Document:

HEWLETT  PACKARD
CONSULTING  SERVICES  AGREEMENT  (Deliverables)

                      CONSULTING SERVICES AGREEMENT BETWEEN
                             HEWLETT-PACKARD COMPANY
                                       AND
                                  PHOTOLOFT.COM

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HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

TABLE  OF  CONTENTS

SECTIONS  OF  THE  AGREEMENT

1.     Definitions

2.     HP  Obligations

3.     Customer  obligations

4.     Price  and  Payment

5.     Change  Orders

6.     Acceptance

7.     Warranties

8.     Licenses

9.     Intellectual  Property  Rights

10.    Intellectual  Property  Indemnity

11.    Confidential  Information

12.    Remedies  and  Liabilities

13.    Term  and  Termination

14.    General

EXHIBITS  TO  THE  AGREEMENT

A.     Statement  of  Work

B.     Chan  a  Order  Procedures

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HEWLETT
PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

This Consulting Services Agreement ("Agreement") is made between HEWLETT-PACKARD
COMPANY,  a  California  Corporation  ("HP")  and  Photoloft.Com,  a  California
corporation  ("Customer"),  as  of  October  22,  1998  ("Effective  Date").

The  purpose  of this Agreement is to set forth the mutually agreeable terms and
conditions  under  which  HP  will  perform  Consulting  Services  and  provide
Deliverables  to  Customer  according  to  one  or  more  Statements  of  Work.

1.     DEFINITIONS

a)     "CONSULTING  SERVICES"  (sometimes  referred to as "Work") refers to such
activities  as  analysis,  design,  planning,  development,  consulting,
implementation,  education,  training  and  project management as described in a
Statement  f Work.  Consulting Services may also include other types of services
describe  more  specifically  in  a  Statement  of  Work.

b)     "DELIVERABLES"  means  the  tangible  results  of the Consulting Services
provided  by  HP  to  Customer  as  described in a on Statement of Work.  Unless
otherwise  agreed,  the  term  Deliverable.  does  not  include custom hardware.

c)     "SOFTWARE"  means  one  or  more  programs  (including  any  associated
documentation) capable of operating on a controller, processor or other hardware
device  .

a)     "STATEMENT  OF  WORK"  means  a document attached to this Agreement which
describes  a specific project, engagement or assignment ("Project") for which HP
will  provide  Consulting Services to Customer.  More than one Statement of Work
may  be  attached  to  this  Agreement  from  time  to  time.

2.     HP  OBLIGATIONS

a)     HP  will  use  reasonable  commercial  efforts  to perform the Consulting
Services  and  provide  the  Deliverables  specifically described in ore or more
Statements  of  Work  in  accordance  with  the  terms  and  conditions  of this
Agreement.  Customer  and  HP  will  sign  a separate Statement of Work for each
Project  that exceeds $10,000, which will be incorporated by reference into this
Agreement  upon  execution  by the parties.  Each Statement of Work will: (i) be
made  in  writing  in  the  form  attached  an  Exhibit  A,  (ii) reference this
Agreement,  (iii) be numbered consecutively n a chronological basis, and (iv) be
executed by authorized representatives of Custom r no HP.  Individual Statements
of  Work  should  address  at  least  the  following  areas:

1.     Project  description

2.     Price,  payment  and  delivery  schedules

3.     Scope  of  Consulting  Services

4.     Acceptance  criteria

S.     Nature  of  Deliverables

6.     Project  cost  coordination

b)          For  all Projects under a value f $10,000, Customer's purchase order
referencing  this Agreement                                  will constitute the
applicable  Statement  of  Work  upon  acceptance  by  HP.

c)     Unless otherwise agreed, Consulting Service will be performed during HP's
normal  business  hour.

d)     HP  will use reasonable commercial efforts to provide the Deliverable and
perform  the  Consulting  Service.  in  accordance  with  the  delivery schedule
specified  in  each  Statement  of  Work.

e)     HE'  may  select  qualified  and  reputable  subcontractors  to  perform
Consulting  Services  and/or  provide  Deliverable.

f)     HP  will  appoint  a  representative  to  supervise  and  coordinate HP's
performance  of  Consulting  Services.  HP  may change its representative at any
time  upon  written  notice.

a)     Unless otherwise agreed in a Statement of Work, HP in not responsible for
providing  support  for  any  Deliverables.

3.     CUSTOMEROBLIGATIONS

Customer  will comply with the general obligations specified below together with
any  specific Customer obligations described in a Statement of Work, in a timely
manner.

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HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

b)     Customer  acknowledges  that  HP's  ability  to  deliver  the  Consulting
Services  is  dependent  upon Customer's full and timely cooperation with HP, as
well  as  the  accuracy  and  completeness  of any information and data Customer
provides  to  HP.  Therefore,  Customer  will:

1.     Provide  HP  with  access  to,  and  use  of,  all  information,  data,
documentation,  computer  time,  facilities,  working  space and office services
deemed  necessary  by  HP.

2.     Appoint a representative who will provide professional and prompt liaison
with  HP,  have  the  necessary  expertise  and authority to commit Customer, be
available  at  all  times  when  HP's  personnel  are at the Customer's site (or
designate  an  alternate  with  the  same  level  of  authority  in the event of
unavailability  caused  by illness or other valid reasons), and meet with the HP
representative  at  regular  intervals  to  be agreed upon t review progress and
resolve  any  issues  relating  to  the  Consultinq  Services  or  Deliverables.

c)     Customer  will  be  responsible for maintaining an external procedure for
reconstruction  of  lost or altered files, data or programs to the extent deemed
necessary  by  Customer,  and  for  actually  reconstructing any such materials.

d)     Customer will be liable for any delays to the delivery schedule specified
in  each  Statement  of  Work  caused  by  Customer or resulting from Customer's
failure  to  fulfill  any  of  its  obligations.  HP may charge Customer for any
additional  charges or losses incurred by HP as a result of such delays, and may
adjust  the  affected  delivery  schedule  accordingly.

a)     Customer will be responsible at all times for the supervision, management
and  control of the Deliverables and any results obtained from the Deliverables,
including  without  limitation  all  responsibility  for  maintenance  of proper
machine  configuration,  audit  controls, operating methods, error detection and
recovery  procedures,  back-up  plans,  security, insurance, maintenance and all
that  activities  necessary  to  enable  Customer  to  use  the  Deliverables.

f)     Except  as  expressly  provided  in  this  Agreement,  Customer  has sale
responsibility  to  ensure  that  its information technology environment is Year
2000  compliant.  HP is not providing Year 2000 services (for example, Year 2000
assessment,  conversion or testing) under this Agreement.  Customer acknowledges
that  HP  will  not be responsible for failure to perform Consulting Services or
supply  Deliverable.  under  this  Agreement,  if  such  failure  is the result,
directly  or  indirectly, of the inability of any products to correctly process,
provide  or  receive  date data (i.e., representations for month, day and year),
and to properly exchange data with the Deliverables by HP ,under this Agreement.

4.     PRICE  AND  PAYMENT

a)     Prices  for  Consulting  Services and Deliverables a will be specified in
each  Statement  of work.  Prices quoted in each Statement of Work are valid for
30  days.  Prices  include  all materials and labor expenses, but do net include
sales,  use,  service, value added or like taxes, or customs duties.  Such taxes
and  duties,  when  applicable,  will  be  added  to  HP's  invoices.

b)     HP  will issue invoices in accordance with the payment schedule specified
in  each  Statement  of  Work.  Charges  for  travel  expenses  may  be invoiced
separately.  Customer  will  pay  all  invoices  within 30 days from the date of
invoice.  HP may change credit terms upon reasonable notice at any time when, in
HP's  opinion,  Customer's  financial condition, previous payment record, or the
nature  of  Customer's  relationship  with  HP  so  warrants.

c)     Should  any  sum  due  to HP remain unpaid after 60 days from the date of
invoice,  HP  may  terminate  this  Agreement  pursuant  t  Section  13.b.2  and
discontinue  performance  under  any  other  agreement  with  Customer.

5.     CHANGE  ORDERS

a)     "Change  Order"  means  an  agreed  upon  change  or  modification to the
Deliverables, Consulting Services or that material aspect of a Statement of Work
that  complies  with  the  requirements  of  Exhibit B. Requests by Customer and
recommendations  by HP for Change Orders are subject to the procedures set forth
in  Exhibit  B, and will be made in writing in the form attached to Exhibit B as
Attachment  B-1.

b)     All  Change  Orders must be mutually agreed by the parties.  Pending such
agreement,  HP  will continue to perform and be paid as if such Change Order had
not  been  requested  or  recommended,  provided  that if either party process a
Change  Older  which,  in  HP's  judgment,  represents  a material change in the
Consulting Services or Deliverables ad such Change Order remains outstanding for
30  days  or  is  rejected  by Customer, HP will have the right to terminate the
affected  Statement  of  Work  pursuant  to  Section  13.b.2  below.

