of the Units has not been registered under the Securities Act. The
Units are being offered in reliance upon the exemption under Sections 4(2)
and/or 3(b) of the Securities Act and/or the provisions of Regulation D
promulgated thereunder.  Sales of the Units will be made only to "accredited
investors" as such term is defined in Rule 501 (a) of Regulation D under the
Securities Act.  See "Investor Suitability Requirements."

Risk Factors

The securities offered hereby are highly speculative and involve a high degree
of risk and, therefore, should not be purchased by investors who cannot afford
the loss of their entire investment. Prospective investors should carefully
review and consider the factors set forth under "Risk Factors," as well as the
other information contained in this memorandum, including the SEC Reports
included as Exhibit A to this memorandum, before subscribing for any of the
Units.

                                       7
<PAGE>

                                  RISK FACTORS

     The securities offered hereby are highly speculative and involve a high
degree of risk and therefore should not be purchased by anyone who cannot afford
a loss of his entire investment.  Prior to making an investment in our company,
prospective investors should carefully review and consider the following risks
and the risks described in the SEC Reports included as Exhibit A to this
memorandum.  Certain cross references stated below are to the SEC Reports and
occur, among other places, in the sections headed "Summary Financial Data," "Use
of Proceeds,"  "Selected Financial Data" and "Business."

     Continuing Need for Additional Financing.  Our capital requirements have
been and will continue to be significant.  The net proceeds of the sale of the
Units in this offering, together with our available cash, are expected to
continue to fund our projected operations through March, 2000.  This offering is
being made on an "any or all" basis, which provides us with the sole discretion
to close on and take control of any amount of subscription proceeds then present
in our account established for such purpose.  We cannot assure you that we will
be able to raise the maximum net proceeds of this offering.  In that case, we
may close on and accept subscription proceeds which are, in the aggregate, less
than the maximum aggregate proceeds being sought.  These proceeds may be
insufficient to fund our operations through March, 2000, requiring us to seek
additional financing.  If we are unable to attain positive cash flow thereafter,
we will be required to seek additional debt or equity financing to fund the
costs of our operations.  We cannot assure you that additional financing will be
available to us when needed, on commercially reasonable terms, or at all.  If we
are unable to obtain additional financing when needed, we may be required to
curtail our marketing and production plans and possibly cease operations.

     Historical Losses; Significant Capital Requirements; Accountants' Going
Concern Opinion.   At The Company has incurred losses since its inception. For
the years ended May 31 1999, 1998 and 1997 the Company sustained net losses of
$5,711,964, $2,727,145 and $1,547,805, respectively.   At May 31, 1999 we had
stockholders' equity of $435,494 and an accumulated deficit of $11,288,173.  In
its report accompanying our audited financial statements for the fiscal year
ended May 31, 1999, our independent auditors included an explanatory paragraph
regarding our ability to continue as a going concern.  At August 30, 1999 the
Company  reported a loss of approximately $1,540,501 for the three months ended
August 30, 1999.  The Company's capital requirements have been and will continue
to be significant, and its cash requirements have exceeded cash flow from
operations since inception. As a result, the Company has been substantially
dependent on loans from stockholders, short-term borrowings, the initial public
offering in July 1998, and private placements of its debt and equity securities
to satisfy its working capital requirements. The Company will be dependent upon
the proceeds of this offering to fund development of the ATM-X machines and Emma
technology, a portion of its short-term working capital requirements, to fund
certain marketing activities and to continue implementing its expansion
strategy, including potential acquisitions. Although the Company believes, based
on currently proposed plans and assumptions relating to its operations, that the
net proceeds of this Offering, together with anticipated revenues from
operations, will be sufficient to fund the Company's operations and working
capital requirements for only 3-4  months, the Company could be required to seek
additional financing sooner than currently anticipated. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements." Need for Substantial Additional Financing; No
Assurance of Additional Personal Guarantees of Corporate Debt by Officers. In
the event that the Company's plans or assumptions relating to its operations
change or prove to be inaccurate, or if the net proceeds of this Offering
together with revenues generated from operations otherwise prove to be
insufficient (due to, among other things, unanticipated expenses, increased
competition, unfavorable general economic conditions, decreased demand for coin
processing services, inability to successfully market CoinBank(R) machines or
the ATM-XTM, or other unforeseen circumstances), the Company could be required
to seek additional financing sooner than currently anticipated. The Company has
no current arrangements with respect to, or sources of, additional financing.
There can be no assurance that additional financing from any source will be
available to the Company when needed, on commercially reasonable terms, or at
all. To the extent that the Company obtains additional financing through the
issuance of additional equity securities, any such issuance may involve
substantial dilution to the Company's then-existing stockholders, including
subscribers in this Offering. Additionally, to the extent that the Company
incurs indebtedness or issues debt securities, the Company will be subject to
all of the risks associated with incurring substantial indebtedness, including
the risks that interest rates may fluctuate and cash flow may be insufficient to
pay principal and interest on any such indebtedness. Any inability to obtain
additional financing when needed will have a material adverse effect on the
Company that could require the Company to significantly curtail or possibly
cease its operations. In addition, any additional equity financing may involve
substantial dilution to the interests of the Company's then-existing
stockholders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Certain Transactions" and "Financial
Statements."

                                       8
<PAGE>

     Uncertainty of Market Acceptance.   In marketing its services, the Company
is attempting to change the traditional methods, such as in-house processing or
bank processing, by which holders dispose of large quantities of loose coin and
currency. Demand for and market acceptance of CoinBank(R) and ATM-X machines are
subject to a high level of uncertainty. To date the Company has installed only a
limited numbers of CoinBank(R) machines. To date, no ATM-X machines have been
installed for public use and are not yet commercially available. There can be no
assurance that the results of the use of CoinBank(R)  and ATM-X machines when
deployed will be well-received or that prior results will be indicative of
future market acceptance of the Company's products or services. Commercial
establishments and individuals may elect to utilize other methods which they
believe to be less costly or possess other advantages over CoinBank(R) and ATM-X
machines. Achieving market acceptance for CoinBank(R) and ATM-X machines will
require substantial marketing efforts and the expenditure of a significant
amount of funds to inform both banks and retail locations which may serve as
installation sites for CoinBank(R) and ATM-X machines and their account holders
and patrons of the perceived benefits and cost advantages of CoinBank(R) and
ATM-X machines.

     Demand for and market acceptance of the Company's coin and currency
processing services are also subject to a high level of uncertainty. Commercial
establishments and individuals may elect to utilize other methods which they
believe to be less costly or possess other advantages over the Company's coin
processing services, including establishing their own coin counting and
processing operations, or otherwise refraining from seeking to dispose of excess
coin. Achieving market acceptance for the Company's coin processing services
will also require the expenditure of significant funds to inform businesses of
the perceived benefits and cost advantages of the Company's coin processing
services over traditional coin processing methods. See ''Business--Market
Overview" and "Business--CoinBank(R) Machines."

     Limited Marketing Capabilities.   Since inception, the Company has
conducted only limited marketing activities and currently has limited marketing
and technical experience and limited financial, personnel and other resources to
independently undertake extensive marketing activities. The Company will utilize
a portion of the proceeds of this Offering to expand marketing and promotion of
ATM-X and CoinBank(R) machines and the Company's coin and currency processing
services. The Company's marketing plans may be subject to change as a result of
a number of factors, including changes in market conditions, the nature of the
marketing requested or provided by the establishments where ATM-X and
CoinBank(R) machines are installed in the future and other factors. There can be
no assurance that the Company's efforts will result in significant initial or
continued market acceptance, that emerging markets for ATM-X and CoinBank(R)
machines and the Company's coin and currency processing services will not be
limited, or that the Company will succeed in positioning ATM-X and CoinBank(R)
machines and the Company's services as a preferred method of disposing of large
amounts of coin and currency. See "Business--Marketing."

     Security Risks; Potential Uninsured Losses.   The Company's coin-processing
operations are substantially dependent upon maintaining the security of the
inventories of coin and currency transported to the Company's coin processing
facility and held on the Company's premises. Although the Company believes that
it has in place adequate security systems and procedures to safeguard the coin
and currency processed at its coin processing facility, there can be no
assurance that the Company's systems and procedures will be sufficient to ensure
against theft, embezzlement or other losses. The Company has recently obtained
insurance for off-site theft of coin from and damages to its CoinBank(R)
machines. The Company maintains insurance against losses, including those due to
theft or embezzlement by independent contractors or the Company's employees, up
to an aggregate amount of $5,000,000. However, there can be no assurance that
such insurance will provide the Company with an adequate level of coverage in
the event of any loss, or that it can be renewed or increased in the future as
needed, on commercially reasonable terms or at all. Moreover, the Company may
experience an unanticipated loss not covered by such insurance. Partially or
completely uninsured losses, if of sufficient magnitude, could have a material
adverse effect on the Company's business and results of operations. See
"Business--Security."

     Technological Factors; Uncertainty of Product Development.   As of November
30, 1999, the Company had installed a limited number of  CoinBank(R) machines at
locations in California, New England and Europe. Although the CoinBank(R)
machines have performed reliably to date at their current installations, there
can be no assurance that, upon widespread commercial use, CoinBank(R) machines
will satisfactorily perform all of the intended functions or that it will prove
reliable in extensive utilization. Software and other technologies that are
incorporated into CoinBank(R) machines are complex and may contain errors which
will only become apparent subsequent to widespread commercial use. Remedying
such errors could require the expenditure of a substantial amount of money and
could also result in significant delays in installing additional CoinBank(R)
machines or result in periods in which previously installed CoinBank(R) machines
are inoperative, any of which could have a material adverse effect on the
Company. The Company anticipates that it will continue to seek to upgrade and
enhance both the hardware and software components of CoinBank(R) machines. Such
upgrading and enhancement efforts remain subject to the risks inherent in new
product development, including

                                       9
<PAGE>

unanticipated technical or other problems which could result in material delays
in product commercialization or significantly increased costs. There can be no
assurance that development of enhanced CoinBank(R) machines, if necessary, will
be completed successfully, that unanticipated technical or other problems will
not occur that would result in increased costs or material delays in development
or commercialization of CoinBank(R) machines, or that CoinBank(R) machines will
achieve widespread commercial acceptance. There can also be no assurance that
the Company's ATM-XTM machines will perform satisfactorily all of its intended
functions or will prove to be reliable in extensive utilization. See "Business--
Proposed Products."

     Dependence on Independent Contractors.   The Company has been and will
continue to be substantially dependent on arrangements with one or more
independent contractors for the installation and servicing of CoinBank(R)
machines and the collection and delivery of collected coins from CoinBank(R)
machines to the Company's processing facility. The Company currently utilizes
independent contractors to handle servicing and collections from CoinBank(R)
machines. The Company is substantially dependent on the ability of the
independent contractors it hires to dedicate sufficient personnel to service the
Company. There can be no assurance that any contractor that the Company utilizes
or may utilize will have sufficient capacity to satisfy the Company's
CoinBank(R) machine servicing requirements during any period of sustained
demand. The loss of services of independent contractors could disrupt the
Company's business. Moreover, failure or delays by independent contractors in
collecting from and servicing CoinBank(R) machines could have a material adverse
effect on the Company. See "Business--CoinBank(R) Machines."

     Dependence on Third-Party Manufacturers and Third-Party Technology.   The
Company assembles CoinBank(R) machines using components supplied by third-party
manufacturers.  Similarly, the ATM-X machines will be assembled using third
party supplied components. As a result, the Company is dependent on these
manufacturers for the production of these components. The Company currently
purchases most of its requirements of specially designed or modified components
from single source suppliers. Although the Company believes that alternative
sources for these components are available, failure or delay by any manufacturer
in providing components to the Company could result in interruptions in the
Company's ability to continue to assemble and install CoinBank(R) machines and
have a material adverse effect on the Company's operations. Geld manufactures
certain coin counting equipment used in CoinBank(R) machines. Pursuant to
licensing and manufacturing services and distribution agreements with Geld, the
Company has the exclusive world-wide right (except for sales to certain Austrian
financial institutions) to use the technology which is incorporated in the
equipment manufactured by this supplier. The present agreements require the
Company to make certain minimum purchases of the equipment. Failure to satisfy
such minimum purchase requirements could result in the termination of the
Company's agreement with such manufacturer, which would likely lead to the
termination of the Company's exclusivity with respect to such technology, which
would have a material adverse effect on the Company.  As discussed elsewhere in
this Memorandum, the Company has entered into a letter of intent to acquire
Geld.  See "Business--Assembly and Supply of CoinBank(R) Machines." See
"Management Discussion and Analysis of Financial Conditions and Results of
Operations."

     Limited Customer Base.  The Company continues to sell most of the coin and
currency it processes to a limited number of entities. The Company generally
does not enter into long-term written agreements with any customers with respect
to the processing, acquisition or sale of coin and currency and does not
anticipate entering into written contracts for coin purchases or sales with
future customers. The loss of present or any future significant customers, for
any reason, in the absence of significant additional customers or contracts,
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that the Company will be able
to lessen its dependence on a limited number of customers for a substantial
portion of its revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

     Uncertainty of Proposed Expansion.   To date, the Company has generally
been dependent on processing coins and currency purchased directly from third
parties (other than through CoinBank(R) machines) to generate substantially all
of its revenues. The Company intends to increase its current level of
operations, with an emphasis on marketing ATM-X and CoinBank(R) machines. The
Company has achieved limited growth to date, and there can be no assurance that
the Company will be able to successfully expand its operations. Expansion of the
Company's operations will be largely dependent upon the Company's ability to
successfully assemble and install ATM-X machines; hire and retain skilled
technical, marketing and other personnel; establish and maintain satisfactory
relationships with banks and retail businesses; and achieve significant market
acceptance for the use of ATM-X machines and the Company's coin processing
services. There can be no assurance that the Company will be able to
successfully implement its business plan or that unanticipated expenses,
problems or technical difficulties will not occur which would result in material
delays in its implementation. The Company's prospects could be adversely
affected by a decline in the economic prospects of particular individual or
commercial customers or segments of coin-intensive markets, which could result
in reduction or deferral of requirements

                                       10
<PAGE>

for coin processing services or the use of ATM-X machines by prospective
customers. There can be no assurance that the Company will be able to achieve
significant market acceptance of ATM-X machines or the Company's coin processing
services, achieve significant penetration in new geographic markets or
successfully expand its operations. See "Business--CoinBank(R) Machines."

     Competition; Technological Obsolescence.   The coin processing industry is
characterized by intense competition and the Company competes primarily with
banks (which typically utilize the services of armored car carriers for their
coin and currency processing), most of which possess substantially greater
financial, personnel, marketing and other resources than the Company. With
respect to CoinBank(R) machines, the Company is aware of one other company that
offers self-service coin counting and processing services through the use of
coin counting machines. To the Company's knowledge, unlike the Company, which
has recently focused its efforts on selling CoinBank(R) machines, this
competitor focuses its marketing efforts on installing its machines in
supermarkets on a free placement basis. This competitor has installed a number
of its machines in the Los Angeles area as well as in other areas of the United
States, and, in some cases, such installations are near where the Company has
installed or may seek to install and/or sell CoinBank(R) machines. There can be
no assurance that potential users of CoinBank(R) machines will not prefer to
utilize this competitor's machines, whether because of preference or perceived
convenience of location or hours of service or otherwise, or that this
competitor will not seek to sell its machines. Moreover, there can be no
assurance that other companies are not developing or will not seek to develop
functionally equivalent products or services for the disposal of large amounts
of coins in the future. In addition, the Company's recently developed ATM-XTM
will compete with existing automated teller machines and services offered by
financial institutions and other companies that provide services similar to
those offered by the ATM-XTM. Certain of the current competitors of the Company
as well as potential competitors may have substantially greater financial,
personnel, marketing and other resources than the Company. In addition, there
are many companies in the coin processing industry that have the expertise and
resources that may encourage them to develop and market products or services
that compete with the Company or that could render the Company's products and
services obsolete or less marketable. Moreover, with respect to the marketing of
Coinbank(R) machines, potential customers may elect to establish their own
facilities for counting and processing coins or utilize other methods which they
believe to be less costly or possess other advantages over CoinBank(R) machines
and the Company's coin processing services. There can be no assurance that the
Company will be able to compete successfully. See "Business--Competition."

     Potential Adverse Effect of Changing Industry Trends.   Alternatives to the
use of coin and currency, such as checks, credit cards and wire transfer, debit
cards, "smart" cards and other forms of electronic currency are increasing.
Increasing use of these alternative forms of payment could reduce the frequency
of circulation of coin and currency, resulting in decreased need for CoinBank(R)
machines and the Company's coin processing services. The market for alternative
forms of money transfer is characterized by frequent introduction of new
products and services and is subject to changing consumer preferences and
economic trends. There can be no assurance that the demand for methods of
disposing of coin and currency will not decrease significantly or that other
factors, over which the Company will have no control, will not have a material
adverse effect on the Company's business and results of operations. See
"Business--Competition."

     Geographic Concentration of Business; Changes in Economy.   To date, the
Company's operations have been concentrated primarily in the Southern California
area. The Company's growth prospects will be largely dependent on its ability to
achieve greater penetration in this market as well as significant penetration in
new geographic markets. Although the Company intends to focus its efforts on
expanding its operations for the foreseeable future, a substantial portion of
the Company's revenues will be derived from its Southern California operations.
Such geographic concentration increases the potential impact on the Company's
results of operations of any regional economic downturn or catastrophic events.
The Company's prospects could be adversely affected by unfavorable general
economic conditions, including any downturns in the California or national
economies, which could result in an unwillingness by consumers to pay cash
processing fees or an increased interest in developing alternative methods of
counting and sorting coins, including creating in-house processing facilities.
See "Business."

     Risks Relating to International Installations and Sales.  The Company is
seeking to install additional CoinBank(R) machines outside of the United States.
In addition, the Company is currently negotiating letters of intent and other
arrangements to sell CoinBank(R) machines and related equipment to purchasers in
various other countries, including several with developing or emerging
economies. To the extent that the Company is able to expand its operations and
sales outside of the United States, of which there can be no assurance, it will
become subject to the risks associated with international operations and sales,
including economic and political instability, currency fluctuations, credit
risks, shipping delays, customs duties, export quotas, foreign government
regulations and other trade restrictions, any of which could have a significant
impact on the Company's ability to operate CoinBank(R) machines effectively
outside of the United States or to

                                       11
<PAGE>

deliver CoinBank(R) machines overseas to purchasers on a competitive and timely
basis. See "Business--Possible International Sales of CoinBank(R) Machines."

     Uncertainty of Patent and Trademark Protection.   Although the Company has
recently filed applications with the U.S. Patent Office to obtain a patent on
its CoinBank(R) counting and dispensing machine and with respect to its ATM-XTM,
there can be no assurance that any patent will be granted, or that if granted,
it will afford the Company any meaningful protection. The Company does not
currently hold any patents with respect to any software or hardware used in its
operations. The Company intends to rely primarily on a combination of trade
secrets, technical measures, copyright protection and nondisclosure agreements
with its employees to establish and protect the ideas, concepts and
documentation of certain software developed by it and used primarily in its coin
processing operations (the "Developed Software"). Such methods may not afford
complete protection, and there can be no assurance that third parties will not
independently develop such technology or obtain access to the Developed
Software. Although the Company believes that its use of the Developed Software
and other software used in its operations does not infringe upon the rights of
others, there can be no assurance that the Company's use of the Developed
Software or such other software does not and will not infringe upon the patents
or intellectual property rights of others. In the event of infringement, the
Company could, under certain circumstances, be required to obtain a license or
modify aspects of the Developed Software or such other software or refrain from
using such software. There can be no assurance that the Company will have the
necessary financial resources to defend any infringement claim made against it
or to successfully terminate any infringement in a timely manner, upon
acceptable terms and conditions or at all. Failure to do any of the foregoing
could have a material adverse effect on the Company. Moreover, if the Developed
Software or any other software or hardware used in the Company's business is
deemed to infringe upon the rights of others, the Company could, under certain
circumstances, become liable for damages, which could have a material adverse
effect on the Company. The Company received United States trademark registration
for the "CoinBank(R)" name in September 1997. Although the Company is not
aware of any claims of infringement or other challenges to the Company's rights
to use this trademark, there can be no assurance that the Company's marks do not
or will not infringe upon the proprietary rights of others or that the Company's
marks would be upheld if challenged. See "Business--Proprietary Information."

     Potential Damage to CoinBank(R) Machines.   During the test marketing of
CoinBank(R) machines, customers have placed objects other than coins in
CoinBank(R) machines, resulting in malfunctions or damage to CoinBank(R)
machines. Although the Company has developed methods intended to reduce damage
to CoinBank(R) machines, and although CoinBank(R) machines have experienced
limited inoperability to date, there can be no assurance that activities of
customers will not result in periods of inoperability, causing a material
adverse effect on or significant fluctuations in the Company's operating
results. See "Business--CoinBank(R) Machines."

     Dependence on Key Personnel; Need for Qualified Management Personnel.   The
success of the Company will be dependent on the efforts of certain key personnel
of the Company, including Mr. Korman, its President and Chief Executive Officer.
The Company has entered into a three-year employment agreement with Mr. Korman
which will require Mr. Korman to devote not less than 40 hours per week of his
business time to the business of the Company and provides for an initial annual
base salary of $120,000 and base salaries of $150,000 and $180,000 in the second
and third years, respectively. The loss of the services of Mr. Korman could have
a material adverse effect on the Company's business and prospects. Mr. Korman
also participates in other business endeavors which require a portion of his
business time. Although Mr. Korman has advised the Company that his
participation in outside business matters should not interfere with his
performance of his duties as President and Chief Executive Officer of the
Company, there can be no assurance that a conflict of interest will not arise
with respect to the allocation of Mr. Korman's time or that such conflict would
be resolved in favor of the Company. The success of the Company is also
dependent upon its ability to hire and retain additional qualified management,
marketing, technical, financial and other personnel. Competition for qualified
personnel is intense, and there can be no assurance that the Company will be
able to hire or retain additional qualified personnel. Any inability to attract
and retain qualified management and other personnel would have a material
adverse effect on the Company. See ''Management.''