6.     ACCEPTANCE

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HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
exhibit  TM02

a  )     HP  will provide notice to Customer when the Deliverables are ready for
acceptance.                        Acceptance  of  Deliverables  will occur upon
the  earlier  of:  a)  the  date  HP demonstrates to Customer, by the successful
completion of acceptance tests or otherwise, that the Deliverables substantially
conform  to  the  acceptance  criteria  specified in the applicable Statement of
Work; or b) the date that Customer uses any substantial part of the Deliverables
for  any  purpose  other  than  performing  acceptance  tests.  Acceptance  of
Consulting  Services  will  occur  upon  HP's  performance  of  such  Consulting
Services,

b)  In  the  event  that  any  Deliverable fails to conform substantially to the
acceptance  criteria specified in the applicable Statement of Work, HP will have
a  reasonable  time  to  remedy such substantial non-conformance, following HP's
receipt  of  written  notice  from  Customer specifying in reasonable detail the
nature  of  Such  non-conformance.  In the event that HP is unable to remedy the
non-conformance:  a) Customer may accept the Deliverable without warranty, on an
"AS  IS"  basis,  subject  to  a reasonable price adjustment; or b) Customer may
return  the Deliverable to HP and receive a refund of amounts paid to HP for the
Deliverable.

c)     Acceptance  will  not  be  delayed for any minor non-conformance with the
requirements  specified in any Statement of Work.  Following acceptance, HP will
use  reasonable  commercial  efforts  to  correct any minor non-conformance that
appears  during  acceptance  testing.

d)     If  acceptance  testing  is delayed for reasons attributable to Customer,
acceptance  will  be deemed to occur on the 10th day after notice by HP that the
Deliverable  in  ready  for  acceptance  testing.

7.     WARRANTIES

     a)  HP  will  perform  Consulting  Services  in  accordance  with generally
recognized  commercial      practices  and  standards.  HP  will  re-perform any
Consulting  Services  not  performed  in accordance with the foregoing warranty,
provided  that  HP  receives  notice  from  Customer  within  30 days after such
Consulting  Services  were  performed.

b)     HP  warrants  that  Deliverables  will  substantially  conform  to  the
acceptance  criteria  specified in the applicable Statement of Work for a period
of  90  days  from  the  date  of  acceptance.

c)     HP  does  not  warrant  that  the  operation  of  Deliverables  will  be
uninterrupted  or  error  conform  to  any  reliability or performance standards
beyond  those  specified in the applicable acceptance criteria. HP also does not
warrant  that  Deliverables  will be compatible with future HP products those of
other  vendors.

d)     If  HP  receives  notice  during  the  warranty period of any substantial
non-conformance  with  the  acceptance  criteria  that  materially  impairs  the
functioning  of  a  Deliverable,  HP  will,  at  its option, either correct such
non-conformance  or  provide  a  work-around  which  substantially  remedies the
non-conformance.

e)     If  HP  is  unable  within a reasonable time to comply with the foregoing
       --
obligations,  HP  will  refund  a  reasonable portion of the price stated in the
Statement  of  Work  upon  or  prompt  return of the affected Deliverable to HP,
and/or  delivery  to HP of proof of the destruction of the affected Deliverable.

f)     The  warranties provided in this Section 7 will not apply in the event of
deemed  acceptance  under  Section  6.a(b)  or  6.d  above,  or  to  defects  or
non-conformance  resulting  from:

1.  Unauthorized,  improper or inadequate maintenance or calibration by Customer
or  any        third  party.

2.     Software,  hardware,  interfacing,  or  supplies  not  supplied  by  HP.

3.     Unauthorized  modification  of  Deliverables  or  any  portion  thereof.

4.     Improper  use  or  operation  of  Deliverable  or  any portion thereof or
Customer's  failure  to  comply with the applicable environmental specification.

5.     Improper  site  preparation  or  maintenance  by Customer or a third
party.

g)     THE ABOVE WARRANTIES ARE EXCLUSIVE AND NO OTHER WARRANTY, WHETHER WRITTEN
OR  ORAL,  IS  EXPRESSED  OR  IMPLIED.  HP  SPECIFICALLY  DISCLAIMS  THE IMPLIED
WARRANTIES  OF  MERCHTABILITY  AND  FITNESS  FOR  A  PARTICULAR  PURPOSE.

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HEWLETT  PACKARD
CONSULTING  SERVICES  AGREEMENT  (Deliverables)

Exhibit  TM02

8.  LICENSES
a)     Unless  otherwise  agreed  in  writing,  when HP supplies Customer with a
Deliverable that in whole or in part consists of Software (sometimes referral to
in Sections 8 and 9 as a "Software Deliverable"), such Software Deliverable will
be  supplied  in  object  code  form  only.

b)     Upon  Customer  acceptance  of  a  Deliverable  and  receipt by HP of the
associated  payment  in  full,  HP  grants  Customer a non-exclusive, perpetual,
non-transferable  license to use such Deliverable for its own internal purposes.
Customer's  license  confers  no  title  or  ownership in the Deliverable and no
rights  in  any  associated  Software  Deliverable  source code, and will not be
construed as a sale of any rights in the Deliverable or the media on which it is
recorded  or  printed.

c)     Unless  otherwise  authorized  by  HP,  Customer  may only make copies of
Deliverables  for archival purposes, or when copying is an essential step in the
authorized  use  of  a Software Deliverable on a backup controller, processor or
other  hardware  device.

d)     Customer  will  label  each  copy  of Deliverables made under Section 8.c
above  with  the  copyright  notice  that  appears  on  the  original.

e)     Customer  will  not market, sublicense or otherwise provide the original,
any copy or partial copy, or any derivative of a Deliverable to any third party.

f)     Customer's  license  does  not  include the right to updates, upgrades or
other  enhancements  to  a  Deliverable.

g)     Customer  will  not  disassemble  or  decompile  any Software Deliverable
without  HP's  prior  written  consent.  Where  Customer  has other rights under
statute, Customer will provide HP with reasonably detailed information regarding
any  intended  disassembly  or  decompilation.  Customer  will  not  decrypt any
Software  Deliverable  unless  necessary  for legitimate use of the Deliverable.

h)     HP  may  terminate Customer's license in any Deliverables upon notice for
failure to comply with the terms of this Agreement.  TR the event of termination
of  Customer's  license,  Customer  will immediately destroy or return to HP the
affected Deliverable and all partial or complete copies, or provide satisfactory
evidence  of  in  their  destruction  to  HP.

i)     Customer  grants  HP  a non-exclusive, worldwide, royalty-free license to
use,  copy, make derivative works of, distribute, display, perform, and transmit
Customer's  pre-existing copyrighted works or other intellectual property rights
to  the extent necessary for HP to perform its obligations under this Agreement.

9.     INTELLECTUAL  PROPERTY  RIGHTS

a)     All  copyrights  aid other intellectual property rights existing prior to
the  Effective  Date will belong to the party that owned such rights immediately
prior  to  the  Effective  Date.

b)     Neither  party  will  gain  by  virtue  of  this  Agreement any rights of
ownership  of  copyrights,  patents,  trade  secrets,  trademarks  or  any other
intellectual  property  rights  owned  by  the  other.

c)     HP  will own all copyrights, patents, trade secrets, trademarks and other
intellectual  property  rights, title and interest in or pertaining to all Works
(including  computer programs, Deliverables and Software Deliverables) developed
by  HP  for  purposes  of  this  Agreement.

10.     INTELLECTUALPROPERTYINDEMNITY

HP  will  defend  or  settle any claim against Customer regarding the Consulting
Services  and  Deliverables, to the effect that HP knowingly infringed a patent,
utility  model,  industrial  design,  copyright,  trade  secret,  mask  work  or
trademark  in  the  country where, such Deliverables are used or such Consulting
Services  are  provided.

b)     The  indemnities  provided  in  Section  10.1  above  will apply provided
Customer  promptly  notifies HP in writing of the claim, and Customer cooperates
with  HP  in  and  grants  HP  sole  control  of  the  defense  or  settlement

c)     For  infringement  claims  covered  by  this  Section  10,  HP  will  pay
infringement  claim defense costs, settlement amounts and court-awarded damages.
If  such  a  claim  regarding  a  Deliverable  appears  likely, HP my modify the
Deliverable,  procure any necessary license or replace it. If HP determines that
none  of  these  alternatives is reasonably available, HP will refund Customer's
purchase price upon return of the Deliverable if within one year of delivery, or
Customer's  net  book  value  thereafter.

d)     HP  has  no  obligation  for  any  claim  of  infringement  arising from:

<PAGE>
HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)

Exhibit  TM02

1.     HP-s  compliance  with  or  use  of  Customer's  information, technology,
designs,  specifications  or instructions, including those incorporated into dry
Statement  of  Work.

2.     Modification  of  a  Deliverable  by  Customer  or  a  third  party.

3.     Use  of  a  Deliverable  in  a  way not indicated in a Statement of Work.

4.     Use  of  a  Deliverable  with  products  not  supplied  by  HP.

a)     This  Section  10 states HP's entire liability for claims of intellectual
property  infringement.

11.     CONFIDENTIAL  INFORMATION

HP  and  Customer  agree  that  all  information  exchanged  between them is not
confidential  unless  they  have entered into a separate confidential disclosure
agreement

12.     REMEDIES  AND  LIABILITIES

a)     The  remedies  in  this  Agreement  are  Customer's  sole  and  exclusive
remedies.

b)     To  the  extent  HP IS held legally liable to Customer, HP's liability is
limited  to:
1.     Payments  described  in Sections 6, 7, and 10 above, this Section 12, and
Section  13.d  below.

2.     Damages  for  bodily  injury.

3.     Direct  damages  to  tangible  property up to a limit of U.S. $1,000,000.

c)     Notwithstanding  Section  12.b  above,  in  no  event  will  HP  or  its
affiliates,  subcontractors  and  suppliers  be liable for any of the following:

1.     Actual  loss  or  direct damage that is not listed in Section 12.b above.

2.     Damages  for  loss  of  data,  or  Software  restoration.

3.     Damages  relating  to  Customer's  procurement  of substitute products or
services  (i.e.,  "cost  of  cover").

4.     Incidental, special or consequential damages, including downtime costs or
lost  profits  but excluding damages for bodily injury and payments described in
Section  10.c  above.

d)     The  Deliverables are not specifically designed, manufactured or intended
for  sale  as  parts,  components  or assemblies for the planning, construction,
maintenance, or direct operation of a nuclear facility.  Customer will be solely
liable  if any Deliverables purchased or licensed by Customer are used for these
applications.  Customer  will  indemnify  and  hold  HP  harmless from all loss,
damage,  expense  or  liability  in  connection  with  such  use.

13.     TERM  AND  TERMINATION

a)     This  Agreement  will commence on the Effective Date and will continue in
force  until  termination  according to the terms of this Agreement.  Individual
Statements  of  Work  will  be effective upon execution by both parties and will
continue  in  force  until  both  parties  have  fulfilled all of their, Project
obligations,  or  until  the  earlier  termination  of  such  Statement  of Work
according  to  the  terms  of  this  Agreement.

b)     This  Agreement  or  an  individual  Statement  of Work may be terminated
immediately  upon  notice  in
writing:

1.     By  either  party  if the other party is in material breach of any of its
obligations  hereunder and fails to remedy such breach within 30 days of receipt
of  a  written  notice  by  the other party which specifies the material breach.

2.     By  HP, in the absence of mutual agreement regarding a Change Order which
represents  a material change under Section 5,b, or if Customer fails to pay any
sum  due under this Agreement within the 60 day time period specified in Section
4.c.

3.     By  either  party  if  the  other  party  has a receiver appointed, or an
assignee  for  the  benefit  of  creditors, or in the event of any insolvency or
inability  to  pay debts as they become due by the other party, except as may be
prohibited  by  applicable  bankruptcy  law

c)     Either  party  may terminate this Agreement for convenience  upon 30 days
prior written notice to the other party.  Any termination of this Agreement will
not  relieve  either  party  of  its  obligations

HEWLETT  PACKARD

<PAGE>
CONSULTING  SERVICES  AGREEMFNT  (Deliverables)
E3NbitTM02

under  any  Statement  of  Work  in  effect  on  the date of termination of this
Agreement,  unless  otherwise  mutually  agreed  to  in  writing.

d)     Upon  termination of any  Statement of Work, Customer will pay HP for all
Work  performed  and  charges  and  expenses  incurred  by  HP up to the date of
termination,  and  Customer will receive all work in progress for which Customer
has  paid.  Should  the  sum  of  such  amounts be less than any advance payment
received  by  HP,  HP will refund the difference within 30 days of receipt of an
invoice  from  Customer.

a)     Sections  4, 7, 8, 9, 10 and 12 above, and Section 14 below, will survive
termination  of  this  Agreement.

14.  GENERAL

a)  STANDARD  PRODUCTS.  This  Agreement does not cover standard HP hardware and
software products sold or      licensed to Customer.  Any such transactions will
be  governed by the terms of Customer's HP purchase agreement or, in the absence
of  a  signed  purchase  agreement,  HP's  Terms  add  Conditions  of
Sale  and  Service  (Exhibit  E16).

b)  HEALTH  AND  SAFETY.  HP  and  any  of  its subcontractors will, when at the
Customer's  site,  conduct
their  activities  so  that  their equipment, working conditions and methods are
safe  and  without risk to health for their own and Customer's employees as well
as  for  any  that  user.  other  Customer's  site.

c)     NON-RESTRICTIIVE  RELATIONSHIP.  HP  may  provide  the  same  or  similar
Consulting  Services  and  Deliverables  to  other  customer

d)     NO  PUBLICITY.  Neither  party  will  publicize  or disclose to any third
party  without the consent of the other party, either the price or other terms f
this  Agreement  or the fact of its existence. a aid execution, except as may be
necessary  to  comply  with  other  obligations  stated  in  this  Agreement.

e)     NO  JOINT VENTURE.  N thing contained in this Agreement will be construed
as  creating a joint venture, partnership or employment relationship between the
parties  hereto,  nor  will  either  party have the right, power or authority to
create  any  obligation  or  only,  express  or  implied on behalf of the other.

f)     NO  ASSIGNMENT.  Except  will respect to HP's rights regarding the use of
subcontractors,  neither  party  may assign any rights or obligations under this
Agreement to any Statement of Work without the prior written consent of the that
party.

g)     EXPORT  ADMINISTRATION  REGULATIONS.  If Customer exports any Deliverable
outside  the country in which the Deliverable is delivered to Customer, Customer
assumes  responsibility  for  complying with applicable laws and regulations and
for  obtaining  required  export  and  import authorizations.  Customer will not
export  or  re-export  any  technical  data  in  violation  of  U.S.  Export
Administration  regulations  or  other  applicable  export  regulations.

h)     FORCE  MAJEURE.  Neither  party  will be liable for performance delays or
for  non-performance  due  to  causes  beyond  its  reasonable  control.

i)     NOTICES.  All  notices  required under or regarding this Agreement or any
individual  Statement  of  Work  will be in writing and will be considered given
upon  personal delivery of a written notice to the HP representative or Customer
representative  designated  in  the  Statement  of  Work, or within five days of
mailing,  postage  prepaid  and  appropriately  addressed.

j)     WAIER.  Neither  party's failure to exercise any of its rights under this
Agreement  will  constitute or be deemed a waiver or forfeiture of those rights.

k)     SERABILITY.  If  any  term  or  provision of this Agreement is held to be
illegal  or  unenforceable,  the  validity or enforceability of the remainder of
this  Agreement  will  not  be  affected.

1)     EXHIBITS.  The  fo1lowing  documents are attached hereto as exhibits, the
terms  of  which  are  incorporated  by  reference  in  their  entirety:

A  Statement  of  Work  (and  all  subsequently  executed  Statements  of  Work)

B  change  Order  Procedures

m)     PRECEDENCE.  In  the  event  of  conflict  between the provision. of this
Agreement  and any attached exhibit or Statement of Work, the provisions of this
Agreement  will  to  the  extent  of  such  conflict  take  precedence.

n)     ENTIRE AGREEMENT. This  Agreement and its exhibits and Statements of Work
constitute  the entire agreement between HP and Customer and supersede any prior
or  contemporaneous  communications,

<PAGE>
HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

representations  or  agreements  between  the  parties, whether oral or written,
regarding  the  subject  matter  of  this  Agreement.  Customer's  additional or
different terms and conditions will not apply.  The terms and conditions of this
Agreement  may  not  be  changed  except by an amendment signed by an authorized
representative  of  each  party.

o)  APPLICABLE  LAW.  This  Agreement  is  made  under  and will be construed in
accordance  with  the  law  of
   California  without  giving  effect  to  that  state's  choice  of law rules.

<PAGE>
HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

          AGREED  TO:                            AGREED  TO:

          HP  _____________________              Customer  _____________________

          s.  Srinivas  Sukumar                  s.  Jack  Marshall
          ---------------------                  ------------------

          Authorized Representative              Authorized Representative
          Signature                              Signature

Name:     Srinivas  Sukumar                      Name:  Jack  Marshall

Title:    Hewlett  Packard                       Title:  CEO- PhotoLoft.com
          ITIO  Genera  Manager

Address:  1100  Wolf  Road                       Address:  300  Orchard City Dr.
          Cupertino,  CA  95014,  USA            Suite 142
                                                 Campbell,  CA  95008

<PAGE>
HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

                                    EXHIBIT A

                             STATEMENT OF WORK FORM

                   Hewlett-Packard Company

                   Imaging Solution Project Services

                   Statement of Work

                       with
                   Photoloft Company

                       for the
                       Image  Print  Solution

                       Date of Issue:  October  21,1998

                       Revision:  1.0

                       Engagement  I.D.:  IT101289

                       Prepared  by:  JP  Wollersheim,  HP
                       Internet Imaging Project Lead,
                       408/447-2016

                       Copyright October, 1998
                       Hewlett-Packard Company- Unpublished
                       Work  - ALL  RIGHTS  RESERVED

<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S>                                                       <C>
1. BACKGROUND. . . . . . . . . . . . . . . . . . . . . .   4

1.1    INTRODUCTION. . . . . . . . . . . . . . . . . . .   4

2        SCOPE OF WORK . . . . . . . . . . . . . . . . .   5

2.1   SCOPE DEFINITION . . . . . . . . . . . . . . . . .   5
2.2    GENERAL EXCEPTIONS. . . . . . . . . . . . . . . .  10
2.3    OTHER CONTRACTUAL OBLIGATIONS FROM HP & PHOTOLOFT  10

3.  PHOTOLOFI'COMPANY OBLIGATIONS. . . . . . . . . . . .  11

4.  LIMITATIONS AND ASSUMPTIONS. . . . . . . . . . . . .  12

5.  OTHER CONSIDERATIONS . . . . . . . . . . . . . . . .  12

5.1    CHANGE PROCESS. . . . . . . . . . . . . . . . . .  12
5.2    ESCALATION PROCESS. . . . . . . . . . . . . . . .  13

6. SCHEDULE. . . . . . . . . . . . . . . . . . . . . . .  13

7. ORDER AND PAYMENT INFORMATION . . . . . . . . . . . .  14

7.1    PRICING . . . . . . . . . . . . . . . . . . . . .  14
7.2     PAYMENT SCHEDULE . . . . . . . . . . . . . . . .  14

8. AUTHORIZATION . . . . . . . . . . . . . . . . . . . .  16

8.1     ENTIRE AGREEMENT . . . . . . . . . . . . . . . .  16
8.2     SIGNATURE. . . . . . . . . . . . . . . . . . . .  16
</TABLE>

<PAGE>
     Proprietary Notice

     Restriction  on Use and  Disclosure of Proposal and  Quotation  Information
     Data

     The  information   contained  in  this  Statement  of  Work  or  Exhibit  A
     constitutes  a  trade  secret  and/or  information  that is  commercial  or
     financial  and  confidential  or  privileged.  It is furnished to Photoloft
     Company in confidence with the understanding  that it will not, without the
     prior written permission of Hewlett-Packard, be used or disclosed for other
     than evaluation purposes; provided, however that in the event a contract is
     awarded on the basis of this Exhibit A,  Photoloft  Company  shall have the
     right to use and disclose this  information  to the extent  provided in the
     contract.  This restriction does not limit Photoloft Company's right to use
     or disclose  this  information  if obtained  from  another  source  without
     restriction.  Hewlett-Packard  represents only the HP products and services
     as set forth herein, and makes no representations,  warranties,  guarantees
     or commitments for any third-party products or services.