     Control by Management.   Mr. Korman and Mr. Miller, and their respective
affiliates, beneficially own, in the aggregate, approximately 29.6% of the
outstanding Common Stock, as a result, they are and will be in a position to act
together to effectively control the Company, elect the Company's directors,
cause an increase in the authorized capital or the dissolution, merger or sale
of the assets of the Company, and generally direct the affairs of the Company.
Additionally, except in certain limited circumstances, the holders of the Series
A Preferred Stock have no voting rights.  See "Management" and "Principal
Stockholders."

                                       12
<PAGE>

     Limitations of Liability of Directors and Officers.  The Company's
Certificate of Incorporation includes provisions to limit, to the full extent
permitted by Delaware law, the personal liability of directors of the Company
for monetary damages arising from a breach of their fiduciary duties as
directors. In addition, the Company's By-Laws require the Company to indemnify
any director, officer, employee or agent of the Company to the full extent
permitted by Delaware law. As a result of such provisions in the Certificate of
Incorporation and the By-Laws of the Company, stockholders may be unable to
recover damages against the directors and officers of the Company for actions
taken by them which constitute negligence, gross negligence or a violation of
their fiduciary duties, which may reduce the likelihood of stockholders
instituting derivative litigation against directors and officers and may
discourage or deter stockholders from suing directors, officers, employees and
agents of the Company for breaches of their duty of care, even though such an
action, if successful, might otherwise benefit the Company and its stockholders.
See "Management--Limitations of Liability and Indemnification."

     Shares Eligible for Future Sale. As of December 17, 1999, the Company had
3,488,665 shares of Common Stock outstanding, of which 1,707,750 shares of
Common Stock are freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"). All of
the remaining 1,780,750 shares of Common Stock outstanding are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act. Pursuant to the provisions of Rule 144, all 1,780,750 of such
shares are eligible for sale, pursuant to Rule 144. The holders of the 1,780,750
outstanding shares of Common Stock have, however, agreed not to sell such shares
until July 9, 2000 without the prior written consent of the underwriters in the
Company's initial public offering. The Company has granted certain demand and
"piggy-back" registration rights to the holders of 450,000 shares of Common
Stock and an option and warrants to acquire approximately an additional 425,000
additional shares of Common Stock and to the underwriters with respect to the
securities issuable upon exercise of the underwriters' warrants.  Additionally,
the investors in our recently completed placement of Series A Preferred Stock
and Series A Warrants have also been granted registration rights requiring us to
register for resale the shares of Common Stock underlying the Series A Preferred
Stock and Series A Warrants within the next approximately 145 days. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or even the availability of such shares for sale will have on the market
prices prevailing from time to time. The possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.

     Limited Transferability of Units; Lack of Public Trading Market.  There is
no public market for the Warrants or Notes.  Accordingly, the right of any
purchaser to sell, transfer, pledge or otherwise dispose of any of the
securities offered hereby will be limited by the Securities Act and applicable
state securities laws and the regulations promulgated thereunder.  Moreover, the
Notes are non-negotiable and, as such, are non-transferable, regardless of
whether they are subsequently registered under the Securities Act. We cannot
assure you that any registration statement covering the Warrant Shares will
become effective.  Purchasers of the Units must be aware of the long-term nature
of their investment and be prepared to bear the economic risks of their
investment for an indefinite period of time, since the securities cannot be sold
unless they are subsequently registered or an exemption from registration is
available.

     Investor Tax Liability Related to the Units.  For Federal income tax
purposes, the $50,000 purchase price of each Unit is required to be allocated
between the Note and the Securities included therein in accordance with their
relative fair market values.  Our company has estimated that the amount
allocable to each $50,000 Note will be approximately $49,000.  Our company's
allocation of the purchase price will be binding upon each purchaser of the
Units, unless the purchaser explicitly discloses on a form attached to the
purchaser's federal income tax return that its allocation is different from our
company's allocation.  We cannot assure you that the Internal Revenue Service
will agree with our company's allocation.  The excess (estimated by our company
to be $1,000) of the principal amount payable upon maturity of the Note over the
amount of the purchase price allocated to the Note for federal income tax
purposes will be treated as "Original Issue Discount," under the Internal
Revenue Code of 1986.  Generally, investors must report the Original Issue
Discount in their gross incomes ratably over the period of time that their Notes
are held.  Potential investors are strongly urged to consult with their own tax
advisors prior to purchasing a Unit for the specific tax treatment applicable to
them in connection with the purchase of a Unit.

     Arbitrary Offering Price of Units.  The offering price of a Unit, the
number of Securities included therein, the exercise price of the Warrants and
the interest payable on, and principal amount of, the Note included therein have
all been determined by negotiation between our company and the Placement Agent
and are arbitrary in that they do not necessarily bear any relationship to the
assets, book value or potential earnings of our company or any other recognized
criteria of value.

                                       13
<PAGE>

     Possible Delisting of Securities from Nasdaq Stock Market; Risks Relating
to Low Priced "Penny" Stocks.  The Company's Common Stock is listed on Nasdaq
SmallCap Market (Symbol "CHNG"). In order to continue to be listed on Nasdaq,
however, the Company must, in addition to other requirements, maintain
$2,000,000 in net tangible assets or market capitalization of $35,000,000.
Nasdaq also receives the right to delist an entity in its discretion.  The
failure to meet these maintenance criteria in the future may result in the
delisting of the Company's Common Stock from Nasdaq, and trading, if any, in the
Company's securities would thereafter be conducted in the non-Nasdaq over-the-
counter market. As a result of such delisting, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Company's securities.

     Although the Company anticipates that the Common Stock will be continue to
be listed for trading on Nasdaq, if the Common Stock were to become delisted
from trading on Nasdaq and the trading price of the Common Stock were to fall
below $5.00 per share on the date the Common Stock was delisted, trading in such
securities would also be subject to the requirements of certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage broker-
dealers from effecting transactions in the Company's securities, which could
severely limit the market price and liquidity of such securities and the ability
of purchasers to sell their securities of the Company in the secondary market.

     Authorization and Discretionary Issuance of Preferred Stock.   The
Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue up to 1,000,000 shares of Preferred Stock, from time to time,
in one or more series. The Board of Directors is authorized, without further
approval of the stockholders, to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences, and
any other rights, preferences, privileges and restrictions applicable to each
new series of Preferred Stock. The establishment of a class of preferred stock
other than the Series A Preferred Stock may adversely impact the rights of
holders of the Series A Preferred Stock. The issuance of such stock could
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, make it more difficult for a third party to gain control
of the Company, discourage bids for the Common Stock at a premium, or otherwise
adversely affect the market price of the Common Stock. The Company has agreed
not to issue any shares of Preferred Stock without the prior consent of the
underwriters in its July 198 initial public offering until July, 2000 and for
one year thereafter without the unanimous approval of the Board of Directors of
the Company. See "Description of Securities."

     No Minimum Prior to Release of Funds. Pending the completion of this
Offering, all funds delivered in connection with subscriptions for Units will be
held in a non-interest bearing escrow account until a closing is scheduled with
the Placement Agent  or the termination of the offering period on February 1,
2000, subject to extension for an additional 30 days by the Company.  There is
no minimum amount of Units which must be sold prior to release of funds to us.
Therefore, we may not receive a significant amount of investors funds prior to
release of funds to us and the amount of funds so released may not satisfy our
captital requirements.  See "PLAN OF DISTRIBUTION."

     Arbitrary Determination of Offering Price.  The composition of the Units,
and the terms of the Notes and Warrants, was arbitrarily determined by the
Company and may not bear any relationship to the assets, earnings or book value
of the Company, the market value of the Company's Common Stock, or any other
recognized criteria of value.  See "Plan of Distribution."

     No Investors' Counsel.  The Company has not retained any independent
professionals to review or comment on this offering or otherwise  protect the
interests of the investors hereunder.  Although the  Company has retained its
own counsel, neither such firm nor any  other firm has made, on behalf of the
investors, any independent  examination of any factual matters represented by
management herein, and purchasers of the securities offered hereby should not
rely on the firm so retained with respect to any matters herein described.

                                       14
<PAGE>

                           DESCRIPTION OF SECURITIES

     Our company is offering pursuant to this memorandum up to 60 Units, with
each Unit consisting of (i) a Secured Convertible Promissory Note in the
principal amount of $50,000 convertible into Common Stock at a conversion price
of $9.50 per share and (ii) Series B Redeemable Warrants to purchase an
aggregate of 5,000 Warrant Shares at an exercise price of $13.00 per share.  The
principal terms and conditions pertaining to the Units, and to the Securities
included in the Units, are summarized above under "Term Sheet."  In addition,
the terms of our company's Common Stock and other outstanding securities are
summarized  below.  Such summaries, and other descriptions herein of such terms
and conditions, do not purport to be complete and are qualified by reference to
(a) the form of Subscription Agreement and Questionnaire relating to this
offering, a copy of which is attached hereto as Exhibit B, (b) the form of Note,
a copy of which is attached hereto as Exhibit C, and the form of Security
Agreement, a copy of which is attached hereto as Exhibit F, (c) the form of
Warrant, a copy of which is attached hereto as Exhibit D, (d) the form of
Registration Rights Agreement, a copy of which is attached hereto as Exhibit E,
and (e) the certificate of incorporation and by-laws of our company, copies of
which may be obtained from our company.

Common Stock

     Each share of Common Stock entitles its holder to one non-cumulative vote
per share and, subject to the preferential rights of the Preferred Stockholders,
the holders of more than fifty percent (50%) of the shares voting for the
election of directors can elect all the directors if they choose to do so, and
in such event the holders of the remaining shares will not be able to elect a
single director.  Holders of shares of Common Stock are entitled to receive such
dividends as the Board of Directors may, from time to time, declare out of
Company funds legally available for the payment of dividends.  Upon any
liquidation, dissolution or winding up of the Company, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to shareholders after the satisfaction of the
liquidation preference of the Preferred Stockholders.

     Shareholders do not have any pre-emptive rights to subscribe for or
purchase any stock, warrants or other securities of the Company.  The Common
Stock is not convertible or redeemable.  Neither the Company's Certificate of
Incorporation nor its By-Laws provide for pre-emotive rights.

Preferred Stock

     The Preferred Stock may be issued in one or more series, to be determined
and to bear such title or designation as may be fixed by resolution of the Board
of Directors prior to the issuance of any shares thereof.  Each series of the
Preferred Stock will have such voting powers (including, if determined by the
Board of Directors, no voting rights), preferences, and other rights as
determined by the Board of Directors, with such qualifications, limitations or
restrictions as may be stated in the resolutions of the Board of Directors
adopted prior to the issuance of any shares of such series of Preferred Stock.

     Because the terms of each series of Preferred Stock may be fixed by the
Company's Board of Directors without shareholder action, the Preferred Stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the market
price of the Common Stock. Management of the Company is not aware of any such
threatened transaction to obtain control of the Company.

Series A Preferred Stock

     We completed a private offering of Series A Preferred Stock and Series A
Warranties on November 30, 1999.  See "Recent Events".  In connection with the
prior offering, we designated 525,000 shares of Preferred Stock as "Series A 8%
Cumulative Convertible Redeemable Preferred Stock" ("Series A Preferred Stock").
There are 118,125 shares of Series A Preferred Stock issued and outstanding.
The following is a summary of the rights, preferences and privileges of the
Series A Preferred Stock and is qualified in its entirety by the provisions of
our Certificate of Incorporation and the Certificate of Designation.

     Dividends.  Subject to the limitations described below, holders of shares
of the Series A Preferred Stock will be entitled to receive, when, as and if
declared by the Board out of funds of the Company legally available for payment,
dividends in cash or Series A Preferred Stock, at the sole option of the
Company, at an annual rate of $.76 per share, payable annually on June 30th,
except that if any such date is a Saturday, Sunday or legal holiday then such
dividend shall be payable on the next day that is not a Saturday, Sunday or
legal holiday. Dividends will be cumulative from the date of

                                       15
<PAGE>

original issuance of the Series A Preferred Stock and will be payable to holders
of record as they appear on the stock books of the Company on the tenth business
day prior to the dividend payment. If the Company utilizes Dividend Warrants to
pay any dividend, the value of the Dividend Warrants will be deemed to be $12.00
per Warrant.

     The Series A Preferred Stock will be junior to dividends to any series or
class of the Company's stock hereafter issued which ranks senior as to dividends
to the Series A Preferred Stock ("senior dividend stock"), and if at any time
any dividend on senior dividend stock is in default, the Company may not pay any
dividend on the Series A Preferred Stock until all accrued and unpaid dividends
on the senior dividend stock for all prior periods and the current period are
paid or declared and set aside for payment. No such senior dividend stock shall
be issued without the approval of holders of a majority of the Series A
Preferred Stock.  See "Voting Rights." The Series A Preferred Stock will have
priority as to dividends over the Common Stock and any other series or class of
the Company's stock hereafter issued 'which ranks junior as to dividends to the
Series A Preferred Stock ("junior dividend stock"), and no dividend (other than
dividends payable solely in junior dividend stock) may be paid on, and no
purchase, redemption or other acquisition may be made by the Company of, any
junior dividend stock unless all accrued and unpaid dividends on the Series A
Preferred Stock for all prior periods and the current period have been paid or
declared and set apart for payment. The Company may not pay dividends on any
class or series of the Company's stock having parity with the Series A Preferred
Stock as to dividends ("parity dividend stock"), unless it has paid or declared
and set apart for payment or contemporaneously pays or declares and sets apart
for payment all accrued and unpaid dividends for all prior periods on the Series
A Preferred Stock and may not pay dividends on the Series A Preferred Stock
unless it has paid or declared and set apart for payment or contemporaneously
pays or declares and sets apart for payment all accrued and unpaid dividends for
all prior periods on the parity dividend stock. Whenever all accrued dividends
are not paid in full on the Series A Preferred Stock or any parity dividend
stock, all dividends declared on the Series A Preferred Stock and such parity
dividend stock will be declared or made pro raga so that the amount of dividends
declared per share on the Series A Preferred Stock and such parity dividends
stock will bear the same ratio that accrued and unpaid dividends per share on
the Series A Preferred Stock and such parity dividend stock bear to each other.

     The amount of dividends payable for the initial dividend period and for any
period shorter than a full year dividend period will be computed on the basis of
a 360-day year of twelve 30-day months. No interest will be payable in respect
of any dividend payment on the Series A Preferred Stock which may be in arrears.

     See "Redemption" below for information regarding restrictions on the
Company's ability to redeem the Series A Preferred Stock when dividends on the
Series A Preferred Stock are in arrears.

     Liquidation Rights.  In case of the voluntary or involuntary liquidation.
dissolution or winding up of the Company, holders of shares of Series A
Preferred Stock are entitled to receive the liquidation price of $9.50 per
share, plus an amount equal to any accrued and unpaid dividends to the payment
date, before any payment or distribution is made to the holders of the Common
Stock or any other series or class of the Company's stock hereafter issued which
ranks junior as to liquidation rights to the Series A Preferred Stock.  The
holders of the shares of the Series A Preferred will not be entitled to receive
the liquidation price of such shares until the liquidation price of any other
series or class of the Company's stock hereafter issued which ranks senior as to
the liquidation rights to the Series A Preferred Stock ("senior liquidation
stock") has been paid in full. No such senior liquidation stock shall be issued
without the approval of holders of a majority of the Series A Preferred Stock.
See "Voting Rights." The holders of Series A Preferred Stock and all series or
classes of the Company's stock hereafter issued 'which rank on a parity as to
liquidation rights with the Series A Preferred Stock ("parity liquidation
stock") are entitled to share ratably, in accordance with the respective
preferential amounts payable on such stock, in any distribution (after payment
of the liquidation price of the senior liquidation stock) which is not
sufficient to pay in full the aggregate of the amounts payable thereon. After
payment in full of the liquidation price of the shares of the Series A Preferred
Stock. the holders of such shares will not be entitled to any further
participation in any distribution of assets by the Company. Neither a
consolidation or merger of the Company with another corporation, nor a sale or
transfer of all or part of the Company's assets for cash, securities or other
property will be considered a liquidation, dissolution or winding up of the
Company.

     Voting Rights.  The holders of the Series A Preferred Stock will be
entitled to no voting rights except with respect to (i) the establishment of
another class of preferred stock with rights senior to the Series A Preferred
Stock, (ii) any proposed changes in the rights of the Series A Preferred
holders, or (iii) as required by Delaware law.

     Redemption at Option of Company.  The Series A Preferred Stock is
redeemable for cash, in whole or in part at any time at the option of the
Company, at $9.50 per share, plus accrued and unpaid dividends to the redemption
date.

                                       16
<PAGE>

     If less than all of the outstanding shares of Series A Preferred Stock are
to be redeemed, the Company will select those to be redeemed pro rata or by lot
or in such other manner as the Board of Directors may determine.  There is no
mandatory redemption or sinking fund obligation with respect to the Series A
Preferred Stock.  In the event that the Company has failed to pay accrued and
unpaid dividends on the Series A Preferred Stock, it may not redeem any of the
then outstanding shares of the Series A Preferred Stock, unless all the then
outstanding shares are redeemed, until all such accrued and unpaid dividends and
(except with respect to shares to be redeemed) the then current semi-annual
dividend have been paid in full.

     Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of shares of Series A
Preferred Stock to be redeemed at the address shown on the stock books of the
Company.  After the redemption date, dividends will cease to accrue on the
shares of Series A Preferred Stock called for redemption, and all rights of the
holders of such shares will terminate except the right to receive the redemption
price without interest (unless the Company defaults in the payment of the
redemption price). Shares of Series A Preferred Stock redeemed by the Company
will be restored to the status of authorized but unissued shares of preferred
stock, without designation as to series, and may thereafter be issued, but not
as shares of Series A Preferred Stock unless used to pay dividends on the then
outstanding Series A Preferred Stock.

     Conversion Rights.  The holders of Series A Preferred Stock will be
entitled at any time  to convert their shares of Series A Preferred Stock into
one share of Common Stock (the "Conversion Shares"), except that, with respect
to shares of Series A Preferred Stock which the Company has called for
redemption, conversion rights will expire after the close of business on the
redemption date. No payment or adjustment will be made in respect of dividends
Series A Preferred Stock that may be accrued or unpaid or in arrears upon
conversion of shares of Series A Preferred Stock. No fractional shares will be
issued and, in lieu of any fractional share, cash in an amount based on the then
current market price, determined as provided in the Certificate of Designation,
of the Common Stock will be paid.

     The conversion rate of the Series A Preferred Stock is subject to
adjustment in certain circumstances, including the payment of a stock dividend
on shares of the Common Stock, combinations and subdivisions of the Common
Stock, certain reclassifications of the Common Stock, and certain cash dividends
and distributions of evidences of indebtedness or assets to holders of certain
of the Company's capital stock. No adjustment in the conversion rate is required
unless it would result in at least a 1% increase of decrease in the conversion
rate; however any adjustment not made is carried forward. No adjustment need be
made in the conversion rate in any of the foregoing cases if the holders of the
Series A Preferred Stock participate in the distribution or transaction on a
basis and with notice that the Board of Directors determines to be fair to the
holders of the Series A Preferred Stock.

     In case of any consolidation or merger of the Company with any other
corporation (other than a wholly owned subsidiary), or in case of sale or
transfer of all or substantially all of the assets of the Company, or in the
case of any share exchange whereby the Common Stock is converted into other
securities or property, the Company will be required to make appropriate
provision so that the holder of each share of Series A Preferred Stock then
outstanding will have the right thereafter to convert such share of Series A
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which such
share of Series A Preferred Stock might have been converted immediately prior to
such consolidation, merger, sale, transfer or share exchange.

     No Sinking Fund. The Company is not required to provide for the retirement
or redemption of the Series A Preferred Stock through the operation of a sinking
fund.

     Other Provisions. The shares of Series A Preferred Stock, when issued, will
be duly and validly issued, fully paid and nonassessable. The holders of the
shares of the Series A Preferred Stock have no preemptive rights with respect to
any shares of capital stock of the Company or any other securities of the
Company convertible into or carrying rights or options to purchase any such
shares.

Series A Common Stock Purchase Warrants

     Terms. Each Series A Warrant entitles the holder to purchase one share of
Common Stock during an exercise period commencing on the date of issuance and
terminating three years thereafter, at an exercise price equal to $12.00 per
share,  subject to certain adjustments. The Series A Warrants may be exercised
in whole or in part.  There are 53,809 Series A Warrants outstanding.

     Expiration Date.    The Series A Warrants expire in November 2002.

                                       17
<PAGE>

Registration Rights granted in November 30, 1999 Completed Offering.

     We agreed to use our best efforts to cause a registration statement under
the Act covering the conversion shares and warrant shares to be filed within six
months of the closing of the prior offering (May 30, 2000) and to cause the
registration statement to become effective, and to remain current and effective,
to permit the public sale of the  until the earlier of (i) the date that all of
the securities so registered have been sold pursuant to the registration
statement,  (ii) the date the holders thereof receive an opinion of counsel that
the registered securities may be sold under the provisions of Rule 144(k) or
(iii) the third anniversary of the effective date of the registration statement.
The subscribers agreed, however, not to sell, pledge, transfer or assign any
warrant shares until 12 months from the closing.