<PAGE>
1.   BACKGROUND

     1.1  INTRODUCTION

     This  document is the Statement of Work (SOW) for  Hewlett-Packard,  acting
     through ft's  Internet  Imaging  Operation  (HP ITIO) to Photoloft  Company
     located in Campbell, California for the Image Print Solution. It represents
     Hewlett-Packard's   solution  based  upon  HP's  current  understanding  of
     Photoloft Company's needs.

     HP's  overall  intention  is  to  provide  a two  phased  approach  to  the
     Photoloft.com  website  implementation,  however this  proposal  covers toe
     obligations  of phase 1. Phase 2 is included for reference  and  discussion
     purposes only.

     Phase I

     HP & Photoloft will perform the following activity

     -    Internet Imaging server integration into Photoloft.com

     -    Photorealistic  print solution for  Photoloft.com to allow their users
          to print  off any  combination  of 3x5,  4x6 or 8xl0  images  from the
          internet.

     -    Integration  points and development  guidelines for the  photoloft.com
          side of the print solution

     -    Documentation on the print solution

     -    Joint  Press  release  stating  the joint  project  - HP will  provide
          content  for HP's press  release,  Photoloft  will  provide  their own
          content.

     -    Image.hp.com    will   maintain   a   link   to   the    photoloft.com
          website.Photoloft.com will maintain a link to the image.hp.com website

     -    HP and Photoloft  will  participate in relevant joint trade shows in a
          cost sharing fashion

     -    HP ITIO will provide  introductions  to other divisions  within HP who
          value the types of services  Photoloft brings to bear. These divisions
          include HP Corporate  Programs (for ID 4 Life),  printer divisions and
          complementary products divisions.

     -    Photoloft  will  provide  to  Hewlett   Packard  ITIO  $25K  worth  of
          advertising.

     -    In exchange for an HP2000C Photo Resolution  Printer to be provided by
          Hewlett Packard at no charge, Photoloft will place the HP OpenPix Logo
          (Ignited by) with a link to image.hp.com/photoloft

<PAGE>
     Phase 2

     Continue to help  Photoloft  implement a lower  cost,  interactive  imaging
     process which will simplify the database image storage mechanism, and offer
     the additional  functionality of image  interactivity (zoom and pan) on the
     internet.

     Under  non-disclosure,  HP ITIO will  provide to  Photoloft  an overview of
     where we are taking the  internet  imaging  group of  products  and how the
     partnership  with HP ITIO will  potentially  increase  Photoloft's  revenue
     potential.

2.   SCOPE OF WORK

     2.1  SCOPE DEFINITION

     The Scope of Work defines all activities to be delivered by Hewlett-Packard
     for Photoloft  Company's  Image Print  Solution.  This section defines what
     Hewlett-Packard  will do and what Photoloft Company receives as a result of
     the activities.

     Each activity  included below is further  defined and described  below with
     the following components:

     Activity  Name - identifies  the services  activity by number and name Task
     Description - defines the activity and the resulting deliverable Acceptance
     Criteria  -  acceptance  criteria  for the  deliverable  Photoloft  Company
     Obligations - describes any Photoloft  Company  responsibilities  and/or HP
     assumptions unique to an activity

     WORK BREAKDOWN STRUCTURE

     The figure below  illustrates  the  organization of the tasks for the first
     phase of the Image Print  Solution.  This Work  Breakdown  Structure  (WBS)
     diagram for this phase  defines and  organizes  all work  activities  to be
     performed.

<PAGE>
                              Week#   1      2     3      4
Detailed  Project  Plan               *

DISCOVERY                             *
Kickoff

DEVELOP
Track  Progress-Weekly                       *     *      *
Functional  Specification                    *

DOCUMENT
Print  Client  Documentation                              *

DELIVER                                                   *
Test  &  Acceptance  Complete                             *

     Project Timeline for Phase I of the Image Print Solution

          HP's  OpenPix  Image  Print  Solution  is an  engagement  to  create a
          customized  helper  application  for  Photoloft's  users to be able to
          print off hire solution  images from their  website-www.photoloft.com.
          HP will design and implement the custom application. Photoloft Company
          will benefit from the  application  by having a tool to allow users to
          print  off  photographic  quality  images  from  the  internet  either
          singular or in batch mode.

          The  objective of this 4 calendar  week  engagement is to have Hewlett
          Packard  provide  a helper  application  as well as offer  development
          guidelines  as to how to  design  the  Photoloft  website  in order to
          effectively  implement the helper application.  The engagement will be
          generally executed as follows:

          HP will plan, schedule,  and resource the OpenPix Image Print Solution
          phase  of the  engagement.  The HP  team  will  conduct  the  solution
          implementation in four phases

<PAGE>
     2.1.1 DISCOVERY

     SUMMARY:  The  purpose  of this  task is to create  the plan to define  the
     administrative  and  management  controls to be  employed  during the Image
     Print  Solution  activities.  The  intended  use of the Project  Plan is to
     organize,  document  and  maintain  all  engagement  planning  and  process
     information  related  to  project  management,  quality  assurance,  change
     management, configuration management, and system engineering.

     The HP development  team will analyze the project  objectives and goals and
     recommend new processes in order for Photoloft to  effectively  utilize the
     new features of HP OpenF'ix and the Print solution.

     HP will spend  eight (8) hours over two (2) days at  Photoloft  in order to
     effectively  understand the current processes.  HP will spend the remaining
     days developing the detailed  implementation plan that will be delivered to
     Photoloft the following week.

     ACCEPTANCE  CRITERIA - This task will result in delivery of a Project  Plan
     document  estimated at 10 pages. HP will submit the plan  electronically in
     MS Word format and Photoloft  will sign the  acceptance  criteria sheet for
     the plan.

          INTRODUCTION.  This  section  will  include  a  summarization  of  the
          purpose, scope and content of the Project Plan.

          PURPOSE AND  DESCRIPTION  OF THE SOLUTION.  This section will describe
          the  purpose,  scope,  and  major  functions  of  the  solution.  This
          description will provide a contextual background for understanding the
          objectives for the management  planning  information  presented in the
          Project Plan.

          CHANGE  MANAGEMENT PLAN. This section will describe the activities and
          plans for change  management  to be performed by HP. The plan includes
          change management process,  configuration  control activities,  change
          identification, change control, and change status accounting.

<PAGE>
          DEFINITION OF CURRENT PROCESSES AND SYSTEMS.  This section will define
          the current  processes in use at Photoloft for their internet  website
          design and creation as it relates to hire solution image printing.

          DEFINITION OF INTEGRATION  POINTS FOR THE IMAGE PRINT  SOLUTION.  This
          section will include all of the  detailed  information  for all of the
          integration  points  between  the  current  internet  web  site  image
          printing  processes and tools and the new methods and tools created by
          Hewlett Packard.

          SYSTEM TEST PLAN. This section of the document will detail a Test Plan
          to provide  the  scenarios  defining  the formal  tests,  inspections,
          analysis,  demonstrations,  and  verifications as appropriate to prove
          compliance with the system functional and operational  requirements in
          the to-be-developed HP design documentation. The Test Plan will define
          the test  methodology  and  strategies to be  implemented  in the Test
          Procedures.  All resources necessary to complete the system acceptance
          testing will be identified including the test location, test equipment
          and data to be supplied by  Photoloft  Company,  as well as all HP and
          Photoloft Company personnel and skills required.

          FUNCTIONAL  SPECIFICATION  - The purpose of this  section is to design
          the  customized  Photoloft  Company  Image Print  Solution  functional
          capabilities.  The HP design will  address the areas of hi  resolution
          image  printing  from the  Photoloft  internet  website  using  the HP
          Developed helper application.

     PHOTOLOFT  COMPANY  OBLIGATIONS - Photoloft Company will be responsible for
     reviewing and approving the contents of the initial  release version of the
     Project Plan.

     2.1.2 DEVELOPMENT

     SUMMARY: The purpose of this task is to develop the helper application that
     will allow the users of the photoloft website to print off hi resolution

<PAGE>
     images from the internet.  HP will make  recommendations  for any necessary
     changes to the practices for them to best support the Image Print Solution.
     This development will include, but is not limited to

     -    Client Side Photo Realistic Image Printing  Helper  Application  which
          will use the  Photoloft  image  server to deliver any  combination  of
          single copies or multiple  pages of 3"x5",  4"x6" or8"xl0" image pages
          printed off on an 8.5" x 11 " sheet of paper.

     -    Help  integrating the helper  application  into the Photoloft  current
          bundle

     -    Assistance in integrating the application  into  Photoloft.com  at the
          appropriate integration points

     -    Content  for  website  on how  to  capture  images  and  print  images
          appropriately.

     ACCEPTANCE CRITERIA: Use of the print helper application.