                                       18
<PAGE>

                             SUMMARY FINANCIAL DATA

     The following table sets forth certain selected historical financial data
of the Company as of and for the dates indicated.  The summary history financial
data as of May 31, 1999 and for each of the years ended May 31, 1999 and 1998
have been derived form the consolidated financial statements set forth elsewhere
in this prospectus that have been audited by BDO Seidman LLP, independent
auditors (whose report thereon includes an explanatory paragraph relating to the
substantial doubt about the ability of the Company to continue as a going
concern).  The selected financial data as of August 30, 1999 and for the three
months ended August 30, 1999 and 1998 are derived from the Company's unaudited
financial statements for such period set forth elsewhere in this Prospectus,
which management believes reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results for such
period.  The financial data set forth below is qualified by reference to and
should be read in conjunction with the Company's consolidated financial
statements, related notes and other financial information contained in the SEC
Reports, as well as "Management's Discussion and Analysis of Financial Condition
and Results of Operations."  The results of operations for the three months
ended August 30, 1999 are not necessary indicative of the results to be expected
for the full fiscal year ending May 31, 2000 or future periods.

Statement of Operations Data:

<TABLE>
<CAPTION>
                                                       Year Ended May 31,               Three Months Ended August 30,
                                                     1999               1998              1999               1998
<S>                                           <C>                   <C>                 <C>              <C>
Gross Revenues (1)/1/                             $46,381,668       $55,529,842         $10,818,265      $13,878,754
                                                  ===========       ===========         ===========      ===========
Net Revenues                                          899,836           878,852             295,853          249,431
Gross profit (loss)                                   134,616           369,409             (30,213)          82,859
Loss from operations                               (5,192,332)       (2,224,291)         (1,437,593)        (909,282)
Interest expense, net                                 516,948           499,840             100,294          210,974
Net loss                                           (5,711,964)       (2,327,145)         (1,540,501)      (1,120,256)
Basic and dilutive net loss per share  (2)              (1.74)            (1.60)              (0.44)           (0.43)

Weighted average number of shares                   3,288,871         1,700,000           3,488,665        2,620,782
outstanding (2)

Balance Sheet Data:

                                                                    August 31, 1999           May 31, 1999

Working capital (deficit)                                                  $(1,887,885)            $ (392,219)
Total assets                                                                 3,621,490              4,447,720
Total liabilities                                                            4,802,405              4,377,226
Stockholders' deficiency                                                   $(1,180,915)            $   70,494
</TABLE>

---------------------------
/1/ Gross revenues include the value of coin and currency processed and does not
present revenues under generally accepted accounting principals.

                                       19
<PAGE>

                                  THE COMPANY

Introduction

     Cash Technologies, Inc., was incorporated in Delaware in 1995.  Unless the
context otherwise requires, references herein to the Company refers to Cash
Technologies, Inc., and its wholly-owned subsidiaries, National Cash Processors,
Inc., a Delaware corporation, incorporated in May, 1994, which became a
subsidiary of the Company in January, 1996, CoinBank Automated Systems, Inc., a
Delaware corporation, incorporated in November, 1995, and CoinBank Automation
Handels GmbH, Salzburg, Austria.

     On July 9, 1998 the Company completed its initial public offering of
1,485,000 shares of Common Stock and received net proceeds of $8,467,880 after
deducting commissions and expenses of $1,927,120.  The offering price of the
shares was $7.00 per share.  At the same time the company issued 130,915 shares
of its common stock and certain officers and stockholders exchanged 161,830
shares owned by them in exchange for $1,412,106 of indebtedness owed by the
Company to them.  Prior to July 9, 1998, the Company was not a reporting company
under the Securities and Exchange Act of 1934 and did not file reports with the
SEC.

     On August 18, 1998, the underwriters in the Company's public offering
exercised the over allotment option and purchased an additional 172,750 shares
of the Company.  Net proceeds to the Company from the over allotment exercise
were $1,010,446 after deducting commissions and expense of $198,804.

     Through February 28, 1999 the Company has used approximately $2.7 million
for the repayment of notes and loans.  Approximately $725,000 has been used for
marketing and advertising.  Approximately $480,000 has been used to purchase
CoinBank and miscellaneous equipment.  Approximately $550,000 has been spent on
research and development, networks and related equipment.  The remainder of the
funds have been used for working capital and operational expenses.  The Company
had approximately $1,070,000 remaining as of May 31, 1999.

Business

     While the Company has, in recent years, expanded its operations into other
technologies, it began and continues to do business as a cash and coin processor
through its National Cash Processors, Inc. subsidiary. Typically, currency is
purchased in bulk at a discount of between 1% and 2% from face value. After
counting, sorting and/or wrapping, the Company either promptly resells the
processed coin and currency at face value plus a small fee (typically $1.50 to
$3.00 per box of 50 rolls of coins and $.50 to $1.50 per $1,000 worth of bills
sorted) to a variety of customers, including armored car companies, or deposits
it at face value at the Federal Reserve Bank for credit to the Company's
account.

     In 1995, the Company began its development of CoinBank self-service coin
counting and processing machines, distributed through its CoinBank Automated
Systems, Inc. subsidiary.  The machines accept and count loose coin, then
generate a receipt redeemable for the amount counted less a service fee of
typically 7-9%. This receipt can then be exchanged for currency.  The machines
provide individuals and small businesses with a convenient method for the
disposing of their accumulated loose coin without the need for pre-sorting or
wrapping. The Company has performed extensive field tests with these machines in
Southern California, New England and Europe, and can be readily configured to
count coin denominations from most countries in the world.  An important feature
of the machines, for which the Company filed for patent protection in 1997, is
their ability to reject extraneous materials such as foreign objects and slugs,
minimizing down time and repairs.

     The Company is marketing the machines to OEM customers (manufacturers of
cash handling equipment), companies with existing equipment distribution and
service channels and directly to retailers and financial institutions.

     In 1996, the Company began its development of an enhanced version of an
automated teller machine which was designated the ATM-X.  The ATM-X was designed
to provide a range of services not typically offered by ATM machines, such as
electronic bill payment, instant activated phone cards, event ticketing and
others. As development efforts proceeded, the Company discovered a significant
market demand for such a product and the need to create a robust transaction
processing system that could link the new ATMs with the worldwide financial
networks in order to provide these new services to ATMs, kiosks and PCS.

                                       20
<PAGE>

     In December of 1997, the Company filed a patent application describing its
transaction processing and networking technologies. The technology, which was
later named EMMA (E-commerce Message Management Architecture), allows for the
seamless integration of conventional ATM and credit card (point-of-sale)
networks with non-bank networks and the Internet.  The explosion of Internet e-
commerce has created a demand for EMMA's unique capabilities to provide e-
commerce access from ATMs, as well as increased security for financial
transactions conducted over the public Internet.

     Focus on the rapid deployment of ATM-X and EMMA has resulted in increases
in the size of the Company's technical staff.  In recent months, the Company has
announced strategic relationships with e-commerce industry leaders for various
aspects of the ATM-X / EMMA effort, including: Quest Telecom, Inc., to provide
state-of-the-art real time activated prepaid phone card services; Concord EFS
for ATM and credit card gateway services; Tidel Engineering, Inc., for
manufacturing of ATM-X machines; CheckFree Holdings, Inc., for electronic bill
payment processing services; Sensar, Inc. for high accuracy personal
identification products.

     The relationship with Quest Telecom provides the Company with what it
believes is the most sophisticated real time activated phone cards (i.e.
activated at the time the card is sold) in the industry, permitting both plastic
cards and receipt-based cards to be issued in any amount and without incurring
prepaid inventory costs.

     The Concord relationship gives EMMA access to every major ATM and POS
network and card issuer in the world.  Concord's ATM network is one of the
largest in the U.S. and they are one of the largest transaction processors in
the nation.

     CheckFree is the largest electronic payment processor in the nation, with
more than seventy-five percent of the bill payment market.   The Company's
relationship with CheckFree provides EMMA with immediate access to thousands of
billers, covering the vast majority of billers in the U.S., and will represent
the first implementation of CheckFree's payment processing system on an ATM or
kiosk.

     The Company's technical development agreement with Sensar, Inc. is expected
to result in the ability to bring new e-commerce technologies into commercial
use.   By coupling Sensar's identification technology (based on the unique
patterns of the human iris) with EMMA, millions of consumers could be able to
use their ATM cards to make secure purchases on the Internet. Previously, the
fear that hackers would decipher PIN numbers had prevented the use of ATM cards
on the WorldWide Web.  This system, in development, uses a small video camera
which photographs the eye from several feet away, making a positive
identification of the person with accuracy greater than that of DNA typing.
The system offers significant advantages for online banking and trading
operations as well as merchants who will be able to expand their customer base
to those without credit cards and consumers who are afraid to send credit card
information over the Internet.

     EMMA's capabilities, with interfaces to the Company's various e-commerce
partners, will allow it to seamlessly interface financial networks, particularly
the four main channels through which trillions of dollars are transacted each
year:  (1) the ATM network; (2) the credit card (POS) network; (3) the Automated
Clearing House (ACH) network; and (4) cash, by utilizing currency acceptors on
the ATM-X thus allowing individuals with no ATM card or credit card to access
the services offered.  The EMMA system is now undergoing certification through
the financial networks.  Once certification is completed, ATM-X/EMMA pilot
installations are expected to begin in 1999.

                                       21
<PAGE>

Recent Events

Recently Completed Private Offering

     In order to raise funds for working capital and development of E-Commerce
Message Management Architecture (EMMA), on July 27, 1999, we commenced a private
offering pursuant to Section 4(2) of the Securities Act of 1933 and Regulation
D. The offering terminated on November 30, 1999. We did not engage any broker
dealer as placement agent and our officers and directors directed the selling
efforts. We offered units, each unit comprised of (a) 10 shares of Series A 8%
Cumulative Convertible Redeemable Preferred Stock and (b) 5 Series A Common
Stock Purchase Warrants. Each share of the Series A Preferred Stock is
convertible into one share of Common Stock. The Series A Warrants are
exercisable at $12.00 per share.

     At November 30, 1999 we had received gross proceeds from this completed
offering of approximately $1,120,000. As a result of this offering we has issued
(i) 118,125 shares of Series A 8% Cumulative Convertible Redeemable Preferred
Stock and (ii) 53,809 Series A Common Stock Purchase Warrants.

     We recorded deemed dividends of $80,569 for both the Series A Preferred
Stock and Series A Warrants issued for the period ended August 30, 1999.  This
amount was based on (1) the difference between the closing market price and the
offering price of the Series A Preferred Stock plus (ii) the value of the Series
A Warrants associated with the Series A Preferred Stock, value using the Black
Scholes model.

Geld Lawsuit/Acquisition.

     We have instituted a lawsuit against Geld Bearbeitungs Systeme GES.M.B.H.,
an Austrian entity ("Geld") which had been manufacturing certain of our Coinbank
machines.  As described in our SEC Reports, we have a five year licensing and
manufacturing services agreement with Geld.  We had previously entered into a
letter of intent to acquire Geld and certain disputes have arisen regarding the
acquisition and licensing agreements between the parties.  We instituted the
suit to enforce certain licensing rights under our agreements and to enforce the
acquisition letter of intent.  Although we believe, based upon advice of our
Austrian counsel, that we have a meritorious and strong claim, there can be no
assurance that we will be successful in our suit.

                                       22
<PAGE>

                              PLAN OF DISTRIBUTION

General

     GunnAllen Financial, Inc., the Placement Agent, has agreed, subject to the
terms and conditions contained in the Placement Agreement between our company
and the Placement Agent, to act as placement agent for the sale by our company
of up to 60 Units on a "best efforts-any or all" basis.  The Units are being
offered in minimum subscriptions of $50,000.  Partial Units may be offered and
sold at the discretion of the Placement Agent.

     The Placement Agent will receive a commission equal to 10% of the aggregate
purchase price of the Units sold ($300,000 if the maximum amount of Units is
sold).  In addition, our company shall pay the Placement Agent an accountable
expense reimbursement.

     All proceeds received from subscribers will be forwarded by the Placement
Agent to our company which shall deposit the proceeds in a segregated bank
account.  There is no minimum number of Units required to be accepted before a
closing may occur and our company and the Placement Agent may close on
subscriptions as they are tendered and accepted and upon receipt of good funds.
Prospective investors will not know whether all or a portion of the Units
offered hereby are subscribed for.  This offering shall commence on the date
hereof and terminate upon the earlier of (i) the sale of all of the Units or
(ii) February 1, 2000 (unless extended by our company and Placement Agent for an
additional 30 days).

     Subject to certain conditions, our company will indemnify the Placement
Agent against certain civil liabilities, including liabilities under the
Securities Act.  In the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act is contrary to
public policy and therefore unenforceable.

     On November 30, 1999 GunnAllen loaned us the principal sum of $500,000
bearing interest at 10% per annum, which we intend to pay from the proceeds of
this offering.  GunnAllen has a security interest in all our assets similar to
the security interest being granted to investors.  Once the loan to GunnAllen
has been repaid, their security interest will cease.   Additionally, GunnAllen
holds warrants to purchase Common Stock of the company which it received in
connection with its underwriting activities of our initial public offering
completed in July 1998. The warrants are exercisable at $$11.55 per share and
are exercisable until July 2003.

     Additionally, GunnAllen has entered into a financial consulting agreement
with us whereby we have agreed to pay GunnAllen a $2,500 monthly retainer fee to
assist us in financial planning, mergers, acquisitions, strategic alliances and
obtaining financing.  GunnAllen has also received 100,000 warrants exercisable
at $11 5/16 per share.

Summary of Subscription Procedures

     Enclosed for prospective investors are certain documents for use in
subscribing for the Units.  In order to subscribe for the Units, a prospective
investor must complete, execute and deliver to GunnAllen Financial, Inc., the
following items:

      1.  The Subscription Agreement and Questionnaire completed and executed;
          and

      2.  a)  A check made payable to "Cash Technologies Special Account" in the
               amount of $50,000 multiplied by the number of Units subscribed
               for; or

          b)  A wire transfer in accordance with the instructions of GunnAllen
                Financial, Inc.

Qualifications of Purchasers; Method of Purchase

     An investment in the securities offered hereby involves a high degree of
risk and is suitable only for persons of substantial financial means that have
no need for liquidity in their investments.  Accordingly, this offering is being
made only to a limited number of "accredited investors" as defined in Rule
501(a) under the Securities Act.

                                       23
<PAGE>

     Each purchaser of the Units must execute the Subscription Agreement, a copy
of which has been provided to each prospective purchaser.  By executing the
Subscription Agreement, each purchaser of the Units will, among other things,
(i) agree not to sell or transfer any of the Units at any time or to any person
if such sale or transfer would violate applicable federal or state securities
laws; (ii) represent that such person is an accredited investor; (iii) represent
that such person can bear the economic risk of the purchase of the Units
including the total loss of such person's investment; (iv) represent that such
person has sufficient knowledge and experience in business and financial matters
as to be capable of evaluating the merits and risks of an investment in the
Units, or that such person is being advised by others with such knowledge and
experience so that such person and they together are capable of making such
evaluation; and (v) represent that such person is purchasing the Units for such
person's own account without a view to public distribution or resale.

     Each investor must subscribe for a minimum of $50,000 of Units, except that
smaller investments may be accepted at the discretion of the Placement Agent.
Our company has the right to accept or reject any subscription in whole or in
part.  If accepted in part, the rejected portion of the investor's subscription
payment will be refunded to the investor without interest.  Subject only to
certain mandatory provisions of certain state securities laws, a subscription
may not be terminated by the investor once accepted by our company.

Restrictions on Transfer of the Units, Notes, Warrants and Warrant Shares

     The Units, the Notes, the Warrants and the Warrant Shares will not be
registered under the Securities Act or the securities laws of any state and are
being offered and sold in reliance on exemptions from the registration
requirements of such laws.  There will be restrictions imposed by the applicable
federal and state securities laws upon the resale or transfer of the Units, the
Notes, the Warrants and the Warrant Shares.  The Units, the Notes, the Warrants
and the Warrant Shares will be "restricted securities" as defined in Rule 144
promulgated by the Securities and Exchange Commission and must be held
indefinitely unless they are subsequently registered under the Securities Act
and any applicable state securities laws or unless they may be sold in a
transaction that is exempt from the registration requirements of such laws.

     Our company has agreed to grant to the purchasers of the Units certain
"piggyback"  registration rights relating to the Warrant Shares.  See the form
of registration rights agreement attached to this memorandum as Exhibit E.

                                       24
<PAGE>

                       INVESTOR SUITABILITY REQUIREMENTS

     The Units offered hereby have not been registered under the Securities Act
and they are being offered in reliance upon exemptions provided by Section 4(2)
of the Securities Act and the provisions of Regulation D promulgated thereunder.
This offering is made, and sale of the Units will be made, only to purchasers
qualifying as "accredited investors" under Rule 501(a) of Regulation D.

     The term "accredited investor" refers to any person or entity who comes
within any of the following categories, or who our company reasonably believes
comes within any of the following categories, at the time of the sale of the
Units to such person or entity:

     1.  Any bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to Section 15 of the Exchange
Act; any insurance company as defined in section 2(13) of the Securities Act;
any investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that act; any
Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors;

     2.  Any private business development company as defined in Section 202(a)22
of the Investment Advisers Act of 1940;

     3.  Any organization described in Section 501(c)3 of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;

     4.  Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;

     5.  Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;

     6.  Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;

     7.  Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and

     8.  Any entity in which all of the equity owners are accredited investors.

     ACCESS TO INFORMATION

     The Company has agreed to afford each prospective investor, his
representative, attorneys, and accountants the opportunity to ask questions of,
and receive answers from, the management of the Company concerning the terms of
this Private Offering or any other matter whatsoever relating to the Company and
its business, and to obtain any additional information (to the extent that the
Company possesses such information or can acquire it without

                                       25
<PAGE>

unreasonable effort or expense) necessary to verify the accuracy of the
information set forth in this Offering Memorandum or in any of the reports or
other documents furnished herewith.

     Prospective investors and their representatives are invited to communicate
with Bruce Korman, Chairman of the Board and Chief Executive Officer of the
Company, at the following address:

                            Cash Technologies, Inc.
                             1434 West 11th Street
                             Los Angeles, CA 90015
                                (213) 745-2000

                            REPORTS TO SHAREHOLDERS

     The Company distributes annual reports to its stockholders, including
financial statements examined and reported on by independent public accountants,
and will provide such other reports as management may deem necessary or
appropriate to keep stockholders informed of the Company's operations.

                                       26Exhibit 10.7

         STRUCTURED  EQUITY LINE FLEXIBLE  FINANCING(SM)  AGREEMENT  dated as of
December 30, 1999 (the  "Agreement"),  between Cripple Creek Securities,  LLC, a
limited  liability company organized and existing under the laws of the State of
New  York  (the  "Investor"),  and  Elcom  International,  Inc.,  a  corporation
organized and existing under the laws of the State of Delaware (the "Company").

                              W I T N E S S E T H :

             WHEREAS, the parties desire that, upon the terms and subject to the
conditions  contained  herein,  the Company may elect to issue to the  Investor,
and, at the Company's option, the Investor shall purchase from the Company, from
time to time as provided herein,  shares of the Company's Common Stock, $.01 par
value  (the  "Common  Stock"),   for  a  maximum  aggregate  Purchase  Price  of
$50,000,000 (the "Maximum Offering Amount"); and

             WHEREAS,  such investments,  if made, will constitute  issuances of
Common Stock not subject to a requirement of  registration  under the Securities
Act of 1933,  as amended (the  "Securities  Act"),  other than  registration  in
connection with resale of the Common Stock by the Investor.

             NOW, THEREFORE, the parties hereto agree as follows:

                                       I.

                               CERTAIN DEFINITIONS

             1.1  Defined  Terms.  As  used  in this  Agreement  (including  the
recitals above), the following terms shall have the following meanings specified
or indicated  (such  meanings to be equally  applicable to both the singular and
plural forms of the terms defined):

             "Affiliate"  shall  mean,  with  respect to a specified  Person,  a
Person  that  directly,  or  indirectly  through  one  or  more  intermediaries,
controls,  or is controlled by, or is under common control with,  such specified
Person.

             "Applicable  Quantity"  shall  mean the  number of shares of Common
Stock that is  determined  by dividing  the  Investment  Amount by the  Purchase
Price, rounded up or down to the nearest whole number of shares.

             "Balance Sheet" shall mean the unaudited consolidated balance sheet
of the Company as of September 30, 1999.

             "Benefit Plan"  shall have the meaning set forth in Section 5.12
hereof.

            "Blocking Event" shall have the meaning set forth in Section 2.5(a)
hereof.

<PAGE>

             "Bloomberg" shall mean Bloomberg Financial Press.

             "Blue Sky Laws" shall mean the United States state  securities  and
takeover laws.

             "Capital   Stock"  shall  mean  any  and  all  shares,   interests,
participations or other equivalents  (however  designated) of corporate stock or
any  and  all  equivalent   ownership  interests  in  a  Person  (other  than  a
corporation).

             "Closing" shall mean the consummation of each purchase and sale of
Common Stock pursuant to Section 2.4 hereof.

             "Closing  Date" shall mean,  with respect to each purchase and sale
of Common Stock,  subject to the conditions contained herein, the second Trading
Day  following  the date of receipt of an Investor  Notice to the Company of its
election to purchase Common Stock from the Company (as extended pursuant to this
Agreement).

             "Code" shall mean the Internal Revenue Code of 1986, as amended.

             "Commitment  Period"  shall mean the period  commencing on the date
that the first Investment Period begins and expiring on the earliest to occur of
(a) the  election by the Company or the  Investor to  terminate  the  Investor's
obligation  to purchase  Common Stock  pursuant to Section 10.4 herein,  (b) the
date on which the Investor shall have made purchases of Common Stock pursuant to
this  Agreement in an aggregate  Purchase  Price of  $50,000,000  or such lesser
maximum purchase amount as determined pursuant to Section 2.2, (c) the date this
Agreement is terminated  pursuant to Section 2.5, and (d) the date  occurring 18
months (subject to extension as provided by Section  2.5(a)(ii))  after the date
that the first Investment Period begins.

             "Common Stock" shall have the meaning set forth in the recitals
above.

             "Company Assets" shall have the meaning set forth in Section 5.16
hereof.

             "Company  Put  Amount"  shall have the meaning set forth in Section
2.1(a) hereof.

             "Company  Put  Notice"  shall have the meaning set forth in Section
2.3(a) hereof.

             "Company Put  Purchase  Date" shall mean any Trading Day upon which
the  Investor  notifies  the Company by  delivery  of an Investor  Notice of the
Investor's election to purchase all or a portion of a Company Put Amount.

             "Compensation  Plans"  shall  mean any stock or  option or  similar
equity-based compensation plans.

             "Condition  Satisfaction  Date" shall have the meaning set forth in
Section 3.2 hereof.

                                       2
<PAGE>

             "Effective  Date" shall mean  December 30, 1999, or such later date
as all of the three following  conditions  shall have occurred:  (i) the Company
shall have delivered the fully executed  Registration Rights Agreement,  and any
other  documents  required  to be  delivered  pursuant  to  the  terms  of  this
Agreement, (ii) the Company shall have indicated to the Investor in writing that
the Exhibits to this  Agreement are in final form and delivered such Exhibits to
the Investor, and (iii) the Registration Statement shall have become effective.

             "Environmental  Laws"  shall  mean all  federal,  state,  local and
foreign laws and regulations  primarily relating to pollution or the environment
(including,  without limitation,  ambient air, surface water, ground water, land
surface  or  subsurface  strata),   including,   without  limitation,  laws  and
regulations primarily relating to emissions,  discharges, releases or threatened
releases of Materials of Environmental  Concern, or otherwise primarily relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.

             "Equity  Offering" shall mean the issuance and sale by the Company,
(a) in a registered  public offering or (b) in a transaction  exempt from or not
subject to the registration requirements of the Securities Act, of any shares of
Common Stock or securities  which are convertible  into or exchangeable  for the
Company's Common Stock or any warrants, options or other rights to subscribe for
or purchase its Common Stock or any such convertible or exchangeable  securities
(other than securities issued or issuable to any present or future or former (at
the time of issuance) employee,  officer,  director or consultant of the Company
or its Subsidiaries  pursuant to any Compensation Plans), upon the conversion or
exchange of  convertible  or  exchangeable  securities  or upon the  exercise of
warrants (excluding the Warrants),  or other rights, or upon the issuance of any
shares of Common Stock issued upon  exercise of options,  conversion or exchange
of convertible or exchangeable securities,  warrants or other rights outstanding
on the date of  execution  and  delivery of this  Agreement,  but other than (i)
those listed or described in the SEC  Documents on file with the SEC (other than
the Warrants),  (ii) shares of Common Stock which may be issued upon exercise of
options granted under the Compensation Plans, (iii) shares of Common Stock which
may be issued upon  exercise  of the  Warrants,  (iv) shares of Common  Stock or
securities  which are convertible  into or exchangeable  for Common Stock or any
warrants,  options or other rights to subscribe for or purchase  Common Stock or
any such convertible or exchangeable  securities,  in each case which are issued
in  strategic  corporate  partnering  transactions  that  do not  result  in any
acquisition  or other  change in  control of the  Company,  (v) shares of Common
Stock which may be issued upon  exercise of the  warrants  issued by the Company
pursuant to the Amended and Restated Lantec Stockholders Agreement,  dated as of
April 6, 1996 among the Company, Robert J. Crowell, James Rousou and the selling
stockholders  named  therein and (vi) shares of Common Stock which may be issued
upon  exercise  of  warrants  issued  by the  Company  pursuant  to  the  letter
agreement, dated July 8, 1999, between the Company and Wit Capital Corporation.

             "Exchange Act" shall mean the  Securities  Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.

             "Floor Price" shall be $8.00,  or the higher or lower dollar amount
designated after the date hereof by the Company in a Floor Price Notice.  In the
event a Floor Price Notice is not

                                       3
<PAGE>

received with respect to a certain  Investment  Period,  the Floor Price set for
the preceding Investment Period will continue to be the Floor Price.

             "Floor Price Notice" shall mean a written  notice  delivered by the
Company to the Investor on, or as of, the third (3rd)  Trading Day preceding the
commencement  of an Investment  Period which sets forth the Floor Price for such
Investment Period.

             "4.9% Limit" shall have the meaning specified in Section 2.2(d)
hereof.

             "GAAP" shall have the meaning set forth in Section 5.9(a).

             "Governmental  Entity"  shall  mean any  federal,  state,  local or
foreign legislative body, court, government,  department or instrumentality,  or
governmental, administrative or regulatory authority or agency.

             "Included Day" shall have the meaning set forth in Section 2.4(b)
hereof.

             "Investment  Amount"  shall  mean  the  dollar  amount  paid by the
Investor for the Common Stock on any Closing Date.

             "Investment  Period" shall mean each  successive  one-month  period
(subject to extension as provided by Section  2.5(a)(ii))  commencing  on (a) in
the case of the  first  Investment  Period,  the  eleventh  (11th)  Trading  Day
following the date the Registration  Statement is declared  effective,  provided
that the  first  Investment  Period  may start as of a  different  date upon the
mutual  written  consent of the  Company  and  Investor,  and (b) in the case of
subsequent Investment Periods, commencing on the first Trading Day subsequent to
the expiration of the immediately preceding Investment Period.

             "Investor  Call Amount" shall have the meaning set forth in Section
2.1(b) hereof.

             "Investor  Call Notice" shall have the meaning set forth in Section
2.3(b) hereof.

             "Investor  Call Purchase  Date" shall mean any Trading Day on which
the  Investor  notifies  the Company by  delivery  of an Investor  Notice of the
Investor's election to purchase all or a portion of an Investor Call Amount.

            "Investor Notice" shall have the meaning set forth in Section 2.3c)
hereof.

             "Knowledge of the Company" shall mean the actual knowledge, without
independent inquiry, of any of the executive officers of the Company.

             "Knowledge  of the  Investor"  shall  mean  the  actual  knowledge,
without independent inquiry, of any of the executive officers of the Investor.

             "Liens" shall have the meaning set forth in Section 5.16 hereof.

                                       4
<PAGE>

             "Material  Adverse  Effect"  shall mean any effect on the business,
operations,  properties or financial  condition of the Company which is material
and adverse to the Company or to the Company and any other  entities  controlled
by the Company,  taken as a whole,  or any  condition  or situation  which could
prohibit, impair or otherwise interfere with the ability of the Company to enter
into and perform its obligations under this Agreement,  the Registration  Rights
Agreement or the Warrants.

             "Materials  of   Environmental   Concern"   shall  mean   hazardous
substances  as  defined   under  the   Comprehensive   Environmental   Response,
Compensation  and Liability Act, 42 U.S.C. ss. 9601 et seq. and hazardous wastes
as defined under the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901,
et seq. and petroleum and petroleum products and such other chemicals, materials
or substances as are listed as "hazardous wastes", "hazardous materials", "toxic
substances",  or words of similar import under any similar federal, state, local
or foreign laws.

             "Maximum  Offering  Amount" shall have the meaning set forth in the
introductory paragraphs hereof.

             "Minimum Commitment Warrant" shall have the meaning set forth in
Section 2.6(b).

             "NASD" shall mean the National Association of Securities Dealers,
Inc.

             "Person"  shall  mean  an  individual,  partnership,   corporation,
limited liability company, trust or unincorporated organization, or a government
or agency or subdivision thereof.

             "Principal  Market"  shall  mean the New York Stock  Exchange,  the
American Stock Exchange, the Nasdaq National Market, or any similar organization
or agency  succeeding such market or exchange's  functions of reporting  prices,
whichever is at the time the principal trading exchange or market for the Common
Stock.

             "Prospectus" shall mean the prospectus included in any Registration
Statement,  as amended or supplemented by any Prospectus  supplement,  including
post-effective  amendments,  and all material  incorporated by reference in such
Prospectus.

             "Purchase Price" shall have the meaning set forth in Section 2.4(b)
hereof.

             "Registration Rights Agreement" shall have the meaning set forth in
Section 2.6(d) hereof.

             "Registration Statement" shall have the meaning set forth in
Section 3.2(a) hereof.

             "SEC" shall mean the Securities and Exchange Commission.

             "SEC Documents" shall have the meaning set forth in Section 5.9
hereof.

             "Securities Act" shall have the meaning set forth in the recitals
above.

                                       5
<PAGE>

             "Stock Price" on a given Trading Day shall mean the volume-weighted
average  trading price for the Common Stock on the Principal  Market during such
Trading  Day,  calculated  in the  manner  utilized  by  Nasdaq as  reported  by
Bloomberg.

             "Subsidiary"   shall  mean,   with  respect  to  any  Person,   any
corporation,  limited  or  general  partnership,  trust,  association  or  other
business entity of which 50% or more of the  outstanding  Capital Stock or other
interests  entitled to vote in the  election of the board of  directors  of such
corporation  (irrespective of whether,  at the time,  Capital Stock of any other
class or classes of such  corporation  shall have or might have voting  power by
reason  of the  happening  of any  contingency),  managers,  trustees  or  other
controlling  persons,  or an equivalent  controlling  interest therein,  of such
Person is, at the time, directly or indirectly,  owned by such Person and/or one
or more Subsidiaries of such Person.

             "Tax Return" shall mean any report,  return,  information statement
or other  information  required to be supplied to any federal,  state,  local or
foreign taxing  authority,  or any election  permitted to be made, in connection
with Taxes.

             "Taxes"  shall mean all taxes,  charges,  fees,  levies,  duties or
other assessments,  including without  limitation all net income,  gross income,
gross  receipts,  franchise,  value added,  sales,  use,  property,  ad valorem,
transfer,  withholding,  profits, license,  employee,  payroll, social security,
unemployment,   excise,  estimated,  severance  and  any  other  taxes,  duties,
withholdings, fees, assessments or charges of any kind whatsoever, including any
interest,  penalties or additional amounts attributable thereto,  imposed by any
federal, state, local or foreign taxing authority.

             "Trading  Day" shall  mean any day during  which the New York Stock
Exchange  shall be open for business and on which trading of the Common Stock on
the Principal Market shall not have been suspended or limited.

             "Value of Open  Market  Trading"  shall mean,  with  respect to any
Trading Day, the product of the reported  trading  volume of the Common Stock on
the  Principal  Market,  multiplied  by the weighted  average  trading price (by
trading volume) of the Common Stock on such day (each as determined by Bloomberg
or any other  reputable  pricing  service  chosen by the Investor and reasonably
acceptable  to the  Company);  provided,  however,  that in the  event  that the
Company  consummates  a  registered  public  offering of Common  Stock  (whether
primary or secondary),  the Trading Day on which such transaction is consummated
shall be excluded from any calculation under this Agreement based upon the Value
of Open Market Trading; provided further, that any block trades of 20,000 shares
or  more  of  Common  Stock  shall  not  be  included  in the  calculation  when
determining reported trading volume and weighted average trading price.

             "Volume Limit" shall have the meaning specified in Section 2.2(b)
hereof.

             "Warrant" shall have the meaning set forth in Section 2.6(a)hereof.

            "Warrants" shall have the meaning set forth in Section 2.6(a)hereof.

                                       6
<PAGE>

             "Warrant  Exercise  Price"  shall  have the  meaning  set  forth in
Section 2.6(a) hereof.

             "Warrant  Share Amount" shall have the meaning set forth in Section
2.6(a) hereof.

             "Warrant Shares" shall have the meaning set forth in Section 2.6(d)
hereof.

                                       II.

                        PURCHASE AND SALE OF COMMON STOCK

         Section 2.1.      Investments.  Subject to the terms and conditions set
forth herein  (including,  without  limitation,  the  provisions  of Article III
hereof), during the Commitment Period:

         (a) Company  Put. If the  Company,  in its sole  discretion,  elects to
deliver a Company Put Notice with respect to any Investment Period in accordance
with Section 2.3(a) hereof, then upon the Company's delivery of such Company Put
Notice,  the Investor shall be obligated in such  Investment  Period to purchase
from the Company  shares of Common  Stock during such  Investment  Period for an
aggregate  Purchase Price  specified in such Company Put Notice,  which Purchase
Price shall be between  $1,000,000 and $10,000,000 (with any amount in excess of
$1,000,000 in a multiple of $50,000), subject to the adjustments and limitations
imposed by this Agreement (the "Company Put Amount").  Upon receipt of a Company
Put Notice,  subject to the terms and conditions  contained herein, the Investor
shall be obligated  to purchase on one or more Closing  Dates in respect of each
such  Company Put Purchase  Date or Company Put  Purchase  Dates as the Investor
elects  during the  Investment  Period,  shares of Common Stock for an aggregate
Purchase Price equal to the Company Put Amount.

         (b) Investor Call. For any Investment  Period with respect to which the
Company has timely  delivered a Company Put Notice,  the Investor may deliver to
the Company one or more Investor Call Notices in accordance  with Section 2.3(b)
hereof  at  any  time  prior  to  the  twentieth   calendar  day  following  the
commencement of such Investment  Period.  Upon delivery of such an Investor Call
Notice,  the Company  shall be  obligated  to sell shares of Common Stock to the
Investor  (in  addition  to the Company  Put  Amount)  during the  corresponding
Investment Period for an aggregate  Purchase Price specified by Investor in such
Investor Call Notice,  but in no event less (when  aggregated  with the purchase
prices of all other  purchases  of Common Stock made  pursuant to Investor  Call
Notices with respect to such Investment Period) than $1,000,000 or greater (when
aggregated  with the purchase prices of all other purchases of Common Stock made
pursuant to Investor Call Notices with respect to such  Investment  Period) than
the Company Put Amount,  subject to the adjustments  and limitations  imposed by
this Agreement (the "Investor Call Amount"). Upon delivery of such Investor Call
Notice,  the  Investor  shall be  obligated  to purchase on each Closing Date in
respect of each such Investor Call Purchase Date or Investor Call Purchase Dates
as the Investor elects during the Investment  Period to which such Investor Call
Notice relates,  shares of Common Stock for an aggregate Purchase Price equal to
the Investor Call Amount.

                                       7
<PAGE>

         (c)  Purchase  of Less Than or More Than the  Company  Put  Amount  and
Investor  Call  Amounts.  Upon  delivery of a Company Put Notice to the Investor
and/or  delivery of an Investor  Call  Notice or  Investor  Call  Notices to the
Company,  the Investor may purchase an amount of Common Stock in any  Investment
Period equal to up to five percent (5%) more than,  or less than,  the aggregate
dollar amount of the Company Put Amount and the Investor  Call Amounts,  if any,
with respect to such Investment  Period, and any such purchases shall be treated
for purposes of this  Agreement as satisfying the  Investor's  obligations  with
respect to the  Company  Put  Amount  and the  Investor  Call  Amounts,  if any,
respectively.

         Section 2.2.      Limitations on Investment Amount.

         (a) Overall  Maximum.  In no event shall the aggregate dollar amount of
the purchases of Common Stock made by the Investor at Closings in all Investment
Periods pursuant to Section 2.1 exceed the Maximum  Offering  Amount;  provided,
however,  that the Investor  may purchase  Common Stock in excess of the Maximum
Offering Amount with the prior written consent of the Company.

         (b)  Investment  Period Limits.  Notwithstanding  the obligation of the
Investor to purchase shares of Common Stock pursuant to Section 2.1(a),  the sum
of the  Investment  Amounts for any  Investment  Period  (whether  pursuant to a
Company  Put Amount or  Investor  Call  Amount(s)  or both) shall not exceed the
lesser of (x) the Company Put Amount plus the sum of all Investor  Call Amounts,
if any, (y) an amount equal to the product of (I) 8% of the average  daily Value
of Open  Market  Trading of the Common  Stock on the  Principal  Market for each
Trading Day during the Investment Period  immediately  preceding such Investment
Period  times (II) the sum of (A) the number of Trading  Days in which the Stock
Price is above the Floor  Price,  and (B) the  number of  Trading  Days that are
designated by the Investor as Included Days pursuant to Section 2.4(b),  in each
of cases (A) and (B), in such immediately  preceding  Investment  Period,  (III)
rounded up to the next  increment  of  $10,000,  and (z) an amount  equal to the
product  of (I) 8% of the  average  daily  Value of Open  Market  Trading of the
Common Stock on the Principal Market for each Trading Day during such Investment
Period  times (II) the sum of (A) the number of Trading  Days in which the Stock
Price is above the Floor  Price,  and (B) the  number of  Trading  Days that are
designated by the Investor as Included Days pursuant to Section 2.4(b),  in each
of cases (A) and (B), in such  Investment  Period,  (III) rounded up to the next
increment  of $10,000  (the lower of the amounts  referred to in clauses (y) and
(z), the "Volume  Limit");  provided,  however,  that the Investor may waive, in
whole or in part, the Volume Limit in any Investment Period.

         (c)  Floor  Price  and Pro Rata  Reduction  of  Investor's  Obligation.
Notwithstanding  anything  to the  contrary  contained  herein,  the  Investor's
obligation to acquire  shares of Common Stock shall be reduced in any Investment
Period  during  which there is one or more  Trading Days that the Stock Price is
below the Floor Price (other than Included Days),  so that the aggregate  number
of shares of Common Stock  required to be purchased by the Investor  during such
Investment Period shall be that number of shares determined  pursuant to Section
2.1, after taking into account any reduction  pursuant to Section 2.2(b) hereof,
multiplied  by a fraction,  the  numerator  of which shall be the sum of (i) the
number of Trading  Days that the Stock  Price is

                                       8
<PAGE>

above the Floor Price and (ii) the number of Included Days, and the  denominator
of which  shall be the total  number of  Trading  Days  during  such  Investment
Period.

         (d) 4.9% Limit.  Notwithstanding  anything herein to the contrary,  the
Investor  shall not be required or entitled to purchase  shares of Common  Stock
pursuant to this Agreement on any Closing Date to the extent such purchase, when
aggregated with all other shares of Common Stock then beneficially  owned by the
Investor,  all purchases of Common Stock pursuant to this Agreement or otherwise
within the previous sixty days, and with the shares of Common Stock beneficially
or deemed  beneficially  owned by the Investor pursuant hereto,  and the Warrant
Shares  (if then  issued and  outstanding)  theretofore  issued to the  Investor
pursuant  to Section 2.6 and still owned by the  Investor,  would  result in the
Investor or any Affiliate of the Investor  beneficially owning more than 4.9% of
all the issued and outstanding  Common Stock on such Closing Date, as determined
in accordance herewith and Section 13(d) of the Exchange Act (the "4.9% Limit").
Notwithstanding  the  foregoing,  the Investor shall have the right to waive the
4.9%  Limit,  in whole or in part,  upon 61 days'  prior  written  notice to the
Company;  provided,  however,  that such waiver  shall not be  permitted  to the
extent that, if the Investor were to acquire  additional  shares of Common Stock
pursuant  to such  waiver,  such  notice  and/or  purchase  would  result in the
Investor or any Affiliate of the Investor  beneficially owning more than 9.9% of
all the issued and outstanding Common Stock.

         Section 2.3.      Mechanics of Notification

         (a)  Company  Put  Notice.  On or before the third  (3rd)  Trading  Day
preceding the commencement of an Investment  Period,  unless otherwise agreed by
the parties to this Agreement,  the Chief  Executive  Officer or the Senior Vice
President  of the  Company  (or such  other  person as  designated  by either in
writing) may, at the Company's sole discretion,  deliver a written notice to the
Investor  (each such notice being a "Company Put Notice")  which  specifies  the
Company Put Amount and states that the  Investor  shall be obligated to purchase
the Company Put Amount during such  Investment  Period  subject to the terms and
conditions contained herein. A Company Put Notice shall be irrevocable.

         (b) Investor Call  Notices.  If the Company has delivered a Company Put
Notice with respect to an Investment Period, the Investor may, in the Investor's
sole discretion,  deliver one or more written notices to the Company at any time
prior  to  the  twentieth  calendar  day  following  the  commencement  of  such
Investment  Period  (each such notice  being an "Investor  Call  Notice")  which
states that the  Investor  shall  purchase an Investor  Call Amount  during such
Investment  Period  subject to the terms and  conditions  contained  herein.  An
Investor Call Notice shall be irrevocable.

         (c)  Investor  Notices.  During  any  Investment  Period  in which  the
Investor has an  obligation to purchase  Common Stock  pursuant to a Company Put
Notice and/or an Investor Call Notice, the Investor may deliver a written notice
to the Company at any time during such Investment Period (each such notice being
an "Investor  Notice")  which  specifies one or more Company Put Purchase  Dates
and/or Investor Call Purchase Dates.

         (d)      Date of Delivery of Notices.

                                       9
<PAGE>

                  (i) Notices to the Investor. A Company Put Notice or any other
notice sent by the Company to the  Investor  shall be deemed to be  delivered on
the Trading Day it is transmitted by facsimile with  confirmation  of acceptance
or otherwise received in writing via courier,  hand delivery or first-class mail
(return receipt requested) by the Investor,  or, if received on any day which is
not a Trading Day, shall be deemed to be delivered on the immediately succeeding
Trading Day.

                  (ii) Notices to the Company. An Investor Call Notice, Investor
Notice or any other notice sent by the  Investor to the Company  shall be deemed
to be  delivered  on  the  Trading  Day  it is  transmitted  by  facsimile  with
confirmation  of acceptance or otherwise  received in writing via courier,  hand
delivery or first-class mail (return receipt  requested) by the Company,  or, if
received on any day which is not a Trading Day,  shall be deemed to be delivered
on the immediately succeeding Trading Day.

         Section 2.4.      Closings

         (a) Deliveries at Closings.  On each Closing Date (i) the Company shall
deliver to the Investor one or more  certificates  representing  the  Applicable
Quantity of shares of Common Stock registered in the name of the Investor or, at
the Investor's option, deposit such certificate(s) into such account or accounts
previously  designated by the Investor,  and (ii) the Investor  shall deliver to
the Company the Investment Amount (less any amounts withheld pursuant to Section
11.2) by federal  funds wire  transfer or transfer  of New York  Clearing  House
funds.  In addition,  on or prior to each Closing Date,  each of the Company and
the Investor shall deliver all documents,  instruments and writings  required to
be  delivered  or  reasonably  requested  by  either  of them  pursuant  to this
Agreement in order to implement and effect the transactions contemplated herein.