     PHOTOLOFT  COMPANY  OBLIGATIONS - Photoloft  Company must provide access to
     all documentation  regarding  currently  existing  processes and practices.
     Photoloft Company IT and web personnel must participate in the planning and
     process  specification  development  including  all  work  shops,  planning
     meetings and documentation  development  activities to be identified in the
     Project  Plan.  Photoloft  Company shall be  responsible  for reviewing and
     approving the contents of this.

     2.1.3 DOCUMENTATION

     SUMMARY:  HP will fully document the Photoloft OpenPix Image Print Solution
     and  all  of  the  associated   processes  and  integration   points.  This
     documentation  is  intended to be used  during the  training  period of the
     system, as well as its day to day use.

     2.1.4 DELIVERY

     SUMMARY:  HP  will  help  Photoloft  personal  install  and  integrate  the
     Photoloft  OpenPix Image Print Solution into the current  infrastructure at
     the  appropriate  integration  points as  defined in the  discovery  phase.
     Testing of the photo realistic  printing  application  will be conducted at
     that time based on the test plan  outlined  in the  discovery  phase of the
     project.

     Work on this  engagement will be performed in Hewlett Packard in Cupertino,
     CA as  well  as at  Photoloft  Company  in  Campbell,  CA.  Hewlett-Packard
     provides this proposal on a budgetary price basis.

     Photoloft  Company is assuming the role of Prime  Contractor  for the Image
     Print  Solution.  Hewlett-Packard  will  interact  with any  third  parties
     involved  in the  engagement  for the  purpose of  identifying  HP's roles,
     integrating  HP, other  subcontractor  and  Photoloft  Company  tasks,  and
     tracking  progress.  HP is not the prime  contractor on this engagement and
     will not be responsible for the deliverables of any third parties.

     2.2 GENERAL EXCEPTIONS

     The  following  exceptions  further  represent   Hewlett-Packard's  current
     understanding  of the engagement and further defines the engagement  scope.
     For the purpose of this section, exceptions are defined as items previously
     documented or discussed as  engagement  requirements  that  Hewlett-Packard
     does not consider part of the engagement scope.

     -    Performing  daily image management and image  manipulation  activities
          other than those in the testing and delivery phases of this document

     -    Installing and configuring the Operating System(s)

     -    Developing  any  portion of the user  interface  on the  Photoloft.com
          website

     -    Developing  the  integration  points on the server side (while Hewlett
          Packard  will   recommend  how  the   integration   points  should  be
          implemented, HP recommends that Photoloft perform this development)

     2.3  OTHER CONTRACTUAL OBLIGATIONS FROM HP & PHOTOLOFT

     Alongside  the  technical  nature of the project,  there are  marketing and
     other opportunities that HP and Photoloft.  The following list is a summary
     of the other  activities  that HP and Photoloft  have  committed to execute
     over the next six (6) month period

     -    Joint  Press  release  stating  the joint  project  - HP will  provide
          content  for HP's press  release,  Photoloft  will  provide  their own
          content.

     -    Image.hp.com  will  maintain  a  link  to the  photoloft.com  website.
          Photoloft.com will maintain a link to the image.hp.com website.

     -    HP and Photoloft  will  participate in relevant joint trade shows in a
          cost sharing fashion.

     -    HP ITIO will provide  introductions  to other divisions  within HP who
          value the types of services  Photoloft brings to bear. These divisions
          include HP Corporate  Programs (for ID 4 Life),  printer divisions and
          complementary products divisions.

     -    Photoloft  will  provide  to  Hewlett   Packard  ITIO  $25K  worth  of
          advertising.

3.   PHOTOLOFT COMPANY OBLIGATIONS

     An individual with  centralized  responsibility  for all Photoloft  Company
     aspects of this  consulting  engagement  must be assigned.  This individual
     must have the  authority to make all decisions  relative to the  consulting
     engagement  and to either assign  resources or negotiate the  assignment of
     resources  within  Photoloft  Company.  In  addition,  this  individual  or
     designee  must be  available  for  deliverable  acceptance  and approval in
     accordance with the consulting  engagement schedule.  The Photoloft Company
     Project Lead will verify compliance of each deliverable with the Acceptance
     Criteria  defined for each  deliverable in the Statement of Work section of
     this  document and shall then  indicate  agreement  with the  compliance by
     signature  either on a signature page to be part of the deliverable or on a
     separate document to be provided by HP.

     Photoloft Company will assign a team of executives, managers and individual
     contributors  to work with the HP team  throughout  the  engagement.  It is
     expected that this team will require  participation  from Photoloft Company
     design, implementation,  support, and maintenance organizations.  Personnel
     skills  required  will  be  in  the  general  areas  of  support,   network
     management,  systems management,  business applications,  purchasing,  help
     desk, end users,  and site  representatives.  This team will be responsible
     for complying with agreed-to meeting times(both starting and duration), and
     with providing the requested information on a timely basis for the duration
     of the engagement.

     Photoloft Company must provide a suitable work area space with desk, chair,
     and at least one  telephone,  which must be on an analog line  suitable for
     modem  digital  data  transmission,  for  use  by the HP  team  to  conduct
     engagement  business while working onsite at Photoloft  Company.  Photoloft
     Company must also  provide the onsite  project team with access to copiers,
     fax, and simple clerical support.

4.   LIMITATIONS AND ASSUMPTIONS

     An engagement  start date of October 12, 1998 has been assumed for resource
     scheduling and pricing. Photoloft is advised to offer Hewlett Packard seven
     (7)  days  notice  in  advance  of  October  12 to  allow  for  appropriate
     scheduling.  Changes to this start date will effect the availability of key
     engagement resources and, therefore, the engagement duration and price

     HP services  will  normally be performed  during  normal  business  working
     hours, Monday through Friday, 8:00 am to 5:00 p.m.,  excluding HP holidays.
     Some engagement  services may require some work to be performed  outside of
     these  standard  work hours.  This  off-hours  work will be  addressed  and
     handled on a case-by-case basis with the Photoloft Company Project Lead.

     All deliverable documentation created for this engagement will be available
     in both hard copy and  electronic  format.  The  electronic  format will be
     MSWord.  The engagement  planning  software used for this  engagement is MS
     Project.  If  Photoloft  Company  requests  the  use  of an  additional  or
     different  software  tool  not  known  to  the  engagement  personnel,  the
     Photoloft  Company  will be  responsible  for the  costs of  acquiring  the
     necessary  software  and training  courses  and/or time  necessary  for the
     engagement personnel to learn the tool.

5.   OTHER CONSIDERATIONS

     5.1  CHANGE PROCESS

     This  engagement has defined  deliverables as detailed in the Scope of Work
     section of this document.  If requirements arise that are outside the scope
     of this SOW, a change order will be submitted  and  processed in accordance
     with the "Change  Orders" section of the terms and conditions to which this
     Statement of Work is an Exhibit.

     Either  the HP team or  Photoloft  Company  can  initiate  a change  to the
     engagement.  The change will be  evaluated  and  technical  and  engagement
     issues will be identified.  The cost,  scope, and schedule impact,  if any,
     will be analyzed  and  documented.  The change will then be  processed  for
     decision and closure or implementation.

     In the event HP and Photoloft  Company do not reach agreement on the change
     order, the scope of work of this engagement remain as it is defined in this
     document.

     5.2  ESCALATION PROCESS

     HP takes a proactive  approach to project  management to plan and structure
     the work at high quality levels. At times, however, there are circumstances
     (engagement  issues) that were not anticipated or prevented and can, if not
     addressed,  affect the success of the  engagement.  Typically an engagement
     issue is a  circumstance  that  needs HP or  Photoloft  Company  management
     (outside  of the  engagement)  awareness  or  focus on a  problem  that has
     lingered longer than allowable.

     The timely  resolution of issues is critical to maintaining  control of the
     engagement and achieving the engagement  schedule and costs. The purpose of
     the  escalation  process is to ensure that issues and problems are properly
     managed  and  resolved in a timely and  efficient  manner.  The  escalation
     process  provides a mechanistic  means to alert higher levels of management
     attention to those issues not being resolved.

     Either the HP team or  Photoloft  Company  can  initiate  or raise an issue
     related to the  engagement.  The issue will be raised to the  Project  Lead
     and,  if  not  resolved  in  a   predetermined   period,   the  issue  will
     automatically  be  raised to the  engagement  manager.  The  issue  will be
     resolved  under the  guidance of the  engagement  manager,  or if still not
     resolved in a predetermined  period, the issue will automatically be raised
     to the  delivery  manager.  For the  purposes  of defining  the  escalation
     process,  "resolved" as used here can mean that the issue is being attended
     to but not necessarily completed.

6.   SCHEDULE

     The preliminary engagement schedule for the Image Print Solution engagement
     is  based on an  estimated  start  date of  October  12,  1998.  The  final
     engagement  schedule will be provided  following  engagement  start. The HP
     services are currently  scheduled to start on or about October  12,1998 and
     to continue  for a 4 calendar  week period  ending on or about  November 9,
     1998. This start date assumes receipt of a purchase order seven (7) days in
     advance of the start of the engagement.

<PAGE>
7.   ORDER AND PAYMENT INFORMATION

     7.1  PRICING

     The Image Print  Solution  services  defined in this  Statement of Work are
     proposed to Photoloft Company on a budgetary price basis. Photoloft Company
     will be invoiced on a milestone basis.

     This engagement is proposed to Photoloft Company for a firm, fixed price of
     $ 75,000.

     This Statement of Work is valid for thirty (30) days from date of issue.

     7.2  PAYMENT SCHEDULE

     HP will invoice Photoloft Company in accordance with the following table.