         (b)  Purchase  Price Per  Share.  The  purchase  price per share of the
Company's Common Stock (the "Purchase Price") shall be the lowest Stock Price of
the Stock Prices on each of the five (5) Trading Days  immediately  prior to but
excluding a Company Put Purchase  Date or Investor  Call  Purchase  Date, as the
case may be;  provided,  however,  that (i) upon Investor's  prior notice to the
Company,  which notice may be provided orally,  any Stock Price on a Trading Day
below  the  Floor  Price may be  considered  to be equal to the Floor  Price for
purposes  of  determining  the  Purchase  Price,  and (ii) if no such  notice is
provided,  any Stock  Price on a Trading  Day below the Floor Price shall not be
considered in determining  the Purchase  Price,  and the Purchase Price shall be
determined  solely by reference to the  remaining  Trading Days in such five (5)
Trading Day period.  A Trading Day with respect to which the  Investor  provides
notice that the Stock Price shall be  considered  to be equal to the Floor Price
in accordance with clause (i) above shall be deemed an "Included Day."

         Section 2.5.    Termination, Suspension and Modification of Investment
Obligation

         (a) (i) Blocking Events.  The Investor shall not purchase any shares of
Common  Stock from the  Company on any  Closing  Date,  nor shall a Company  Put
Notice or an Investor Call Notice be delivered at any time during the Commitment
Period  when  there  shall  exist  any

                                       10
<PAGE>

one or more of the  following:  (A) the withdrawal of the  effectiveness  of the
Registration Statement, (B) the Company's failure to satisfy the requirements of
Section 3.2 or 3.3, or (C) any failure or  interruption in the compliance by the
Company with the covenants  provided in Article VI (each of (A), (B), and (C), a
"Blocking Event").

                  (ii)  Reduction  or  Elimination  of  Investor  Obligation  to
Purchase and Extension of Investment  Period. In the event that a Blocking Event
occurs during an Investment  Period,  the obligation of the Investor to purchase
shares of Common  Stock  (pursuant to either a Company Put Notice or an Investor
Call Notice) during such Investment Period shall,  unless such Blocking Event is
waived in  writing  by the  Investor,  be  reduced  (but in no event  shall such
reduction  result in a negative  number) by subtracting an amount  calculated by
multiplying  the amount  which the  Investor  would  otherwise  be  obligated to
purchase by a fraction,  the  numerator of which shall be 1-1/2 times the number
of Trading  Days within such  Investment  Period that such event or events exist
and the  denominator  of which  shall be the number of Trading  Days within such
Investment Period (without  adjustment pursuant to Section 2.2(c) reflecting the
Stock Price being below the Floor Price) from the Investor's  obligation  during
such  Investment  Period.  If such event remains uncured for a period of greater
than five (5) Trading  Days or exists  during the last five (5) Trading  Days of
the  Investment  Period,  the  remaining  obligation of the Investor to purchase
shares of Common  Stock  pursuant to a Company  Put Notice or an  Investor  Call
Notice shall be canceled for the  remainder of the  Investment  Period.  If such
event  exists on the last day  preceding  an  Investment  Period with respect to
which the Company has delivered a Company Put Notice, the Company shall,  unless
waived in writing by the Investor,  have five (5) Trading Days in which to cure,
and if cured within such period, the commencement of the Investment Period shall
be  postponed  for such number of days during such period as the event  remained
uncured,  but in no event shall such Investment Period be postponed for a period
in excess of five (5) Trading Days.

         (b)  Additional  Events of  Termination  of  Investor  Obligation.  The
obligation  of the  Investor  to  purchase  shares of Common  Stock  under  this
Agreement may, if the Investor in its sole and absolute discretion so elects, be
terminated (including with respect to a Closing Date which has not yet occurred)
in the event that (i) the  Registration  Statement  shall not have been declared
effective by the SEC on or before one hundred twenty (120) days from the date of
this  Agreement;  (ii) there  shall  occur any stop order or  suspension  of the
effectiveness  of  the  Registration   Statement,   or  any  withdrawal  of  the
effectiveness  of the  Registration  Statement for a period  greater than twenty
(20) Trading Days in any Investment Period for any reason other than as a result
of  subsequent  corporate  developments  which would  require such  Registration
Statement  to be  amended  to  reflect  such  event  in order  to  maintain  its
compliance with the disclosure  requirements of the Securities Act; or (iii) the
Company shall at any time fail to comply with the  requirements of Sections 6.2,
6.3,  6.4,  6.6 or 6.7 and the  Company  shall  fail to cure such  noncompliance
within (A) five (5) Trading  Days after  receipt of notice from the  Investor of
its election to terminate  this  Agreement,  provided that the Investor has been
notified by the Company of such noncompliance within two (2) Trading Days of the
occurrence of such  noncompliance or, if the noncompliance  relates to a failure
of the  Company to comply  with the  provisions  of Section  6.6,  the  Investor
otherwise  becomes aware of such  noncompliance or (B) otherwise within five (5)
Trading Days of the occurrence of such noncompliance;  provided,  however,  that
notwithstanding  the  foregoing,  the  Investor  may,  in its sole and  absolute

                                       11
<PAGE>

discretion,  terminate  this Agreement if the Company shall fail to maintain the
listing of the Common Stock on a Principal  Market,  or if trading of the Common
Stock on a Principal  Market shall have been  suspended for a period of ten (10)
consecutive Trading Days.

         Section 2.6.      Warrants

         (a)      Warrants.

                  (i)  On  or  before  five  (5)  business  days  following  the
notification by the Investor of its calculation of the Warrant Share Amount, the
Company shall issue to the Investor a warrant which gives the Investor the right
to purchase,  on the terms and conditions set forth in this Section 2.6(a), that
number of shares of Common  Stock equal to the Warrant  Share Amount (as defined
in Section  2.6(a)(iii) below) (the "Warrant," and collectively with the Minimum
Commitment Warrant, the "Warrants").

                  (ii) The Warrant shall entitle the holder  thereof to purchase
Common  Stock from time to time  within five (5) years from the date the Warrant
is issued at an exercise  price per share equal to 120% of the weighted  average
of the Purchase  Prices at which  shares of Common  Stock were  purchased at the
Closings of all purchases of Common Stock by the Investor  during the Commitment
Period (the "Warrant Exercise Price").

                  (iii)  "Warrant  Share Amount" shall mean the number of shares
equal to 15,000 times a fraction, of which the denominator is $1,000,000 and the
numerator  is the  aggregate  Purchase  Price of Common  Stock  purchased at the
Closings of all purchases of Common Stock by the Investor  during the Commitment
Period (rounded to the nearest $100,000 increment).

         (b) Minimum  Commitment  Warrant.  In the event, but only in the event,
that after the end of the Commitment  Period the aggregate  dollar amount of all
purchases of Common Stock by the Investor  during the Commitment  Period is less
than  $10,000,000,  within  five (5) Trading  Days of the end of the  Commitment
Period,  the Company  will issue to the Investor a warrant,  exercisable  by the
Investor in its sole and absolute  discretion  from time to time within five (5)
years from the date of issuance (the "Minimum  Commitment  Warrant") to purchase
that number of shares of Common Stock equal to 150,000 less the number of shares
issuable  upon  exercise  of any and all  Warrants  issued  pursuant  to Section
2.6(a), at an exercise price per share equal to 120% of the average of the Stock
Price for the five (5) Trading Days preceding the  termination of this Agreement
in  accordance  with its terms;  provided,  however,  that  notwithstanding  the
foregoing,  in the event the Board of Directors  of the Company  sends notice to
the Investor that it has reasonably determined that the review by the SEC of the
Registration Statement may have an adverse effect on the timing or marketability
of a public  offering of  securities  by  elcom.com,  inc., a Subsidiary  of the
Company,  this Agreement shall terminate and the Minimum  Commitment Warrant may
be exercised at the above price to purchase 100,000 shares of Common Stock.

         (c) Form of Warrant.  Each of the  Warrant  and the Minimum  Commitment
Warrant shall be substantially in the form of Exhibit A hereto.

                                       12
<PAGE>

         (d) Registration  Rights for Warrant Shares. The resale by the Investor
of Common Stock  issuable upon  exercise of the Warrants (the "Warrant  Shares")
shall be subject to a registration  rights agreement (the  "Registration  Rights
Agreement")  entered  into  between the Company and the  Investor on the date of
execution of this Agreement.

                                      III.

                              CONDITIONS PRECEDENT

             3.1 Conditions  Precedent to the Obligation of the Company to Issue
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
Common  Stock  to the  Investor  incident  to each  Closing  is  subject  to the
satisfaction,  at or before each such  Closing,  of each of the  conditions  set
forth below, which conditions cannot be waived without the prior written consent
of the Company.

                         (a)  Accuracy of the Investor's Representations and
Warranties. The representations and warranties of the Investor set forth in this
Agreement  shall be true and correct in all material  respects as of the date of
each such Closing as though made at each such time.

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

                         (c)  No Injunction.  No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,  entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  which,  in the  reasonable  opinion of the  Company  and its legal
counsel,  prohibits or adversely affects any of the transactions contemplated by
this  Agreement,  and no  proceeding  shall have been  commenced  which would be
reasonably  likely to have the effect of prohibiting or adversely  affecting any
of the transactions contemplated by this Agreement.

             3.2  Conditions  Precedent  to the  Obligation  of the  Investor to
Purchase  Pursuant to a Company Put Notice.  The  obligation  of the Investor to
purchase  pursuant  to a Company  Put  Notice  and the right of the  Company  to
deliver a Company Put Notice and the  obligation  of the  Investor  hereunder to
acquire  and pay for  Common  Stock  incident  to a Closing  is  subject  to the
satisfaction,  on the date of  delivery  of a  Company  Put  Notice,  and on the
applicable  Closing Date (each a "Condition  Satisfaction  Date") of each of the
following  conditions,  which  conditions  cannot  be waived  without  the prior
written consent of the Company and the Investor.

                         (a) Registration of the Common Stock with the SEC. The
Company  shall  have  filed  with  the  SEC  a   registration   statement   (the
"Registration  Statement") for the registration of the resale by the Investor of
Common Stock to be acquired  pursuant to this Agreement,  including Common Stock
to be issued upon exercise of the Warrants (in accordance

                                       13
<PAGE>

with the  Registration  Rights  Agreement),  under  the  Securities  Act,  which
Registration Statement shall have been filed as early as practicable,  but in no
event later than thirty (30) days following the date of this Agreement and which
Registration  Statement  shall have been declared  effective by the SEC no later
than one  hundred  twenty  (120)  days  following  the  date of this  Agreement.
Furthermore,  the  Company  shall  have  filed  (i)  with the  applicable  state
securities  commissions  such blue sky  filings  as shall  have been  reasonably
requested  by the  Investor,  and (ii)  any  required  filings  with the NASD or
exchange or market where the Common Stock is traded.

                         (b) Effective Registration Statement. The Registration
Statement  shall be in  effect  and shall  remain  effective  on each  Condition
Satisfaction  Date and (i)  neither  the  Company  nor the  Investor  shall have
received  notice  that the SEC has  issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either temporarily or
permanently, or intends or has threatened to do so, and (ii) no other suspension
of the use of the Registration Statement or related Prospectus shall exist.

                         (c)  Accuracy  of  the  Company's  Representations  and
Warranties. The representations and warranties of the Company as set forth in
this Agreement and the  Registration  Rights Agreement shall be true and correct
in all material  respects as of each Condition  Satisfaction Date as though made
at each  such time  (except  for  representations  and  warranties  made as of a
specific date).

                         (d) Performance by the Company.  The Company shall have
performed, satisfied and complied with in all material respects all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.

                         (e)   No Injunction.  No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,  entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  which  prohibits  or  adversely  affects  any of the  transactions
contemplated  by this  Agreement,  and no proceeding  shall have been  commenced
which may have the  effect of  prohibiting  or  adversely  affecting  any of the
transactions contemplated by this Agreement.

                         (f)  Adverse Changes.  Since September 30, 1999, the
date through which the most recent  quarterly report of the Company on Form 10-Q
has been  prepared  and filed with the SEC, no event which had or is  reasonably
likely to have a Material  Adverse  Effect has occurred,  except as disclosed in
the SEC Documents or Company press releases subsequent to such date.

                         (g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock shall not have been suspended by the SEC,
the Principal  Market or the NASD, and the Common Stock shall have been approved
for listing or quotation on and shall not have been  delisted from the Principal
Market.  The issuance of shares of Common  Stock with respect to the  applicable
Closing, if any, shall not violate the shareholder approval  requirements of the
Principal Market.

                                       14
<PAGE>

                         (h)  Legal Opinions.  Except as otherwise provided in
this  Section  3.2(h),  the  Company  shall have caused to be  delivered  to the
Investor,  (i) within five (5) Trading Days  following the effective date of the
Registration Statement, (ii) as of a date within five (5) Trading Days after the
date of the Company's  filing of its most recent  quarterly  report on Form 10-Q
(or the date by which such report is  required to be filed),  (iii) as of a date
within  five (5)  Trading  Days after the date on which the  Company  announces,
whether on a preliminary  or definitive  basis,  its fourth quarter or full-year
financial  results,  (iv)  to the  extent  provided  by (and  only at the  times
provided  by) Section  3.3, and (v) as of a date within five (5) Trading Days of
the  beginning of an  Investment  Period as to which the Company has delivered a
Company Put Notice (provided,  however,  that in no event shall such delivery by
the  Company be  required  more than one (1) time  during  any given  Investment
Period unless such delivery is  reasonably  requested by Investor),  a letter of
the Company's  independent  counsel  containing  the opinions and statements set
forth in Exhibit B hereto,  addressed  to the  Investor  (but not  rendering  an
opinion)  stating also,  inter alia, that,  without  independently  checking the
accuracy of or  completeness  of, or otherwise  verifying any statements of fact
contained in the  Registration  Statement,  no facts have come to such counsel's
attention  that would cause it to believe that the  Registration  Statement  (as
amended, if applicable),  contains an untrue statement of material fact or omits
a  material  fact  required  to  make  the  statements  contained  therein,  not
misleading or that the underlying  Prospectus (if  applicable,  as so amended or
supplemented)  contains an untrue statement of material fact or omits a material
fact  required  to make  the  statements  contained  therein,  in  light  of the
circumstances in which they were made, not misleading;  provided,  however, that
in the event that such a letter cannot be delivered by the Company's independent
counsel to the  Investor,  the Company  shall  promptly  notify the Investor and
promptly revise the Registration Statement,  and the Company shall not deliver a
Company Put Notice or, if a Company Put Notice shall have been delivered in good
faith  without  knowledge  by the Company that a letter of  independent  counsel
cannot be delivered as  required,  shall  postpone,  if  necessary,  any pending
Closing Date  (including a Closing Date with respect to an Investor Call Notice)
for a period of up to five (5) Trading  Days until such a letter is delivered to
the Investor (or such Closing shall otherwise be canceled). In the event of such
a  postponement,  the  Purchase  Price of the Common  Stock to be issued at such
Closing  as  determined  pursuant  to  Section  2.4  shall be the  lower of such
Purchase  Price as calculated  as of the  originally  scheduled  Closing Date or
calculated as of the actual Closing Date.  Notwithstanding  the  foregoing,  the
Company's  independent counsel shall also deliver to the Investor,  on or before
the Effective Date, an opinion in form and substance reasonably  satisfactory to
the Investor  addressing  the matters  specified in Exhibit C hereto;  provided,
however,  that no opinions  shall be required to be  delivered  pursuant to this
Section  3.2(h) unless and until the Company  delivers a Company Put Notice with
respect to an Investment Period.

                         (i)  Accountant's Letter.

                                 (i) The  Company  shall have  furnished  to the
Investor  a comfort  letter  of its  independent  auditors  in  customary  form,
including a statement to the effect that they have  performed the  procedures in
accordance  with the  provisions  of Statement on Auditing  Standards No. 71, as
amended,  as agreed to by the parties hereto,  and reports thereon as shall have
been  reasonably  requested  by the Investor  with respect to certain  financial
information

                                       15
<PAGE>

contained in the Registration Statement and shall have delivered to the Investor
a report  addressed to the Investor,  (x) within five (5) Trading Days following
the effective date of the Registration Statement and (y) within ten (10) Trading
Days following the filing with the SEC of each SEC Document containing unaudited
financial  statements  of the  Company  which is  deemed to be  incorporated  by
reference in the Registration Statement; provided, however, that no "agreed upon
procedures"  report shall be required to be  delivered  pursuant to this Section
3.2(i)  unless and until the Company  delivers a Company Put Notice with respect
to an Investment Period.

                                 (ii) In the event that the Investor shall have
requested  delivery of an "agreed upon  procedures"  report  pursuant to Section
3.3, the Company shall engage its independent auditors to perform certain agreed
upon  procedures and report thereon as shall have been  reasonably  requested by
the Investor with respect to certain  financial  information  of the Company and
the Company shall deliver to the Investor a copy of such report addressed to the
Investor.

                                  (iii) In the event that a report  required  by
this Section 3.2 cannot be delivered by  the  Company's  independent  auditors,
the Company shall, if necessary,  promptly revise the Registration Statement and
the  Company  shall not deliver a Company Put Notice or, if a Company Put Notice
shall have been delivered in good faith without  knowledge by the Company that a
report of its  independent  auditors  cannot be delivered as required,  postpone
such  Closing  Date for a period of up to five (5)  Trading  Days  until  such a
report is delivered (or such Closing shall otherwise be canceled).  In the event
of such a  postponement,  the Purchase Price of the Common Stock to be issued at
such  Closing as  determined  pursuant to Section 2.4 shall be the lower of such
Purchase Price as calculated as of the originally  scheduled Closing Date and as
of the actual Closing Date.

                         (j)  Officer's Certificate.  The Company shall have
delivered to the  Investor,  on each Closing  Date,  a  certificate  in form and
substance  reasonably  acceptable  to the  Investor,  executed  by an  executive
officer of the Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.

                         (k)  Due Diligence. No dispute between the Company and
the  Investor  shall exist  pursuant  to Section  3.3 as to the  adequacy of the
disclosure contained in the Registration Statement.

             3.3 Due Diligence Review. The Company shall make available,  during
normal  business hours,  for inspection and review by the Investor,  advisors to
and  representatives  of the Investor (who may or may not be affiliated with the
Investor and who are  reasonably  acceptable  to the Company),  any  underwriter
participating  in any  disposition  of Common  Stock on  behalf of the  Investor
pursuant to the Registration  Statement or amendments or supplements  thereto or
any blue sky, NASD or other filing,  all  financial and other  records,  all SEC
Documents and other filings with the SEC, and all other corporate  documents and
properties of the Company as may be reasonably necessary for the purpose of such
review,  and cause the Company's  officers,  directors and  employees,  within a
reasonable time period, to supply all such information  reasonably  requested by
the Investor or any such  representative,  advisor or  underwriter in

                                       16
<PAGE>

connection with such Registration Statement (including,  without limitation,  in
response to all questions and other  inquiries  reasonably  made or submitted by
any of them),  prior to and from time to time after the filing and effectiveness
of the Registration  Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct  initial and ongoing due diligence  with respect to the
Company and the accuracy of the Registration Statement.

             The  Company  shall  not  disclose  nonpublic  information  to  the
Investor,  advisors  to or  representatives  of the  Investor  unless  prior  to
disclosure of such information the Company  identifies such information as being
nonpublic   information   and  provides   the   Investor,   such   advisors  and
representatives  with the  opportunity  to  accept  or  refuse  to  accept  such
nonpublic  information for review. The Company may, as a condition to disclosing
any  nonpublic  information  hereunder,  require  the  Investor's  advisors  and
representatives  to  enter  into  a  confidentiality   agreement  (including  an
agreement with such advisors and  representatives  prohibiting them from trading
in  Common  Stock  during  such  period  of time as they  are in  possession  of
nonpublic  information) in form  reasonably  satisfactory to the Company and the
Investor.

             Nothing  herein  shall  require the  Company to disclose  nonpublic
information to the Investor or its advisors or representatives,  and the Company
represents that it does not disseminate  nonpublic  information to any investors
who purchase stock in the Company in a public offering,  to money managers or to
securities analysts,  provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided,  immediately notify the
advisors and representatives of the Investor and, if any,  underwriters,  of any
event or the existence of any  circumstance  (without any obligation to disclose
the specific  event or  circumstance)  of which it becomes  aware,  constituting
nonpublic  information  (whether or not requested of the Company specifically or
generally  during the course of due  diligence by any such persons or entities),
which,  if  not  disclosed  in  the  Prospectus  included  in  the  Registration
Statement,  would cause such Prospectus to include a material misstatement or to
omit a  material  fact  required  to be  stated  therein  in  order  to make the
statements  therein,  in light of the circumstances in which they were made, not
misleading.  Nothing  contained  in this  Section 3.3 shall be construed to mean
that such  persons or  entities  other than the  Investor  (without  the written
consent of the Investor prior to disclosure of such  information) may not obtain
nonpublic  information  in the course of conducting  due diligence in accordance
with the terms of this Agreement;  provided, however, that in no event shall the
Investor's  advisors or  representatives  disclose to the Investor the nature of
the specific  event or  circumstances  constituting  any  nonpublic  information
discovered  by such  advisors  or  representatives  in the  course  of their due
diligence  without the written  consent of the Investor  prior to  disclosure of
such information. The Investor's advisors or representatives shall make complete
disclosure to the Investor's  independent counsel of all events or circumstances
constituting    nonpublic   information   discovered   by   such   advisors   or
representatives in the course of their due diligence upon which such advisors or
representatives  form the opinion that the  Registration  Statement  contains an
untrue  statement  of a material  fact or omits a material  fact  required to be
stated  in the  Registration  Statement  or  necessary  to make  the  statements
contained  therein,  in the light of the  circumstances in which they were made,
not  misleading.  Upon receipt of such  disclosure,  the Investor's  independent
counsel shall consult with the Company's independent counsel in order to

                                       17
<PAGE>

address the concern  raised as to the  existence of a material  misstatement  or
omission and to discuss appropriate  disclosure with respect thereto;  provided,
however, that such consultation shall not constitute the advice of the Company's
independent  counsel to the  Investor  as to the  accuracy  of the  Registration
Statement  and  related  Prospectus.  In the event after such  consultation  the
Investor's   independent  counsel  reasonably  believes  that  the  Registration
Statement  contains an untrue  statement or a material  fact or omits a material
fact  required to be stated in the  Registration  Statement or necessary to make
the statements  contained  therein,  in light of the circumstances in which they
were made, not misleading,  (a) the Company shall file with the SEC an amendment
to the  Registration  Statement  responsive to such alleged untrue  statement or
omission and provide the Investor,  as promptly as  practicable,  with copies of
the Registration  Statement and related  Prospectus,  as so amended,  (b) if the
Company  disputes the existence of any such material  misstatement  or omission,
(i) and the dispute  relates to  information  other than  financial  statements,
schedules  and  other   financial  or   statistical   information   included  or
incorporated  by reference  therein,  the  Company's  independent  counsel shall
provide the Investor's  independent counsel with a letter (customary in form and
scope as provided to an underwriter in an underwritten  public offering) stating
that,  without  independently  checking  the  accuracy  or  completeness  of, or
otherwise  verifying,  any  statements  of fact  contained  in the  Registration
Statement,  nothing has come to their  attention that would lead them to believe
that the  Registration  Statement or the related  Prospectus,  as of the date of
such letter, contains an untrue statement of a material fact or omits a material
fact  required  to be  stated  in the  Registration  Statement  or  the  related
Prospectus or necessary to make the statements  contained  therein,  in light of
the  circumstances  in which they were made, not misleading or (ii) in the event
the dispute  relates to the  adequacy of financial  disclosure  and the Investor
shall reasonably request,  the Company's  independent  auditors shall provide to
the Company a letter  outlining the performance of such "agreed upon procedures"
as shall be  reasonably  requested by the Investor and the Company shall provide
the  Investor  with a copy of such  letter,  or (c) if the Company  disputes the
existence of any such material misstatement or omission, and the dispute relates
to the timing of  disclosure of a material  event and the Company's  independent
counsel is unable to provide the letter referenced in clause (b)(i) above to the
Investor,  then this  Agreement  shall be suspended for a period of up to thirty
(30)  days,  at the end of  which,  if the  dispute  still  exists  between  the
Company's  independent  counsel  and the  Investor's  independent  counsel,  the
Company  shall either (i) amend the  Registration  Statement as provided  above,
(ii) provide to the Investor the Company's  independent counsel letter or a copy
of the  letter  of the  Company's  independent  auditors  referenced  above,  as
applicable, or (iii) the obligation of the Investor to purchase shares of Common
Stock pursuant to this Agreement shall terminate.

                                       IV.
                   REPRESENTATIONS AND WARRANTIES OF INVESTOR

             The Investor represents and warrants to the Company as follows:

                                       18
<PAGE>

             4.1 No Present  Arrangement.  The  Investor is  entering  into this
Agreement  for its own  account  and the  Investor  has no  present  arrangement
(whether  or not  legally  binding)  at any time to sell the Common  Stock to or
through  any  person  or  entity;   provided,   however,   that  by  making  the
representations herein, the Investor does not agree to hold the Common Stock for
any  minimum or other  specific  term and  reserves  the right to dispose of the
Common Stock at any time in accordance  with federal and state  securities  laws
applicable to such disposition.

             4.2  Sophisticated   Investor.  The  Investor  is  a  sophisticated
investor  (as  described  in  Rule  506(b)(2)(ii)  of  Regulation  D  under  the
Securities Act) and an accredited investor (as defined in Rule 501 of Regulation
D under the Securities  Act),  and the Investor has such  experience in business
and financial  matters that it is capable of evaluating  the merits and risks of
an investment in Common Stock. The Investor  acknowledges  that an investment in
the Common Stock is speculative and involves a high degree of risk, and that the
Investor is able to afford the loss of its entire investment herein.

             4.3  Authority.  The  Investor  has full power and  authority  as a
limited   liability   company  to  execute  and  deliver  this  Agreement,   the
Registration   Rights  Agreement  and  the  Warrants,   and  to  consummate  the
transactions contemplated hereby and thereby in accordance with the terms hereof
and thereof.  The execution and delivery of this Agreement and the  consummation
of the  transactions  contemplated  hereby  have  been  duly  authorized  by the
Investor.  No other proceedings on the part of Investor are necessary to approve
and authorize the execution and delivery of this Agreement and the  consummation
of the  transactions  contemplated  hereby in accordance  with the terms hereof.
This Agreement has been validly  executed and delivered by the Investor and is a
valid and binding agreement of the Investor enforceable against it in accordance
with its terms,  subject to  applicable  bankruptcy,  insolvency or similar laws
relating to, or affecting  generally the enforcement of,  creditors'  rights and
remedies or by other equitable principles of general application.

             4.4 No Brokers.  The  Investor  has taken no action that would give
rise to any claim by any  person  for  brokerage  commission,  finder's  fees or
similar  payments by the Company  relating to this Agreement or the transactions
contemplated hereby.

             4.5 Not an Affiliate.  The Investor is not an officer,  director or
Affiliate of the Company.

             4.6 Organization and Standing.  The Investor is a limited liability
company duly organized, validly existing, and in good standing under the laws of
the State of New York,  and has all  requisite  power and authority as a limited
liability  company to carry on its business as now being conducted,  and is duly
qualified to do business and in good standing in each  jurisdiction in which the
nature of the  business  conducted  by it makes such  qualifications  necessary,
except  where the  failure  to be so  qualified  or in good  standing  would not
reasonably be expected to have a material adverse effect.

             4.7  Absence of  Conflicts.  The  execution  and  delivery  of this
Agreement and any other document or instrument executed in connection  herewith,
and the consummation of the transactions  contemplated  hereby and thereby,  and
compliance with the requirements  hereof and

                                       19
<PAGE>

thereof,  will not violate any law, rule,  regulation,  order,  writ,  judgment,
injunction,  decree or award  binding on the  Investor,  or the provision of any
indenture,  instrument  or  agreement  to which  the  Investor  is a party or is
subject,  or by which the  Investor  or any of its assets is bound,  or conflict
with or constitute a material default  thereunder,  or result in the creation or
imposition of any lien pursuant to the terms of any such  indenture,  instrument
or agreement,  or constitute a breach of any fiduciary duty owed by the Investor
to any third  party,  or require the  approval of any third party (which has not
been  obtained)  pursuant  to  any  material  contract,  agreement,  instrument,
relationship  or legal  obligation  to which the Investor is subject or to which
any of its assets, operations or management may be subject.

             4.8 Disclosure:  Access to  Information.  The Investor has received
all documents, records, books and other information pertaining to the Investor's
investment in the Company that have been requested by the Investor. The Investor
further  acknowledges  that it  understands  that the  Company is subject to the
periodic  reporting  requirements  of the  Exchange  Act,  and the  Investor has
reviewed or received  copies of any such reports that have been  requested by it
and that it considers  necessary or  appropriate  for deciding  whether to enter
into this Agreement and perform its obligations hereunder.  The Investor further
represents  that it had an opportunity to ask questions and receive answers from
the Company  regarding  the terms and  conditions  of the purchase of the Common
Stock and the Warrants,  and the business,  properties,  prospects and financial
condition of the Company.

             4.9 Manner of Sale. At no time was the Investor  presented  with or
solicited  by or through any leaflet,  public  promotional  meeting,  television
advertisement or any other form of general solicitation or advertising.

             4.10 Financial Capability. The Investor presently has the financial
capacity  and the  necessary  capital to  perform  on a timely  basis all of its
obligations  hereunder.  The Investor  has, or has  available to it,  sufficient
funds to satisfy  all of its  financial  obligations  under the  Agreement.  The
Investor  will  promptly  notify the Company of any event or  circumstance  that
could be  reasonably  expected to hinder the  Investor's  ability to perform its
obligations hereunder.

             4.11 No NASD Proceedings.  To the Knowledge of the Investor,  there
are no disciplinary  proceedings  involving the Investor or any of its employees
pending before the NASD.

             4.12 Not a Broker or Dealer.  The  Investor  is not a "broker" or a
"dealer" (as such terms are defined in the Securities Act or the Exchange Act).

             4.13 Not a Member of the NASD.  The  Investor  is not a "member" of
the NASD or a "person  associated  with a member" of the NASD (as such terms are
defined in the By-laws and rules of the NASD).

             4.14 No Hedging or Short Selling.  (a) During the period sixty (60)
days prior to the date of this  Agreement  the  Investor  has not engaged in any
short sales or hedging of any kind in anticipation  of this  Agreement,  and (b)
during the term of this Agreement the Investor may

                                       20
<PAGE>

make sales in  anticipation  of Company Put Notices,  but may not make any sales
with the  intention  of  reducing  the price of the Common  Stock to  Investor's
benefit.

             4.15 Compliance with Securities Laws. The Investor acknowledges and
agrees that any  transactions in the Common Stock effected by the Investor shall
comply with all applicable  securities laws, including,  without limitation,  if
applicable, Regulation M promulgated under the Exchange Act.

             4.16 No  Transactions  below Floor  Price.  During each  Investment
Period,  the Investor will not engage in any  transaction in the Common Stock in
which the per share  price of the  Common  Stock is below the Floor  Price  with
respect to such Investment Period.

                                       V.

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

             Except as disclosed in the SEC Documents, Company press releases or
in the Disclosure  Schedule delivered by the Company to the Investor on the date
hereof, the Company represents and warrants to the Investor as follows:

             5.1   Corporate   Organization.   The   Company  and  each  of  its
Subsidiaries  is  a  corporation  duly  organized,   validly  existing  and,  if
applicable,   in  good  standing   under  the  laws  of  its   jurisdiction   of
incorporation,  and has all  requisite  corporate  power and authority to own or
lease and  operate  its  properties  and to carry on its  business  as now being
conducted,  and is duly  qualified to do business  and in good  standing in each
jurisdiction in which the property owned, leased or operated by it 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  reasonably  be
expected to have a Material  Adverse  Effect.  The Company has made available to
the Investor or its agents  complete and correct  copies of the  Certificate  of
Incorporation,  as amended,  and by-laws of the Company as in effect on the date
hereof.

             5.2         Capitalization.

                         (a)     The authorized Capital Stock of the Company
consists of (i) 50,000,000  shares of Common Stock and (ii) 10,000,000 shares of
preferred  stock,  $.01 par value (the  "Preferred  Stock").  As of December 24,
1999,  there were (i) 29,134,559.5  shares of Common Stock issued,  all of which
are duly  authorized  and validly  issued,  fully paid and  nonassessable,  (ii)
257,739  shares of Common  Stock owned by the Company in its  treasury and (iii)
8,796,238 shares of Common Stock reserved for issuance pursuant to stock options
granted or which may be granted under the  Compensation  Plans.  The Company has
not issued any Common  Stock since  December 24,  1999,  except  pursuant to the
exercise of stock options or pursuant to the Company's  Compensation  Plans, nor
has the Company  since such date  repurchased  or redeemed or acquired  any such
shares.  No shares of Capital  Stock of the Company are  entitled to  preemptive
rights.

                                       21
<PAGE>

                         (b)      Except as set forth in Section 5.2(a) above,
the  Company  does  not  have   outstanding  any  Capital  Stock  or  securities
convertible into or exchangeable for any shares of Capital Stock or any options,
warrants  or  other  rights,  agreements,  arrangements  or  commitments  of any
character to which the Company is a party or otherwise obligating the Company to
issue or sell or  entitling  any Person to  acquire  from the  Company,  and the
Company is not a party to any agreement, arrangement or commitment obligating it
to repurchase,  redeem or otherwise acquire,  any shares of its Capital Stock or
securities convertible into or exchangeable for any of its Capital Stock.

                         (c)     Upon issuance of the Common Stock, and payment
of the Purchase  Price  therefor,  pursuant to a purchase and sale in accordance
with the terms of this Agreement, the Company will transfer to the Investor good
and valid title to the Common Stock,  free and clear of any material Lien, other
than Liens,  if any,  created by the Investor and such Common Stock will be duly
authorized, fully paid and nonassessable.

             5.3         Subsidiaries.

                           (a)      The Company does not have any Subsidiaries
that own  material  assets or are  subject to material  liabilities,  other than
those listed on Schedule 5.3(a) of the Disclosure Schedule.  Each Subsidiary is,
directly or indirectly, wholly-owned by the Company.

                          (b)     (i) All the outstanding stock or other equity
or  ownership  interests  of each  Subsidiary  is owned  free  and  clear of all
material Liens and is validly issued and (ii) there are no options,  warrants or
other rights, agreements,  arrangements or commitments of any character to which
any  Subsidiary is a party or otherwise  obligating  any  Subsidiary to issue or
sell, or entitling any Person to acquire from any Subsidiary,  and no Subsidiary
is a  party  to  any  agreement,  arrangement  or  commitment  obligating  it to
repurchase,  redeem or otherwise acquire, any shares of the Capital Stock or any
securities  convertible  into or exchangeable  for the Capital Stock of any such
Subsidiary.

             5.4  Authorization.  The  Company  has  full  corporate  power  and
authority  to execute  and  deliver  this  Agreement,  the  Registration  Rights
Agreement and the Warrants, to issue the Common Stock pursuant to this Agreement
and the Warrants,  and to consummate the  transactions  contemplated  hereby and
thereby in  accordance  with the terms hereof and  thereof.  The  execution  and
delivery of this Agreement,  the Registration Rights Agreement and the Warrants,
and the issuance of the Common Stock issuable upon a Closing and pursuant to the
Warrants,  and the  consummation  of the  transactions  contemplated  hereby and
thereby have been duly  authorized by the Board of Directors of the Company.  To
the Knowledge of the Company, no other corporate  proceedings on the part of the
Company are  necessary to approve and  authorize  the  execution and delivery of
this Agreement,  the  Registration  Rights  Agreement and the Warrants,  and the
issuance  of the  Common  Stock  issuable  upon a Closing  and  pursuant  to the
Warrants,  and the  consummation  of the  transactions  contemplated  hereby and
thereby in accordance with the terms hereof and thereof, except for any approval
of the Company's  shareholders that may be required pursuant to Rule 4460 of the
Marketplace   Rules  of  the  Nasdaq  Stock  Market.   This  Agreement  and  the
Registration  Rights  Agreement  have been duly  executed  and  delivered by the
Company,  and the Common  Stock  issuable in  accordance  with the terms of

                                       22
<PAGE>

this  Agreement  or upon  exercise  of the  Warrants,  upon the  payment  of the
purchase price therefor in accordance with the terms hereof and thereof, will be
duly  and  validly  issued,  fully  paid  and  nonassessable,  and  each of this
Agreement, the Registration Rights Agreement and the Warrants, when executed and
delivered  constitute valid and binding  obligations of the Company  enforceable
against  the  Company in  accordance  with their  terms,  subject to  applicable
bankruptcy,  insolvency or similar laws relating to, or affecting  generally the
enforcement of, creditors' rights and remedies or by other equitable  principles
of general application.

             5.5         No Violation; Consents.

                         (a)     Assuming the making or receipt of all filings,
notices,   registrations,   consents,   approvals,  permits  and  authorizations
described in this Section 5.5, the execution and delivery of this Agreement, the
Registration  Rights Agreement and the Warrants,  and the issuance of the Common
Stock,  the  consummation  of  the  transactions  contemplated  hereby,  by  the
Registration  Rights  Agreement and the Warrants,  the compliance by the Company
with any of the provisions  hereof or of the  Registration  Rights Agreement and
the Warrants, will not (i) conflict with, violate or result in any breach of the
Certificate  of  Incorporation,  as  amended,  or by-laws of the  Company or its
Subsidiaries,  (ii) result in a violation or breach of, or  constitute  (with or
without due notice or lapse of time or both) a default or give rise to any right
of termination, cancellation or acceleration under, or result in the creation of
any  Lien on or  against  any of the  properties  of the  Company  or any of its
Subsidiaries  pursuant  to any of the terms or  conditions  of any  note,  bond,
mortgage,  indenture,  license,  agreement or other  instrument or obligation to
which the Company or any of its  Subsidiaries is a party or by which any of them
or any of their properties or assets may be bound, or (iii) violate any statute,
law,  rule,  regulation,  writ,  injunction,  judgment,  order or  decree of any
Governmental Entity, binding on the Company or any of its Subsidiaries or any of
their properties or assets,  excluding from the foregoing  clauses (i), (ii) and
(iii)  conflicts,   violations,   breaches,  defaults,  rights  of  termination,
cancellation or acceleration, and liens which, individually or in the aggregate,
would not have a Material Adverse Effect,  would not prevent or materially delay
consummation of the  transactions  contemplated  hereby and would not affect the
validity of the issuance of the Common Stock.

                         (b) Except  for (i)  applicable  requirements,  if any,
under Blue Sky Laws, (ii) the filing of additional  listing  applications with
Nasdaq, and (iii) the filing of the Registration  Statement, no filing, consent,
approval, permit, authorization, notice, registration or other action of or with
any Governmental Entity is required to be made or obtained by or with respect to
the Company or any of its  Subsidiaries  in  connection  with the  execution and
delivery of this Agreement,  the Registration Rights Agreement and the Warrants,
the  issuance  of the Common  Stock or the  consummation  by the  Company of the
transactions contemplated hereby and thereby.

             5.6 Compliance  With  Applicable Law. The businesses of the Company
are not being conducted in violation of any law,  ordinance,  rule,  regulation,
judgment,  decree  or order of any  Governmental  Entity,  except  for  possible
violations  which,  individually or in the aggregate,  would not have a Material
Adverse Effect.  The Company and each of its  Subsidiaries  possess all domestic
and foreign  governmental  licenses,  permits,  authorizations and approvals and
have made all registrations and given all notifications  required under federal,
state,  local or foreign

                                       23
<PAGE>

law to carry on in all respects their businesses as currently conducted,  except
as otherwise  disclosed in writing by the Company to the Investor on or prior to
the date  hereof,  and  except  where  the  failure  to have any such  licenses,
permits,  authorizations or approvals,  individually or in the aggregate,  would
not  have  a  Material  Adverse  Effect.  No  investigation  or  review  by  any
Governmental  Entity with respect to the Company or any of its  Subsidiaries  is
pending or, to the  knowledge of the Company,  threatened,  other than those the
outcome of which,  individually  or in the  aggregate,  would not  reasonably be
expected to have a Material Adverse Effect.

             5.7 Year 2000  Compliance.  The  Company's  computer  systems (both
hardware and  software)  and  telephone  systems  (collectively,  the  "Computer
System") are in good working  order.  The Computer  System (i) shall  accurately
input, process and output all date and time data, from years in the same century
or in different  centuries,  including by yielding correct results in arithmetic
operations,  comparisons  and  sorting  of date and time  data and in leap  year
calculations,  and (ii) will not  abnormally  cease to operate,  return an error
message or otherwise fail due to date- or time-related  processing or due to the
then-current  date being before,  on or after January 1, 2000 or any other date,
except,  in any case,  where any error or  malfunction,  individually  or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.

             5.8 Litigation.  There is no claim, action or proceeding (including
any  condemnation  proceeding)  pending  or, to the  Knowledge  of the  Company,
threatened  against or relating to the Company or any of its  Subsidiaries by or
before any  Governmental  Entity or  arbitrator  that if  adversely  determined,
individually or in the aggregate,  would have a Material Adverse Effect,  nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator  outstanding  against the Company or any of its Subsidiaries  that
has had,  or would  reasonably  be  expected  in the future to have,  a Material
Adverse  Effect or which  reasonably  could be expected to materially  adversely
affect the transactions contemplated by this Agreement.

             5.9         SEC Documents, Financial Statements.

                         (a)      The Common Stock is registered pursuant to
Section  12(g) of the  Exchange  Act and the  Company  has  filed  all  reports,
schedules,  forms,  statements and other documents,  together with all exhibits,
financial  statements and schedules  thereto required to be filed by it with the
SEC  pursuant to the  reporting  requirements  of the  Exchange  Act,  including
material filed pursuant to Section 13(a) or 15(d) (all of the foregoing, and all
other documents and  registration  statements,  whether  heretofore or hereafter
filed by the Company with the SEC since  January 1, 1996,  and the  Registration
Statement,  when declared effective,  being hereinafter  referred to as the "SEC
Documents").  The Common  Stock is currently  listed or quoted on the  Principal
Market, which is, as of the date hereof, the Nasdaq National Market. The Company
has delivered or made available to the Investor true and complete  copies of the
SEC  Documents  through  December 30, 1999.  The Company has not provided to the
Investor any material  information  which,  according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed,  other than with respect to the transactions  contemplated by
this Agreement.  As of their respective dates, the SEC Documents complied in all
material  respects with the  requirements  of the Exchange Act or the Securities

                                       24
<PAGE>

Act, as the case may be, and the rules and  regulations  of the SEC  promulgated
thereunder  and  other  federal,  state and local  laws,  rules and  regulations
applicable to such SEC  Documents,  and none of the SEC Documents  contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated  herein or necessary in order to make the  statements  therein,  in
light of the circumstances under which they were made, not misleading. As of the
date of delivery by the Investor of the Prospectus contained in the Registration
Statement  in  connection  with  sales of  Common  Stock by the  Investor,  such
Prospectus  will comply in all material  respects with the  requirements  of the
Securities Act and the rules and regulations of the SEC promulgated  thereunder,
and other federal,  state and local laws,  rules and  regulations  applicable to
such  Prospectus.   The  financial   statements  of  the  Company  included  (or
incorporated  by  reference)  in the  SEC  Documents  comply  as to  form in all
material  respects with  applicable  accounting  requirements  and the published
rules and regulations of the SEC or other  applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting  principles ("GAAP") applied on a consistent basis
during the periods  involved  (except (i) as may be otherwise  indicated in such
financial  statements  or the  notes  thereto  or (ii) in the case of  unaudited
interim  statements,  to the extent  they may not  include  footnotes  or may be
condensed or summary statements) and fairly present in all material respects the
consolidated  financial  position of the Company and its  Subsidiaries as of the
dates thereof and the results of operations  and cash flows for the periods then
ended (subject,  in the case of unaudited  statements,  to normal year-end audit
adjustments).