<TABLE>
<CAPTION>
ENGAGEMENT
ID # ITIO1289
-------------
PRODUCT NO.         DESCRIPTION          PRICE             INVOICE
-------------  ---------------------  -----------  ------------------------
<S>            <C>                    <C>          <C>
                                                   $28,625 upon
                                                   completion of
                                                   deliverables, and
               Photoloft-Image                     remaining outstanding
               Print Solution                      balance 6 months after
B75122A        Implementation         $    57,250  signed contract.
-------------  ---------------------  -----------  ------------------------
                                                   Included for 6 months
                                                   in above cost.
               Image Print                         Subsequent support to
               Solution Support       $7,500/year  be purchased annually.
               ---------------------  -----------  ------------------------
               HP OpenPix
               Image Igniter          $ 4,995/cpu  Included in above cost
               ---------------------  -----------  ------------------------
                                                   Photoloft will generate
                                                   a single page contract
                                                   which is valid
                                                   for $25K in
                                                   advertising (at
                                                   Photoloft's current
                                                   pricing as of
               Photoloft Advertising               October 27, 1999
               ---------------------               ------------------------
</TABLE>

     Please  send  your  purchase  order  to:
     Hewlett-Packard  CompanyCupertino,  CA  MS  42UO
     11000  Wolfe  Road
     Cupertino,  California

<PAGE>
8.   AUTHORIZATION

     8.1  ENTIRE AGREEMENT

     This  Statement of Work and the  attached  Consulting  Services  Agreement,
     including any exhibits and  appendices,  constitutes  the entire  agreement
     between  HP  and   Photoloft   Company,   and   supersedes   any   previous
     communications,  representations or agreements between the parties, whether
     oral or written,  regarding  transactions  hereunder.  Photoloft  Company's
     additional or different terms and conditions will not apply. This Statement
     of Work will be governed by the terms and conditions to which this document
     is an exhibit.

     8.2  SIGNATURE

     Signature below indicates Photoloft Company's acceptance of this consulting
     services Statement of Work.  Hewlett-Packard  will require a valid purchase
     order  reflecting  this Statement of Work to begin work as well as to issue
     invoices in accordance with the Payment Schedule in section 7.2.

         Hewlett-Packard  Company

PhotoIoft  Company

   By:                                                            By:

   Name:                                                          Name:

   Title:                                                         Title:

   Date:                                                          Date:

     Please sign two copies of this document and return to Hewlett-Packard  with
     your purchase order.  Hewlett-Packard will sign and return one copy to your
     attention.

<PAGE>
HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

                                    EXHIBIT B

                             CHANGE ORDER PROCEDURES

The  following  procedures  will  be  observed  for  all  Change  Orders:

1.     Either  party may request a Change Order but all Change Orders must be in
writing  and  prepared  by HP. HP may charge a reasonable fee for investigating,
preparing  or  initiating  a  Change  Order  at  Customer's  request.

2.     Change  Order  requests  will  be  processed  as  a  on  as is reasonably
possible.

3.     All  Change  Orders will be in the form attached hereto as Attachment B-1
to  Exhibit B, and will be signed by the appointed representative for each party
(or  individuals specified in writing as substitute during periods of illness or
absence).

4.     Change  Orders  will  include  the  following:

a)     A  description  of any additional work to be performed and/or any changes
to  the  performance  required  of  either  party.

b)     A  statement  of  the  impact  of  the  work or changes on the Consulting
Services,  the  Deliverables,  the  acceptance  tests  or  criteria,  or  other
requirements  of  the  Agreement.

c)  The  estimated  timetable to complete the work specified in the Change Order
and  the  impact,  if  any,  on  the  delivery  schedule,  pricing and payments.

d)     Specific  individuals  with  management or coordination responsibilities.

a)     The  documentation  to  be  modified  or  supplied  as  part or the work.

f)     Any  additional  acceptance  test  procedures  for  such  work.

<PAGE>
HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

                                    EXHIBIT B

                         TO CONSULTING SERVICES ADDENDUM

                                 ATTACHMENT B-1

                                CHANGE ORDER FORM

1.     Describe  services  or  changes  requested  (attach  additional  pages if
necessary).

     REQUESTED  BY  CUSTOMER:                         REQUESTED  BY:

     Customer:  ________________                      HP:  ______________

     ___________________________                      __________________________
     Authorized  Representative Signature             Representative Signature

     Name: _________________                          Name: ____________________

     Title:  _______________                          Title:  __________________

     Date:  ________________                          Date:  ___________________

2.  Modifications,  clarifications  or supplements to description of services or
changes  requested  in  paragraph  1  above,  if any (attach additional pages if
necessary):

3.  Assignment  of necessary HP personnel and resources (attach additional pages
if     necessary):

<PAGE>
HEWLETT  PACKARD

CONSULTING  SERVICES  AGREEMENT  (Deliverables)
Exhibit  TM02

4.     Impact  on  price,  delivery  schedule,  payment  schedule, Deliverables,
Consulting  Services  and  ancceptance  test  procedures  and  criteria  (attach
additional  pages  if  nece5sary):

a.  Price

b.  Delivery  Schedule  and  Payment  Schedule

c.  Deliverables

d.  Consulting  Services

a.  Acceptance  Test  Procedures  and  Criteria

<PAGE>
HEWLETT  PACKARD
CONSULTING  SERVICES  AGREEMENT  (Deliverables)

Fxhibit  TM02

Change  Order  Approved  and  Accepted

Customer:  ______________________          HP:  ______________________________

_________________________________          ___________________________________
Authorized  Representative  Signature      Authorized  Representative  Signature

Name:      _________________________       Name:  ____________________________

Title:     _________________________       Title:  ___________________________

Date:      _________________________       Date:  ____________________________

Change  Order  Rejected

Customer:  ___________________________       HP:______________________________

     __________________________________      _________________________________
     Authorized Representative Signature     Authorized Representative Signature

     Name:  ____________________             Name:  _________________________

     Title: ____________________             Title:  ________________________

     Date:  ____________________             Date:  _________________________

Hewlett  Packard

Confidential  Disclosure  Agreement

Effective  Date:  2-24-99
                  -------

In  order  to  protect certain confidential information, Hewlett-Packard Company
and  its  corporate  affiliates  ("HP"), and the "Participant" identified below,
agree  that:

1.   Disclosing   Party:   The   party   disclosing   confidential   information
     ("Discloser")  is ________  (NOTE:  Fill in "HP",  "Participant",  or "both
     parties".)

2.   Primary   Represenative:   Each  party's  representative  for  coordinating
     disclosure or receipt of confidential information is:

HP:  Srinivas  Sukumar
   -------------------

Participant:_____________

3.   Description  of  Confidential  Information:  The  confidential  information
     disclosed under this Agreement is described as:

HP:_____________________________

Participant:__________________________________
(note:  be  specific,  for example, individually list materials provided. Attach
additional  sheets  if  needed.)

4.   Use  of  Confidential   Information:   The  party  receiving   confidential
     information  ("Recipient")  shall make use of the confidential  information
     only  for the  following  purpose  (e.g.,  "evaluation  and  testing  for a
     make/buy decision on project xyz."):

HP:_____________________________

Participant:__________________________________

5.   Confidentiality  Period:  This  Agreement  and  Recipient's  duty  to  hold
     confidential         information        in        confidence         expire
     on:_______________________________  (Note: this is the period of protection
     of confidential information.)

6.   Disclosure Period: This Agreement pertains to confidential information that
     is      disclosed       between      the      Effective       Date      and
     ____________________________________ (note: this is the period during which
     confidential information is going to be disclosed.)

7.   Standard  of Care:  Recipient  shall  protect  the  disclosed  confidential
     information by using the same degree of care, but no less than a reasonable
     degree  of  care  to  prevent  the  unauthorized  use,  dissemination,   or
     publication  of the  confidential  information as Recipient uses to protect
     its own confidential information of a like nature.

8.   Markings:   Recipient's  obligations  shall  only  extend  to  confidential
     information  that is  described in  paragraph  3, and that:  (a)  comprises
     specific materials  individually  listed in parragraph 3; or, (b) is marked
     as confidential at the time of disclosure; or, (c) is unmarked (e.g. orally
     disclosed) but treated as  confidential  at the time of disclosure,  and is
     designated as  confidential  in a written  memorandum  sent to  Recipient's
     primary  representative  within thirty days of disclosure,  summarizing the
     confidential information sufficiently for identification.

9.   Exclusions:  This  Agreement  imposes no  obligation  upon  Recipient  with
     respect to  information  that:  (a) was in  Recipient's  possession  before
     receipt  of  Discloser;  (b) is or  becomes a matter  of  public  knowledge
     through no fault of Recipient; (c) is rightfully received by Recipient from
     a third  party  without  a duty of  confidentiality;  (d) is  disclosed  by
     Discloser to a third party without a duty of  confidentiality  on the third
     party; (e) is independently developed by Recipient;  (f) is disclosed under
     operation of law; or (g) is disclosed by Recipient with  Discloser's  prior
     written approval.

10.  Warranty:  Each  Discloser  warrants  that it has  the  right  to make  the
     disclosures  under this Agreement.  NO OTHER  WARRANTIES ARE MADE BY EITHER
     PARTY UNDER THIS AGREEMENT.  ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT
     IS PROVIDED "AS IS".

11.  Rights:  Neither party acquires any intellectual property rights under this
     Agreement except the limited rights necessary to carry out the purposes set
     forth in paragraph 4. This  Agreement  shall not restrict  reassignment  of
     Recipient's employees.