                         (b)  During  the  three (3)  years  preceding  the date
hereof, the SEC has not issued an order preventing  or  suspending  the  use of
any  prospectus  relating  to the  offering  of any  shares of  Common  Stock or
instituted proceedings for that purpose.

             5.10 No Undisclosed or Contingent Liabilities.  Neither the Company
nor any of its  Subsidiaries  has any claims,  liabilities or obligations of any
nature  whatsoever  (whether  absolute,  accrued,  contingent  or otherwise  and
whether due or to become due) that would be required to be reflected or reserved
against on a  consolidated  balance  sheet of the Company  and its  consolidated
Subsidiaries  under GAAP,  except for claims,  liabilities  or  obligations  (i)
reflected  or  reserved  against on the Balance  Sheet,  (ii)  disclosed  in the
Company's  most recent Form 10-K or any SEC Document  filed  subsequent  to such
Form 10-K or (iii)  incurred  by the  Company or any of its  Subsidiaries  since
September 30, 1999 in the ordinary  course of business and consistent  with past
practice and that,  individually or in the aggregate,  would not have a Material
Adverse Effect.

             5.11 Taxes. The Company and its Subsidiaries  have timely filed all
necessary  Tax Returns and notices  and have paid all  federal,  state,  county,
local and foreign taxes of any nature  whatsoever  for all the tax years through
December 31, 1998 indicated on such Tax Returns as being due and payable, to the
extent such taxes have  become due (other than taxes which are being  challenged
in good  faith by the  Company  and have  been  adequately  reserved  for by the
Company),  except  where any  failure  to file or pay would not have a  Material
Adverse Effect. There are no tax deficiencies which would reasonably be expected
to have a Material Adverse Effect;  the Company and its  Subsidiaries  have paid
all Taxes which have  become due and  payable by the  Company  (other than Taxes
that are being challenged in good faith or have been adequately  reserved for by
the Company),  whether pursuant to any assessments,  or

                                       25
<PAGE>

otherwise,  except  where any  failure to pay would not have a Material  Adverse
Effect,  and there is no further  liability  (whether or not  disclosed  on such
returns) or assessments for any such Taxes, and no interest or penalties accrues
or accruing with respect thereto; the amounts currently set up as provisions for
Taxes or  otherwise  by the  Company  and its  Subsidiaries  on their  books and
records are  sufficient  in all  material  respects for the payment of all their
unpaid federal, foreign, state, county and local taxes accrued through the dates
as of which  they  speak,  except  where  such  insufficiency  would  not have a
Material  Adverse Effect,  and for which the Company and its Subsidiaries may be
liable in their own right,  or as  transferee  of the assets of, as successor to
any other corporation, association, partnership, joint venture or other entity.

             5.12 Employee  Benefit Plans.  All employee benefit plans and other
benefit arrangements  covering the employees of the Company and its Subsidiaries
(the  "Benefit  Plans")  have been  operated  and  administered  in all material
respects in  compliance  with their terms and  applicable  law, and there are no
claims,  liabilities  or  obligations  of any kind  whatsoever  relating  to the
Benefit  Plans  which  individually  or in the  aggregate  would have a Material
Adverse Effect.

             5.13 Absence of Certain  Changes.  Since  September  30, 1999,  the
business of the Company and its  Subsidiaries has been conducted in the ordinary
course  consistent  with past  practices  and except in the  ordinary  course of
business consistent with past practice there has not been:

                                  (i)  to the Knowledge of the Company, any
event,  occurrence,  development  or state  of  circumstances  or  facts  which,
individually  or in the  aggregate,  has had or would  reasonably be expected to
have a Material Adverse Effect;

                                  (ii) any declaration, setting aside or payment
of any dividend or other distribution  with respect to any shares of Capital
Stock of the Company or any repurchase,  redemption or other  acquisition by the
Company or any  Subsidiary of any  outstanding  shares of Capital Stock or other
securities of, or other ownership interests in, the Company or any Subsidiary;

                                  (iii) any  amendment of any  material  term of
any outstanding security of the Company or any Subsidiary;

                                  (iv) any  incurrence,  assumption or guarantee
by the Company or any Subsidiary of any indebtedness for borrowed money,  other
than (i) working lines of credit or borrowings under existing lines of credit or
floor plan financing arrangements, (ii) any license fees and royalties and (iii)
pursuant to any lease;

                                 (v)  any creation or assumption by the Company
or any  Subsidiary of any Lien on any material  asset other than in the ordinary
course of business consistent with past practice;

                                  (vi)  any  making  of  any  loan,  advance  or
capital contributions to or investment in any  Person in excess of  $500,000
other  than  loans,  advances  or capital

                                       26
<PAGE>

contributions  to or  investments  in  wholly-owned  Subsidiaries  made  in  the
ordinary course of business consistent with past practice;

                                  (vii)  any   damage,   destruction   or  other
casualty loss (whether or not covered by insurance)  affecting the business or
assets of the Company or any Subsidiary which, individually or in the aggregate,
has had or would reasonably be expected to have a Material Adverse Effect;

                                  (viii) any transaction or commitment  made, or
any  contract  or  agreement  entered  into,  by the  Company or any  Subsidiary
relating to its assets or business  (including the acquisition or disposition of
any  assets)  or any  relinquishment  by the  Company or any  Subsidiary  of any
contract  or other  right,  in any such case,  material  to the  Company and the
Subsidiaries,  taken as a whole,  other than transactions and commitments in the
ordinary course of business consistent with past practice and those contemplated
by this Agreement; or

                                  (ix) any  material  change  in any  method  of
accounting or accounting practice by the Company or any Subsidiary.

             5.14        Environmental Matters.

                         (a)     The Company and its Subsidiaries have obtained
all permits, licenses and other authorizations,  and have made all registrations
and given all notifications,  that are required with respect to the operation of
their respective  businesses under all applicable  Environmental Laws other than
those permits,  licenses, other authorizations,  registrations and notifications
the failure of which to obtain or make, individually or in the aggregate,  would
not have a Material Adverse Effect.

                         (b)      The Company and its Subsidiaries are in
compliance  in all  material  respects  with all  terms  and  conditions  of the
required permits,  licenses and other  authorizations  referred to in subsection
(a) of this Section 5.14,  and also in compliance in all material  respects with
any  other  limitations,   restrictions,  conditions,  standards,  prohibitions,
requirements,   obligations,   schedules   and   timetables   contained  in  the
Environmental  Laws or contained in any regulation,  code, plan, order,  decree,
judgment,  injunction,  settlement  agreement,  notice or demand letter  issued,
entered,  promulgated or approved thereunder, other than where the failure to be
in such compliance,  individually or in the aggregate, would not have a Material
Adverse Effect.

                         (c)      There is no civil, criminal or administrative
action,  suit,  demand,  claim,  hearing,  notice of  violation,  investigation,
proceeding, notice or demand letter (collectively, "Actions") pending or, to the
Knowledge  of  the  Company,  threatened  against  the  Company  or  any  of its
Subsidiaries relating in any way to Environmental Laws or any regulation,  code,
plan,  order,  decree,  judgment,  injunction,  notice or demand letter  issued,
entered,  promulgated  or  approved  thereunder  other  than  Actions  that,  if
determined  adversely to the Company or such Subsidiaries,  would not reasonably
be expected to have a Material Adverse Effect.

                                       27
<PAGE>

             5.15        Material Contracts.

                         (a)      Neither the Company nor any Subsidiary is a
party to or bound by any  agreement or  arrangement  material to the Company and
its Subsidiaries taken as a whole ("Material Contracts").

                         (b)      Each Material Contract is in full force and
effect and constitutes a legal,  valid and binding  obligation of the Company or
the  Subsidiary  party thereto and, to the Knowledge of the Company,  each other
party thereto,  and is enforceable  against the Company or its Subsidiaries and,
to the Knowledge of the Company, each other party thereto in accordance with its
terms,  except  to  the  extent  that  such  enforceability  is  limited  by (i)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws now or hereafter in effect relating to creditors'  rights generally
and (ii) general  principles  of equity,  and neither the Company nor any of its
Subsidiaries,  nor, to the Knowledge of the Company,  any other party thereto is
in conflict  therewith or in violation or breach thereof or default  thereunder,
except for such conflicts, violations, breaches and defaults which, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.

             5.16  Properties;  Encumbrances.  Subject  to the  next  succeeding
sentence, each of the Company and its Subsidiaries has good and valid title, and
in the case of real property,  insurable  title, to all material  properties and
assets  which it  purports  to own  (real,  personal  and  mixed,  tangible  and
intangible,  including all forms of goodwill, rights,  intellectual property and
intellectual property rights) (collectively,  the "Company Assets"),  including,
without  limitation,  all the material  properties  and assets  reflected on the
Balance Sheet (except for (i) real and personal  property sold since the date of
the Balance Sheet or which was obsolete or no longer  useful in connection  with
the  businesses  of the Company and its  Subsidiaries  and (ii)  capital  leases
reflected  on the  Balance  Sheet),  and  all  material  properties  and  assets
purchased  by the  Company  and its  Subsidiaries  since the date of the Balance
Sheet.  All Company Assets are free and clear of all liens,  mortgages,  claims,
interests,   charges,  security  interests  or  other  encumbrances  or  adverse
interests  of any  nature  whatsoever  and  other  title or  interest  retention
arrangements ("Liens"), except (A) as reflected on the Balance Sheet, (B) as set
forth on  Schedule  5.16 of the  Disclosure  Schedule,  (C)  statutory  Liens of
carriers,  warehousemen,  mechanics, workmen and materialmen for liabilities and
obligations  incurred in the ordinary  course of business  consistent  with past
practice that are not yet delinquent or being contested in good faith,  (D) such
defects,  irregularities,  encumbrances  and  other  imperfections  of  title as
normally  exist  with  respect  to  property  similar  in  character  and  that,
individually or in the aggregate together with all other such exceptions, do not
have a Material  Adverse  Effect,  (E) Liens for Taxes and (F) Liens that do not
interfere with the present use of the property subject to the Lien.

             5.17 Insurance.  All current primary,  excess and umbrella policies
of insurance owned or held by or on behalf of or providing insurance coverage to
the  Company  or any of its  Subsidiaries  are in full  force and  effect.  With
respect to all such  insurance  policies  purchased by the Company or any of its
Subsidiaries,  no  premiums  are in  arrears  and no notice of  cancellation  or
termination  has been  received  with  respect  to any such  policy,  other than
notices of  cancellation  or  termination  routinely sent at the end of a policy
term. To the Knowledge of the

                                       28
<PAGE>

Company,  the  insurance  coverage  of  the  Company  and  its  Subsidiaries  is
consistent  with the coverage  generally  maintained by  corporations of similar
size and engaged in similar lines of business.

             5.18 Employee Claims; Labor Matters. There are no claims or actions
pending or, to the Knowledge of the Company,  threatened  between the Company or
any of its Subsidiaries and any of their respective employees, unions, or former
employees that would be reasonably likely to,  individually or in the aggregate,
have a Material Adverse Effect. The Company and each of its Subsidiaries have no
collective  bargaining  agreements  covering  employees  of the  Company  or any
Subsidiary.

             5.19 Material Disclosure. To the Knowledge of the Company, there is
no fact,  transaction or development  which the Company has not disclosed to the
Investor in writing (including  pursuant to the SEC Documents filed prior to the
date  hereof)  which  would  reasonably  be  expected,  individually  or in  the
aggregate,  to have a Material  Adverse  Effect.  This Agreement  (including any
Exhibit  or  Schedule   hereto)  and  any  written   statements,   documents  or
certificates  furnished to the Investor by the Company or its Subsidiaries prior
to the date hereof in  connection  with the  transactions  contemplated  hereby,
taken as a whole, do not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated herein or therein or
necessary  to  make  the  statements   herein  or  therein,   in  light  of  the
circumstances under which they were made, not misleading.

             5.20 Intellectual Property. The Company and its Subsidiaries own or
possess adequate patent rights or licenses or other rights to use patent rights,
inventions,  trademarks,  service marks, trade names and copyrights  material to
the general business now operated by them and neither the Company nor any of its
Subsidiaries  has received any notice of  infringement or conflict with asserted
rights  of  others  with  respect  to any  patent,  patent  rights,  inventions,
trademarks,  service marks, trade names or copyrights which,  individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect.

             5.21 No General Solicitation in Regard to this Transaction. Neither
the Company nor any of its Subsidiaries or Affiliates nor any distributor or any
person acting on its or their behalf has conducted any general  solicitation (as
that term is used in Rule 502(c) of Regulation D under the Securities  Act) with
respect to any of the Common Stock offered hereby, nor have they made any offers
or sales of any security or solicited  any offers to buy any security  under any
circumstances that would require registration of the Common Stock offered hereby
under the Securities Act.

             5.22 No Undisclosed  Events or  Circumstances.  To the Knowledge of
the Company,  since September 30, 1999, no event or circumstance has occurred or
exists  with  respect to the  Company or its  Subsidiaries  or their  respective
businesses,   properties,   operations  or  financial  condition,  which,  under
applicable law, rule or regulation,  requires public  disclosure or announcement
prior to the date hereof by the Company.

             5.23 No Integrated  Offering.  Neither the Company,  nor any of its
Subsidiaries  or  affiliates,  nor any person acting on its or their behalf has,
directly or  indirectly,  made any

                                       29
<PAGE>

offers or sales of any  security or  solicited  any offers to buy any  security,
other than pursuant to this Agreement,  under  circumstances  that would require
the offering of such other  securities to be integrated with the offering of the
shares of Common Stock to be issued under this Agreement.

             5.24 No Brokers.  The Company has taken no action  which would give
rise to any claim by any  Person for  brokerage  commissions,  finder's  fees or
similar payments by the Investor relating to this Agreement for the transactions
contemplated hereby.

             5.25 No Violation of Covenants. To the Knowledge of the Company, no
event of default has occurred and is  continuing  (or event which with the lapse
of time or  notice  or both  would  constitute  such  an  event)  which  has not
otherwise been waived under any revolving credit facility, indenture,  mortgage,
deed of  trust,  loan  agreement  or other  agreement  or  instrument  for money
borrowed  or any other  material  agreement  to which the  Company or any of its
Subsidiaries  is bound, or to which any of the property or assets of the Company
or any of its  Subsidiaries  is subject,  and in any case,  which the failure to
cure or obtain a waiver  with  respect  to such  default  would  have a Material
Adverse Effect.

                                       VI.

                            COVENANTS OF THE COMPANY

             6.1 Registration  Rights.  The Company shall comply in all respects
with the terms of the Registration Rights Agreement.

             6.2  Reservation  of Common  Stock.  Except as disclosed in the SEC
Documents,  the  Company  has  reserved  and will  continue  to reserve and keep
available at all times in any Investment Period, such number of shares of Common
Stock, free of preemptive rights, necessary to enable the Company to satisfy any
obligation to issue shares of its Common Stock  incident to the Closings in such
Investment Period and incident to the exercise of the Warrants issued hereunder;
such amount of shares of Common Stock to be reserved to be calculated based upon
the Floor Price  therefor  under the terms of this  Agreement,  and assuming the
full  exercise of the  Warrants.  The number of shares so reserved  from time to
time,  as  theretofore  increased  or reduced as  hereinafter  provided,  may be
reduced by the number of shares actually  delivered  hereunder and the number of
shares so reserved shall be increased to reflect (a) potential  increases in the
Common Stock which the Company may thereafter be so obligated to issue by reason
of  adjustments  to the Purchase Price therefor and the issuance of the Warrants
and (b) stock splits and stock dividends and distributions.

             6.3 Listing of Common Stock. During the term of this Agreement, the
Company hereby agrees to maintain the listing of the Common Stock on a Principal
Market,  and as soon as  reasonably  practicable  but in any event  prior to the
commencement  of the Commitment  Period to list the additional  shares of Common
Stock  issuable  under this  Agreement  (including  Common Stock  issuable  upon
exercise of the  Warrants).  The Company  further  agrees  that,  if the Company
applies to have the Common Stock traded on any other

                                       30
<PAGE>

Principal  Market, it will include in such application the Common Stock issuable
under this  Agreement  (including  Common Stock  issuable  upon  exercise of the
Warrants), and will take such other action as is necessary or desirable to cause
the Common  Stock to be listed on such other  Principal  Market as  promptly  as
possible.  If the Principal  Market is the Nasdaq National  Market,  the Company
shall maintain sufficient net tangible assets to satisfy the requirements of the
NASD for the listing of the Common Stock on the Nasdaq National Market.

             6.4 Exchange Act  Registration.  During the term of this Agreement,
the  Company  will cause its Common  Stock to continue  to be  registered  under
Section  12(g)  of the  Exchange  Act,  will  comply  in all  respects  with its
reporting and filing  obligations  under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules  thereunder) to terminate or suspend such  registration or to terminate or
suspend  its  reporting  and  filing  obligations  under the  Exchange  Act.  If
required,  the Company  will take all action to continue the listing and trading
of its Common  Stock on the  Principal  Market and will  comply in all  material
respects with the Company's  reporting,  filing and other  obligations under the
bylaws or rules of the NASD and the Principal Market.

             6.5  Registration  on Form S-3. If the Company  does not  initially
file the  Registration  Statement  on Form S-3,  the Company  shall use its best
efforts to refile and amend the Registration Statement on Form S-3.

             6.6 Legends.  Except as  otherwise  provided by Section 7.1 hereof,
the  certificates  evidencing  the Common  Stock to be issued to the Investor at
each Closing and upon the  exercise of the Warrants  shall be free of legends or
stop transfer or other restrictions.

             6.7 Corporate  Existence.  During the term of this  Agreement,  the
Company will take all steps  necessary  to preserve  and continue the  corporate
existence  of the  Company;  provided,  however,  that  nothing  herein shall be
construed  to limit the ability of the  Company to partake in any merger,  asset
sale or acquisition  transaction  involving the Company,  subject to the Company
complying with the terms of this Agreement.

             6.8 Additional SEC  Documents.  During the term of this  Agreement,
the  Company  will  notify  the  Investor,  as and  when all SEC  Documents  are
submitted to the SEC for filing.

             6.9  "Blackout  Period".  During  the term of this  Agreement,  the
Company will  immediately  notify the Investor upon the occurrence of any of the
following events in respect of a registration statement or related Prospectus in
respect of an  offering  of  securities  required  to be  registered  under this
Agreement or the Registration  Rights Agreement:  (a) receipt of any request for
additional  information  by the SEC or any other  federal or state  governmental
authority during the period of  effectiveness of the registration  statement for
amendments or supplements to the registration  statement or related  Prospectus;
(b) the issuance by the SEC or any other federal or state governmental authority
of any stop order suspending the effectiveness of the registration  statement or
the  initiation  of  any  proceedings  for  that  purpose;  (c)  receipt  of any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of any of  such  registrable  securities  for  sale  in any
jurisdiction  or the  initiation  or  threatening  of any  proceeding

                                       31
<PAGE>

for such purpose;  (d) the happening of any event which makes any statement made
in the registration statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or which  requires  the  making of any  changes in the  registration  statement,
related  Prospectus  or  documents  so  that,  in the  case of the  registration
statement,  it will not contain any untrue  statement of a material fact or omit
to state any material  fact  required to be stated  therein or necessary to make
the  statements  therein  not  misleading,  and that in the case of the  related
Prospectus,  it will not contain any untrue statement of a material fact or omit
to state any material  fact  required to be stated  therein or necessary to make
the statements  therein, in the light of the circumstances under which they were
made, not  misleading;  and (e) the Company's  reasonable  determination  that a
post-effective amendment to the registration statement would be appropriate,  in
which event the Company will  promptly  make  available to the Investor any such
supplement  or amendment to the related  Prospectus.  The Investor  shall not be
obligated  to purchase  any shares  pursuant to a Company Put Notice  during the
Investment Period in which any of the foregoing events continued.

                                      VII.

                      LEGENDS AND DELIVERY OF CERTIFICATES

             7.1 Legends and Delivery of Certificates.  The Warrants and, unless
otherwise  provided below,  the  certificates  evidencing the Common Stock to be
issued to the Investor at any Closing and upon  exercise of the  Warrants,  will
bear the following legend (the "Legend"):

             THESE  SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
             OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
             LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT  PURSUANT TO
             AN EFFECTIVE  REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
             SECURITIES  ACT  AND ANY  APPLICABLE  STATE  SECURITIES  LAWS OR AN
             APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.

             In the event  shares  of Common  Stock  are  issued  incident  to a
Closing or upon  exercise  of the  Warrants in  circumstances  pursuant to which
shares of Common Stock are either required to bear the Legend or are not to bear
the  Legend,   such  certificates   (bearing  or  not  bearing  the  Legend,  as
appropriate)  shall be issued and  delivered  to the  Investor  or as  otherwise
directed by the  Investor on the  applicable  Closing Date or within two Trading
Days of the  surrender of the Warrants  for  exercise  (together  with all other
documentation required to be delivered to effect such exercise),  as applicable,
in each case against payment therefor.