Miscellaneous

12.  This  Agreement  imposes no obligation  on either party to purchase,  sell,
     license,  transfer  or  otherwise  dispose of any  technology,  services or
     products.

13.  Both parties shall adhere to all  applicable  laws,  regulations  and rules
     relating to the export of technical  data, and shall not export or reexport
     any technical  data, any products  received from  Discloser,  or the direct
     product of such  technical  data to any  proscribed  country listed in such
     applicable laws, regulations and rules unless properly authorized.

14.  This Agreement does not create any agency or partnership relationship.

15.  All additions or  modifications  to this  Agreement must be made in writing
     and must be signed by both parties.

16.  This Agreement is made under, and shall not be construed  according to, the
     laws of the State of California, USA.

Hewlett-Packard  Company
_____________________
(entity  Name)
_____________________
(address)
By___________________
(functional  manager's  signature)
_____________________
(name)
_____________________
(title)

Participant
Photoloft.com
300  Orchard  City  Drive  Ste.  142
By  s.  Jack  Marshall
    ------------------
Jack  Marshall
President

<PAGE>EXHIBIT 4.1

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between AMERICAN CHAMPION ENTERTAINMENT,
INC., a Delaware corporation, with headquarters located at 1694 The Alameda,
Suite 100, San Jose, CA 95126-2219 (the "Company"), and each entity named on a
signature page hereto (each, a "Buyer")(each agreement with a Buyer being
deemed a separate and independent agreement between the Company and such Buyer,
except that each Buyer acknowledges and consents to the rights granted to
each other Buyer under such agreement and the Transaction Agreements, as
defined below, referred to therein).

        W I T N E S S E T H:

WHEREAS, the Company and the Buyer are executing and delivering this Agreement
in accordance with and in reliance upon the  exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"),
and/or Section 4(2) of the 1933 Act; and

WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, 7% Convertible Debentures of the Company which
will be convertible into shares of Common Stock, $.0001 par value per share of
the Company (the "Common Stock"), upon the terms and subject to the conditions
of such Convertible Debentures, together  with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock (the "Warrant Shares"),
and subject to acceptance of this Agreement by the Company;

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

1.      AGREEMENT TO PURCHASE; PURCHASE PRICE.

a.      Purchase; Certain Definitions.

(i)     The undersigned hereby agrees to purchase from the Company 7%
Convertible Debentures in the principal amount set forth on the Buyer's
signature page of this Agreement (the "Debentures"), out of a total offering
of $1,250,000 of such Debentures, and having the terms and conditions and
being in the form attached hereto as Annex I. The purchase price for the
Debentures shall be as set forth on the signature page hereto and shall be
payable in United States Dollars.

(ii)    As used herein, the term "Securities" means the Debentures, the Common
Stock issuable upon conversion of the Debentures, the Warrants and the
Warrant Shares.

(iii)   As used herein, the term "Purchase Price" means the purchase price for
the Debentures.

(iv)    As used herein, the term "Closing Date" means the date of the closing
of the purchase and sale of the Debentures, as provided herein.

(v)     As used herein, the term "Effective Date" means the effective date of
the Registration Statement covering the Registrable Securities (as those terms
are defined in the Registration Rights Agreement defined below).

(vi)    As used herein, the term "Market Price of the Common Stock" means the
average closing bid price of the Common Stock for the lowest three (3)
trading days (which need not be consecutive) during the  ten (10) trading days
ending on the trading day immediately before the date indicated in the
relevant provision hereof (unless a different relevant period is specified in
the relevant provision), as reported by Bloomberg, LP or, if not so reported,
as reported on the over-the-counter market.

b.      Form of Payment; Delivery of Debentures.

(i)     The Buyer shall pay the Purchase Price for the Debentures by delivering
immediately available good funds in United States Dollars to the escrow agent
(the "Escrow Agent") identified in the Joint Escrow Instructions attached
hereto as Annex II (the "Joint Escrow Instructions") on the date prior to the
Closing Date.

(ii)    No later than the Closing Date, but in any event promptly following
payment by the Buyer to the Escrow Agent of the Purchase Price, the Company
shall deliver the Debentures and the Warrants, each duly executed on behalf of
the Company, to the Escrow Agent.

(iii)   By signing this Agreement, each of the Buyer and the Company, subject
to acceptance by the Escrow Agent, agrees to all of the terms and conditions
of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth
in full.

c.      Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of funds to:

        Bank of New York
        350 Fifth Avenue
        New York, New York 10001

        ABA# 021000018
        For credit to the account of Krieger & Prager LLP, Esqs.
        Account No.: [To be provided to the Buyer by Krieger &  Prager LLP]
        RE: American Champion Entertainment 12/99 Transaction

Not later than 5:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the Purchase
Price for the Debentures in currently available funds. Time is of the essence
with respect to such payment, and failure by the Buyer to make such payment,
shall allow the Company to cancel this Agreement.

d.      Escrow Property. The Purchase Price and the Debentures and Warrants
delivered to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof
are referred to as the "Escrow Property."

2.  BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.

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

a.      Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration Rights
Agreement defined below), the Buyer is purchasing the Debentures and the
Warrants and will be acquiring the shares of Common Stock issuable upon
conversion of the Debentures (the "Converted Shares") and the Warrant Shares
for its own account for investment only and not with a view towards the public
sale or distribution thereof and not with a view to or for sale in connection
with any distribution thereof.

b.      The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by reason of the
business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way
by the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its
investment in the Securities.

c.      All subsequent offers and sales of the Debentures and the shares of
Common Stock representing the Converted Shares and the Warrant Shares (such
Common Stock sometimes referred to as the "Shares") by the Buyer shall be made
pursuant to registration of the Shares under the 1933 Act or pursuant to an
exemption from registration.

d.      The Buyer understands that the Debentures are being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debentures. The
Buyer represents and warrants that the address of its principal place of
business is as set forth on the Buyer's signature page of this Agreement.

e.      The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debentures and the offer of
the Shares which have been requested by the Buyer, including Annex V hereto.
The Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers
to any such inquiries. Without limiting the generality of the foregoing, the
Buyer has also had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, (2)
Quarterly Reports on Form 10- QSB for the fiscal quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999, (3) Proxy Statement for the Company's
annual meeting of shareholders held on May 5, 1999 and Proxy Statement for the
Company's special meeting of shareholders held on December 10, 1999, and (4)
Registration Statement on Form S-3 filed with the SEC on December 13, 1999
(the "Company's SEC Documents").

f.      The Buyer understands that its investment in the Securities involves a
high degree of risk.

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

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

3.      COMPANY REPRESENTATIONS, ETC.

The Company represents and warrants to the Buyer that, except as provided in
Annex V hereto:

a.      Concerning the Debentures and the Shares. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Debentures,
the Warrants or the Shares.

b.      Reporting Company Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own its properties and to carry on
its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure
to so qualify would not have a material adverse effect on the business,
operations or condition (financial or otherwise) or results of operation of the
Company and its subsidiaries taken as a whole. The Company has registered its
Common Stock pursuant to Section 12 of the 1934 Act, and the Common Stock is
listed and traded on The NASDAQ/SmallCap Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of
the Common Stock for such listing, and the Company has maintained all
requirements for the continuation of such listing.

c.      Authorized Shares. The Company has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the
Debentures and to issue the Warrant Shares. The Converted Shares and the
Warrant Shares have been duly authorized and, when issued upon conversion of,
or as interest on, the Debentures or upon exercise of the Warrants, each in
accordance with its respective terms, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder.

d.      Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Debentures, the Warrants and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting
the enforcement of creditors' rights generally.

e.      Non-contravention. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Debentures do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a party or by which it or any
of its properties or assets are bound, including any listing agreement for the
Common Stock except as herein set forth, (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or
order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, or (iv) the Company's listing
agreement for its Common Stock, except such conflict, breach or default which
would not have a material adverse effect on the business, operations or
condition (financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, or on the transactions contemplated herein.

f.      Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Buyer as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained or that are contemplated by this
Agreement to be obtained on a date after the date hereof.

g.      SEC Filings. None of the Company's SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. Except for certain filings required to be filed by
persons subject and pursuant to Section 16 of the 1934 Act, the Company has
since November 1, 1998 timely filed all requisite forms, reports and exhibits
thereto with the SEC.

h.      Absence of Certain Changes. Since December 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 1998, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not
in the ordinary course of business, or suffered the loss of any material amount
of existing business; (vi) made any changes in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.

i.      Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in
the Company's SEC Documents) that has not been disclosed in writing to the
Buyer that (i) would reasonably be expected to have a material adverse effect
on the business, operations or condition (financial or otherwise) or results
of operations of the Company and its subsidiaries, taken as a whole, (ii)
would reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement or any of
the agreements contemplated hereby (collectively, including this Agreement,
the "Transaction Agreements"), or (iii) would reasonably be expected to
materially and adversely affect the value of the rights granted to the Buyer
in the Transaction Agreements.

j.      Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of
the Company, threatened against or affecting the Company, wherein an
unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business or financial condition, or results of operation of
the Company and its subsidiaries taken as a whole or the transactions
contemplated by any of the Transaction Agreements or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements.

k.      Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has
occurred and is continuing, which would have a material adverse effect on the
business, operations or condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.

l.      Prior Issues. During the twelve (12) months preceding the date
hereof, the Company has not issued any convertible securities. The presently
outstanding unconverted principal amount of each such issuance as of the date
of this Agreement is set forth in Annex V.

m.      No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations other than those disclosed in the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since December
31, 1998, and which individually or in the aggregate, do not or would not have
a material adverse effect on the properties, business, condition (financial or
otherwise), or results of operations of the Company and its subsidiaries,
taken as a whole. Except for the transactions contemplated by the Transaction
Agreements, no event or circumstances has occurred or exists with respect to
the Company or its properties, business, condition (financial or otherwise),
or results of operations, which, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed. There are
no proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of the
Company which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of
the Company, including its interests in subsidiaries.

n.      No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property
is bound.

o.      No Integrated Offering. Neither the Company nor any of its affiliates
nor any person acting on its or their behalf has, directly or indirectly, at
any time since November 1, 1998 made any offer or sales of any security or
solicited any offers to buy any security under circumstances that would
eliminate the availability of the exemption from registration under Rule 506
of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.

p.      Dilution. The number of Shares issuable upon conversion of the
Debentures and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
the conversion of the Debentures. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Debentures and upon exercise of the Warrants is binding upon
the Company and enforceable regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the Company, and the
Company will honor every Notice of Conversion (as defined in the Debentures)
relating to the conversion of the Debentures and every Notice of Exercise Form
(as contemplated by the Warrants) relating to the exercise of the Warrants
unless the Company is subject to an injunction (which injunction was not
sought by the Company) prohibiting the Company from doing so.