             The Company shall cause the transfer  agent for the Common Stock to
issue and deliver to the  Investor  or as  otherwise  directed by the  Investor,
shares of Common Stock not bearing the Legend,  during the following periods and
under the following circumstances and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Investor:

                                       32
<PAGE>

                         (a)      At any time from and after the effective date
of the applicable  registration  statement:  (i) incident to the issuance of any
shares of Common Stock  pursuant to a Closing;  (ii) incident to the exercise of
the  Warrants;  and  (iii)  upon  any  surrender  of  one or  more  certificates
evidencing Common Stock and which bear the Legend, to the extent  accompanied by
a notice  requesting  the  issuance  of new  certificates  free of the Legend to
replace  those  surrendered;  provided  that in  connection  with such event the
Investor  confirms to the  transfer  agent in a writing that the Company and its
counsel are entitled to rely upon that the Investor  intends to sell such Common
Stock to a third party which is not an Affiliate of the Company or the Investor,
and the Investor  agrees to redeliver such Common Stock to the transfer agent to
add the Legend in the event the Common Stock is not sold; and

                         (b) At any time from and after the Closing  Date,  upon
any surrender of one or more certificates  evidencing  Common Stock and which
bear the Legend,  to the extent  accompanied by a notice requesting the issuance
of new  certificates  free  of the  Legend  to  replace  those  surrendered  and
containing or also accompanied by representations, in a writing that the Company
and its counsel are entitled to rely upon,  that (i) the then holder  thereof is
permitted  to dispose of such Common  Stock  pursuant  to Rule 144(k)  under the
Securities Act, (ii) such holder intends to effect the sale or other disposition
of such Common Stock whether or not pursuant to the Registration Statement, to a
purchaser or purchasers who will not be subject to the registration requirements
of the  Securities  Act or  (iii)  such  holder  is not  then  subject  to  such
requirements;  provided that in the case of surrenders described in clauses (ii)
and (iii)  thereof,  the  holder  provides  an  opinion  of  counsel in form and
substance reasonably satisfactory to the Company.

             7.2 No Other Legend or Stock Transfer  Restrictions.  No legend has
been or shall be placed on the share certificates  representing the Common Stock
and no  instructions  or stop transfers or other  restrictions  on transfer have
been or shall be given to the  Company's  transfer  agent with  respect  thereto
other than as expressly set forth in this Article VII.

             7.3 Investor's Compliance. Nothing in this Article VII shall affect
in any way the Investor's obligations under any agreement or otherwise to comply
with all applicable securities laws upon resale of the Common Stock.

                                      VIII.

                         OTHER ISSUANCES OF COMMON STOCK

             8.1 Equity Offering Adjustment to Purchase Price. In the event that
the  Company  makes  an  Equity  Offering  during  an  Investment  Period,  then
notwithstanding anything herein to the contrary, the purchase price per share of
Common Stock for any Investment Amount made solely within such Investment Period
but following the  consummation of the Equity Offering shall be the lower of (a)
the lowest  effective  purchase  price per share of Common Stock received by the
Company in any such Equity Offering, and (b) the price per

                                       33

<PAGE>

share of Common Stock  determined  hereunder with respect to purchases of Common
Stock effected by the Investor during such Investment Period.

             8.2 Other  Adjustments to Purchase Price and Floor Price. The daily
low trading or closing sale price,  as  applicable,  of the Common Stock for any
Trading Day used to calculate  the  Purchase  Price and the Floor Price shall be
adjusted   proportionally   to  reflect  any  stock  splits,   stock  dividends,
reclassifications, combinations and similar transactions involving the Company's
Common Stock.

                                       IX.

                  CHOICE OF LAW AND VENUE, WAIVER OF JURY TRIAL

             THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF  DELAWARE,  WITHOUT  REGARD TO  PRINCIPLES  OF  CONFLICTS OF LAW OR
CHOICE OF LAW. The parties hereby agree that all actions or proceedings  arising
directly or indirectly from or in connection  with this Agreement  shall, at the
option of either party,  be litigated  only in the United States  District Court
for the  Southern  District of New York  located in New York  County,  New York,
unless such District Court declines jurisdiction,  in which case such actions or
proceedings  shall be  litigated  only in the state  court  located  in New York
County,  New York.  The  parties  consent to the  jurisdiction  and venue of the
foregoing  courts  and  consent  that any  process  or notice of motion or other
application  to said courts or a judge  thereof may be served  inside or outside
the State of New York or the Southern  District of New York by registered  mail,
return receipt requested,  directed to the party for which it is intended at its
address  set  forth in this  Agreement  (and  service  so made  shall be  deemed
complete  five (5) Trading Days after the same has been posted as  aforesaid) or
by  personal  service or in such other  manner as may be  permissible  under the
rules of said court.  The parties  hereto hereby  irrevocably  waive any and all
right to a trial by jury with respect to any legal proceeding  arising out of or
relating to this Agreement or the transactions contemplated hereby.

                                       X.

              ASSIGNMENT, ENTIRE AGREEMENT, AMENDMENT, TERMINATION

             10.1  Assignment.  Neither  this  Agreement  nor any  rights of the
Investor or the Company  hereunder  may be assigned by either party to any other
person.  Notwithstanding  the foregoing,  the Investor's  rights and obligations
under this  Agreement  may be  assigned  at any time,  in whole,  with the prior
written  consent  of the  Company  (which  consent  shall  not  be  unreasonably
withheld)  to any  Affiliate  of the Investor (a  "Permitted  Transferee").  The
rights and  obligations of the Investor under this Agreement  shall inure to the
benefit of, and be enforceable by and against, any such Permitted Transferee.

             10.2 Entire Agreement;  Amendment. This Agreement, the Registration
Rights Agreement, the Warrants and the other documents delivered pursuant hereto
constitute the full

                                       34
<PAGE>

and entire  understanding  and agreement  between the parties with regard to the
subjects hereof and thereof,  and no party shall be liable or bound to any other
party in any manner by any warranties,  representations  or covenants  except as
specifically  set  forth in this  Agreement  or  therein.  Except  as  expressly
provided in this  Agreement,  neither this  Agreement nor any term hereof may be
amended,  waived,  discharged or terminated  other than by a written  instrument
signed by the party  against whom  enforcement  of any such  amendment,  waiver,
discharge or termination is sought.

             10.3  Publicity.  Each of the Company and the  Investor  agree that
they will not  disclose,  and will not include in any public  announcement,  the
name of the other without its prior consent, unless and until such disclosure is
required by law or  applicable  regulation,  and then only to the extent of such
requirement.  Except as may be  required  by law,  each of the  Company  and the
Investor  shall  consult  with the other  before  issuing  any press  release or
otherwise making any public  statements with respect to this Agreement and shall
not issue any such press release or make any such public statement prior to such
consultation.

             10.4  Termination.  (a) The Company  may,  in its sole  discretion,
terminate this  Agreement and  Investor's  obligation to purchase any Investment
Amount for the remainder of the Commitment Period.

             (b) The Investor may terminate  this Agreement as a result of (i) a
breach by the  Company of any  material  representation,  warranty,  covenant or
other obligation in this Agreement or the Registration  Rights Agreement or (ii)
if the Investor reasonably determines,  in its sole discretion, at any time that
the  adoption  of,  or  change  in,  or  any  change  in the  interpretation  or
application of, any law, regulation,  rule, guideline or treaty (including,  but
not  limited to,  changes of capital  adequacy)  makes it illegal or  materially
impractical  for  the  Investor  to  fulfill  its  commitment  pursuant  to this
Agreement,  but in the case of either (i) or (ii) above,  Investor may terminate
this Agreement only after a 60-day period in which the parties negotiate in good
faith, in the case of (i), a reasonable substitute for such provision or, in the
case of (ii), a reasonable  alternative manner not illegal or impossible for the
Investor to fulfill its commitment pursuant to this Agreement.

                                       XI.

                  NOTICES, COSTS AND EXPENSES, INDEMNIFICATION

             11.1 Notices. All notices, demands, requests,  consents,  approvals
or other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally
served or  deposited  in the  mail,  registered  or  certified,  return  receipt
requested,  postage prepaid,  or delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery,  telegram, telex or facsimile,
addressed as set forth below,  or to such other address as such party shall have
specified most recently by written notice:

             If to the Company, to:

                                       35
<PAGE>

Elcom International, Inc.
10 Oceana Way
Norwood, Massachusetts 02062
Attention:  Robert J. Crowell
Facsimile No.:  (781) 551-0409

             With a copy (which shall not constitute notice) to:

Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attention: Douglas A. Neary, Esq.
Facsimile No.:  (216) 241-0816

             If to the Investor, to

Cripple Creek Securities, LLC c/o The Palladin Group
195 Maplewood Ave.
Maplewood, New Jersey 07040
Attention:  Robert L.
Facsimile No.: (973) 313-6491

             With a copy (which shall not constitute notice) to:

Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004-1202
Attention:  L. Stevenson Parker, Esq.
Facsimile No.: (202) 942-5999

Subject to Section  2.3(d),  notice shall be deemed given on the date of service
or  transmission  if  personally  served or  transmitted  by telegram,  telex or
facsimile  during normal business hours of the recipient.  Notice otherwise sent
as  provided  herein  shall be deemed  given on the  third  (3rd)  business  day
following  the date mailed or on the second  business day  following the date of
deposit for delivery of such notice with a reputable air courier service.

             11.2 Costs and Expenses.  The Company shall be responsible  for the
Investor's  reasonable (a) legal fees and related expenses  incurred in entering
into this  Agreement up to a maximum  amount of $40,000,  which shall be payable
upon execution and delivery of this Agreement,  and (b) out-of-pocket  costs and
expenses in connection with the performance of its obligations hereunder up to a
maximum  amount of $35,000  initially,  and  $7,500  quarterly  thereafter.  The
Company  agrees to pay the  Investor  the  amounts  due under  clause (b) of the
preceding  sentence  within thirty (30) days  following the  Investor's  request
therefor upon presentation of supporting documentation.  In the event payment is
not received  within such

                                       36

<PAGE>

thirty (30) day period, Investor shall have the right to deduct any such amounts
owed by the Company to the Investor from any amounts owed by the Investor to the
Company pursuant to Section 2.4(a) herein.

             11.3        Indemnification.

                         (a)      Indemnification of Investor.  The Company
agrees to indemnify and hold harmless the Investor and each person,  if any, who
controls the Investor  within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act as follows:

                                  (i)  against any and all loss, liability,
claim, damage and reasonable expense whatsoever, as incurred, arising out of any
untrue statement of a material fact contained in the Registration  Statement (or
any amendment  thereto) or the Prospectus,  or the omission or alleged  omission
therefrom of a material fact required to be stated  therein or necessary to make
the statement  therein not misleading or arising out of any untrue  statement or
alleged untrue  statement of a material fact contained in the Prospectus (or any
amendment or supplement  thereto) or the omission or alleged omission  therefrom
of a material fact  necessary in order to make the  statements  therein,  in the
light of the circumstances under which they were made, not misleading;

                                  (ii)  against  any  and all  loss,  liability,
claim, damage and reasonable expense whatsoever,  as incurred,  to the extent of
the aggregate amount paid in settlement of any litigation,  or any investigation
or proceeding  by any  governmental  agency or body,  based upon any such untrue
statement  or  omission,  or any such  alleged  untrue  statement  or  omission;
provided that (subject to Section 11.3(d) below) any such settlement is effected
with the written consent of the Company; and

                                  (iii) against any and all reasonable  expenses
whatsoever, as incurred (including  the fees and  disbursements  of  counsel),
reasonably  incurred  in  investigating,  preparing  or  defending  against  any
litigation,  or any  investigation or proceeding by any  governmental  agency or
body, commenced or threatened in writing, or any claim whatsoever based upon any
such untrue  statement or  omission,  or any such  alleged  untrue  statement or
omission,  to the  extent  that any such  expense  is not paid under (i) or (ii)
above; provided,  however, that no indemnity obligation of the Company shall not
apply to any loss, liability, claim, damage or expense to the extent arising out
of any untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in  conformity  with written  information  furnished to the
Company by or on behalf of the Investor  expressly  for use in the  Registration
Statement (or any amendment thereto), including the Prospectus (or any amendment
or supplement thereto).

                         (b)      Indemnification of Company.  The Investor
agrees to indemnify and hold harmless the Company,  its  directors,  each of its
officers who signed the  Registration  Statement,  and each person,  if any, who
controls the Company  within the meaning of Section 15 of the  Securities Act or
Section 20 of the  Exchange  Act  against  any and all loss,  liability,  claim,
damage and expense  described in the indemnity  contained in  subsection  (a) of
this  Section,  as  incurred,  but only with  respect  to untrue  statements  or
omissions,  or alleged untrue statements or

                                       37
 <PAGE>

omissions,  made  in the  Registration  Statement  (or any  amendment  thereto),
including the Prospectus (or any amendment or supplement  thereto),  in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the  Investor  expressly  for  use  in the  Registration  Statement  (or  any
amendment or supplement thereto) or the Prospectus.

                         (c)      Action against Parties; Notification.  Each
indemnified  party shall give notice as promptly as  reasonably  practicable  to
each  indemnifying  party of any action commenced against it in respect of which
indemnity  may be sought  hereunder,  but  failure to so notify an  indemnifying
party shall not relieve such indemnifying party from any liability hereunder, in
any case,  to the extent it is not  prejudiced  as a result  thereof  and in any
event shall not relieve it from any liability  which it may have  otherwise than
on  account  of this  indemnity  agreement.  In case any such  action is brought
against any  indemnified  party,  and it notifies an  indemnifying  party of the
commencement  thereof,  the  indemnifying  party will be entitled to participate
therein,  and to the  extent it may elect by  written  notice  delivered  to the
indemnified party reasonably  promptly after receiving the aforesaid notice from
such  indemnified  party,  to assume the defense  thereof.  Notwithstanding  the
foregoing,  the indemnified  party or parties shall have the right to employ its
own  counsel  in any such  case but the  reasonable  fees and  expenses  of such
counsel shall be at the expense of such indemnified  party or parties unless (i)
the  employment  of such counsel  shall have been  authorized  in writing by the
indemnifying  party in connection with the defense of such action at the expense
of the indemnifying  party, (ii) the indemnifying  party shall not have employed
counsel to have charge of the defense of such action  within a  reasonable  time
after notice of commencement of the action,  or (iii) such indemnified  party or
parties shall have  reasonably  concluded  that there are  fundamental  defenses
available to it or them which are  inconsistent  with those  available to one or
all of the indemnifying  parties (in which case the  indemnifying  parties shall
not have the  right to  direct  the  defense  of such  action  on  behalf of the
indemnified  parties),  in any of which events such reasonable fees and expenses
of one additional counsel shall be borne by the indemnifying  party. In no event
shall the  indemnifying  party be liable for fees and  expenses of more than one
counsel (in addition to one local  counsel)  separate from their own counsel for
the  indemnified  parties  in  connection  with any one action or  separate  but
similar or  related  actions in the same  jurisdiction  arising  out of the same
general allegations or circumstances.  No indemnifying party shall,  without the
prior  written  consent of the  indemnified  parties,  settle or  compromise  or
consent to the entry or any  judgment  with  respect to any  litigation,  or any
investigation  or proceeding by any  governmental  agency or body,  commenced or
threatened,  or any claim  whatsoever  in  respect of which  indemnification  or
contribution  could be sought  under this  Section  11.3 or Section  11.4 hereof
(whether  or not  the  indemnified  parties  are  actual  or  potential  parties
thereto),  unless  such  settlement,  compromise  or  consent  (i)  includes  an
unconditional  release  of each such  nonconsenting  indemnified  party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of an any such nonconsenting indemnified party.

                         (d)      Settlement without Consent if Failure to
Reimburse.  If at  any  time  an  indemnified  party  shall  have  requested  an
indemnifying  party to reimburse the indemnified party for the fees and expenses
of  counsel,  such  indemnifying  party  agrees,   subject  to  the  arbitration
provisions  set  forth  in this  paragraph,  that it  shall  be  liable  for any
settlement of the nature  contemplated by Section  11.3(a)(ii)  effected without
its written  consent if (i) such

                                       38
<PAGE>

settlement is entered into more than 45 days after receipt by such  indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such  indemnifying  party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement;  provided,  however,  that if the  indemnifying  party  disputes the
reasonableness  of the fees and expenses of the  indemnified  party,  each party
agrees that such  dispute  shall be governed  by and finally  settled  under the
rules of binding arbitration of the American Arbitration Association (the "AAA")
by a panel of three arbitrators  familiar with Delaware  corporate law (at least
one of whom  shall  be an  attorney)  appointed  by the AAA.  Any such  claim or
controversy under this Section 11.3(d) shall first be promptly  submitted to the
AAA under its minitrial procedures. Until such dispute is resolved in accordance
with  this  paragraph,  the  indemnifying  party  shall  not be  liable  for any
settlement effected without its written consent and such fees and expenses shall
not become payable, unless otherwise agreed to by the indemnifying party and the
indemnified party.

             11.4 Contribution.  If the indemnification  provided for in Section
11.3 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified  party in respect of any  losses,  liabilities,  claims,  damages or
expenses to the extent provided for herein,  then each indemnifying  party shall
contribute to the aggregate amount of such losses, liabilities,  claims, damages
and  expenses  incurred  by such  indemnified  party,  as  incurred  (a) in such
proportion as is  appropriate to reflect the relative  benefits  received by the
Company on the one hand and the  Investor on the other hand from the offering of
the Common Stock pursuant to this  Agreement and the receipt of Warrants  issued
or issuable  hereunder  or (b) if the  allocation  provided by clause (a) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (a) above but also the relative
fault of the  Company on the one hand and of the  Investor on the other hand and
in connection  with the  statements or omissions  which resulted in such losses,
liabilities,  claims,  damages  or  expenses,  as  well  as any  other  relevant
equitable considerations.

             The relative  benefits  received by the Company on the one hand and
the  Investor on the other hand in  connection  with the  offering of the Common
Stock  pursuant to this Agreement  shall be deemed to be in the same  respective
portions as the total proceeds from the offering of the Common Stock pursuant to
this Agreement  received by the Company from the Investor,  on the one hand, and
the total  profits  received by the Investor  upon the sale of such Common Stock
and the receipt of Warrants  issued or  issuable  hereunder,  on the other hand,
bear to the aggregate public offering price.

             The relative  fault of the Company on the one hand and the Investor
on the other hand shall be  determined  by  reference  to,  among other  things,
whether  any such  untrue or alleged  untrue  statement  of a  material  fact or
omission or alleged  omission to state a material  fact  relates to  information
supplied by the Company or by the  Investor and the  parties'  relative  intent,
knowledge,  access to  information  and  opportunity  to correct or prevent such
statement or omission.

             The  Company and the  Investor  agree that it would not be just and
equitable if  contribution  pursuant to this Section 11.4 were  determined  on a
pro-rata  allocation  or by any

                                       39
<PAGE>

other  method  of  allocation  which  does not  take  account  of the  equitable
considerations  referred to above in this Section 11.4. The aggregate  amount of
losses,  liabilities,  claims,  damages and expenses  incurred by an indemnified
party and  referred to above in this Section 11.4 shall be deemed to include any
reasonable legal or other expenses reasonably incurred by such indemnified party
in  investigating,  preparing  or  defending  against  any  litigation,  or  any
investigation  or proceeding by any  governmental  agency or body,  commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

             Notwithstanding  the  provisions of this Section 11.4, the Investor
shall not be required to contribute  any amount in excess of the amount by which
the total  price at which the  Common  Stock  purchased  by it and resold to the
public and the value of Warrants issued or issuable hereunder exceeds the amount
of any damages which the Investor has  otherwise  been required to pay by reason
of any such untrue or alleged untrue statement or omission or alleged omission.

             No  person  guilty  of  fraudulent  misrepresentation  (within  the
meaning  of  Section  11(f)  of  the  Securities   Act)  shall  be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.

             For  purposes  of this  Section  11.4,  each  person,  if any,  who
controls the Investor  within the meaning of Section 15 of the Securities Act or
Section 20 of the  Exchange  Act shall have the same rights to  contribution  as
such Investor, and each director of the Company, each officer of the Company who
signed the  Registration  Statement,  and each person,  if any, who controls the
Company  within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.

             11.5 General Indemnification.  Each party shall indemnify the other
against any material loss, cost or damages (including reasonable attorney's fees
and expenses) incurred as a result of such party's breach of any representation,
warranty, covenant or agreement in this Agreement.

             11.6 Indemnification of Accountants.  The Investor hereby agrees to
hold harmless the  Company's  independent  auditors from any liability  that may
arise out of the  delivery of an "agreed  upon  procedures"  letter  pursuant to
clause (b)(ii) in the third paragraph of Section 3.3 hereof.

                                      XII.

                                  MISCELLANEOUS

             12.1 Counterparts.  This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.

                                      40
<PAGE>

             12.2 Survival;  Severability. (a) The representations,  warranties,
covenants  and  agreements  of the parties  hereto  shall  survive  each Closing
hereunder.  The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall survive and remain  operative and in full force and effect
regardless of (i) any termination of this Agreement or of the Commitment Period,
(ii) any investigation made by or on behalf of any indemnified party or by or on
behalf of the  Company,  and (iii) the  consummation  of the sale or  successive
resales of the Common Stock.  In the event that any provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision;  provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.

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

             12.4        Effectiveness of the Agreement.  This Agreement shall
be effective as of the Effective Date.

                  [REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       41

<PAGE>

             IN WITNESS  WHEREOF,  the parties hereto have caused this Agreement
to be duly  executed  by their  respective  authorized  officers  as of the date
hereof.

CRIPPLE CREEK SECURITIES, LLC                   ELCOM INTERNATIONAL, INC.

By:  /s/ Robert L. Chender                      By:  /s/ Peter A. Rendall
     Name:  Robert L. Chender                   Name:    Peter A. Rendall
     Title: Principal                           Title:   Chief Financial Officer

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