4.      CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

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

b.      Restrictive Legend. The Buyer acknowledges and agrees that the
Debentures and the Warrants, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):

THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

c.      Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.

d.      Filings and Shareholder Consent. (i) The Company undertakes and
agrees to make all necessary filings in connection with the sale of the
Debentures to the Buyer under any United States laws and regulations applicable
to the Company, or by any domestic securities exchange or trading market, and
to provide a copy thereof to the Buyer promptly after such filing.

(ii)    Subject to the conditions of the immediately following sentence, the
Company undertakes and agrees to take all steps necessary to have a meeting
and  vote of the shareholders of the Company no later than the Meeting Date
(as defined below) regarding authorization of the Company's issuance to the
holders of the Debentures and Warrants of shares of Common Stock in excess of
twenty percent (20%) of the outstanding shares of Common Stock on the date of
this Agreement in accordance with NASDAQ Rule 4310(c)(25)(H). The terms of
the immediately preceding sentence shall apply only once the Company has
issued, after the date of this Agreement, either (x) to the Holder Class
Members of any specific Holder Class, shares of Common Stock which, in the
aggregate equal or exceed seventy-five percent of the Conversion Limit of that
Holder Class (as such terms are defined below), or (y) to any one or more
holders of all Debentures contemplated by this Agreement shares of Common
Stock which, in the aggregate, equal or exceed ten percent (10%) of the
outstanding shares of Common Stock on the date hereof. The earliest date on
which the issuance of such shares contemplated by the immediately preceding
sentence occurs shall constitute, with further notice from a Buyer, a "Meeting
Requirement Date." The term "Meeting Date" means the date which is seventy-five
(75) days after the Meeting Requirement Date. The Company will recommend to
the shareholders that such authorization be granted and will seek proxies from
shareholders not attending the meeting (if such meeting is required to
effectuate such authorization) naming a director or officer of the Company as
such shareholder's proxy and directing the proxy to vote, or giving the proxy
the authority to vote, in favor of such authorization. Upon determination
that the shareholders have voted in favor of such authorization, the Company
shall cause its counsel to issue to the Buyer an unqualified opinion (the
"Authorization Opinion") that such authorization has been duly adopted by all
necessary corporate action of the Company and that the Company will be able to
 issue, without restriction as to the number of such shares, all shares of
Common Stock as may be issuable upon conversion of the Debentures and without
any limits imposed by the Cap Regulations (as defined in the Debentures)
adopted on or before and in effect on the date of the Authorization Opinion.
The Authorization Opinion shall state that the Buyer may rely thereon in
connection with the transactions contemplated by this Agreement and the other
Transaction Agreements regarding its holdings of the Debentures. If, for any
reason, (x) the Authorization Opinion is not issued within five (5) business
days after such meeting, (y) the meeting is not held by the Meeting Date or
(z) the requisite shareholder approval is not obtained at the meeting, then in
lieu of issuing any shares in violation of NASDAQ Rule 4310(c)(25)(H) or any
of the other Cap Regulations, the Company shall redeem the outstanding
Unconverted Debentures (as defined in the Debentures) as set forth in Section
6 of the Debenture within thirty (30) days after the Meeting Date.

(iii)   In furtherance of the provisions of the immediately preceding
subparagraph (ii) hereof, the Company (a) commits to using its best efforts to
obtain any shareholder authorization contemplated by said subparagraph (ii),
and (b) represents to the Buyer that the Company has obtained the binding
irrevocable commitment or proxy (each, a "Principal Voter Proxy") of each
Principal Voter (as defined below) that such Principal Voter will vote in
favor of any shareholder authorization contemplated by said subparagraph (ii).
Each Principal Voter Proxy shall be issued in favor of the Buyer or the
Buyer's designee and shall state that, among other things, as a result of the
Principal Voter's direct or indirect relationship to the Company on the date
the Principal Voter Proxy is given, such Principal Voter Proxy is deemed
coupled with an interest in favor of the Buyer. A "Principal Voter" is a person
who meets any one or more of the following criteria: (A) a person who is a
director or principal officer of the Company (each, a "Company Principal") and
who, directly or indirectly, holds any shares of Common Stock of the Company;
(B) a spouse of a Company Principal who resides in the household of the
Company Principal (a "Principal's Spouse") and who, directly or indirectly,
holds any shares of Common Stock of the Company, (C) a parent, sibling or
child of a Company Principal who resides in the household of a Company
Principal or of a Principal's Spouse (each, a "Principal's Relative") and who,
directly or indirectly, holds any shares of Common Stock or (D) any other
person or entity, including, without limitation, for profit or non-profit
corporations, partnerships and trusts, whose voting rights regarding Common
Stock of the Company is subject to the direction, control or other influence
of any Company Principal, Principal's Spouse or Principal's Relative. The
Company will deliver such Principal Voter Proxies to the Buyer or the Buyer's
designee within ten (10) business days after the Closing Date.

e.      Reporting Status. So long as the Buyer beneficially owns any of the
Debentures, the Company shall file all reports required to be filed by the
Company with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the
Company shall not voluntarily terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination.  The Company will take
all reasonable action under its control to continue the listing and trading of
its Common Stock (including, without limitation, all Registrable Securities)
on The NASDAQ SmallCap Market and will comply in all material respects with
the Company's reporting, filing and other obligations under the by-laws or
rules of the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ SmallCap Market.

f.      Use of Proceeds. Unless otherwise consented by the Buyer, the
Company shall use the proceeds from the sale of the Debentures (excluding
amounts paid by the Company for legal fees, finder's fees and escrow fees in
connection with the sale of the Debentures) for internal working capital
purposes, and, except as expressly provided herein, shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person, including any of its
affiliates, or to repay any debt to any of its affiliates.

g.      Certain Agreements. The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, enter into any subsequent
or further offer or sale of Common Stock or securities convertible into Common
Stock with any third party on any date which is prior to one hundred twenty
(120) days after the Effective Date. The foregoing provisions shall not
restrict the Company from issuing shares of Common Stock upon the exercise of
(x) certain warrants for the purchase of up to approximately 3,168,875 shares
outstanding as of the date hereof and (y) certain options granted or be
granted pursuant to the 1997 Stock Option Plan or the 1997 Non-Employee
Directors Stock Option Plan.

h.      Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of
Common Stock issuable (i) at conversion as may be required to satisfy the
conversion rights of the Buyer pursuant to the terms and conditions of the
Debentures and (ii) upon exercise as may be required to satisfy the exercise
rights of the Buyer pursuant to the terms and conditions of the Warrants.

i.      Warrants. The Company agrees to issue to the Buyer on the Closing
Date transferable, divisible warrants (the "Warrants") for the purchase of ten
thousand (10,000) shares of Common Stock for every $100,000 principal of
Debentures purchased by the Buyer. The Warrants shall bear an exercise price
equal to one hundred twenty-five percent (125%) of the Market Price of the
Common Stock on the Closing Date (the "Warrant Exercise Price"). The Warrants
will expire on the third anniversary of the Closing Date. The Warrants shall
be in the form annexed hereto as Annex VI, together with registration rights
as provided in the Registration Rights Agreement.

j.      Limitation on Conversions. Anything in the other provisions of this
Agreement or any of the other Transaction Agreements to the contrary
notwithstanding, the following provisions are applicable to conversion
effected under the Debentures:

(i)     Attached to this Agreement as Annex VIII is a schedule of all of the
Buyers who were the original signatories to this Agreement (each, an "Original
Holder") and the original principal amount (the "Original Debenture Amount")
of the Debenture issued to each such Original Holder as contemplated by this
Agreement (each, an "Original Debenture"). For identification purposes and
for the purposes of this Section only, Annex VIII also identifies the "Holder
Class" for each Original Debenture. Each Original Debenture will include an
identification of its relevant Holder Class. Any reissue of an Original
Debenture to the Original Holder or to any direct or indirect assignee or
transferee of all or part of such Original Debenture shall include an
identification of the same Holder Class. The Original Holder of each Holder
Class and any other party at any time holding a Debenture of the same Holder
Class are referred to collectively as the "Holder Class Members."
(ii)    If and for so long as the Cap Regulations are applicable to limit the
issuance of shares on conversion of the Debentures (but not thereafter), the
number of shares that the Company will issue to all Holder Class Members of a
specific Holder Class on conversion of the Debentures of that Holder Class
shall not, in the aggregate, exceed the Conversion Limit (as defined below).

(iii)   As of the Closing Date, the term "Conversion Limit" means the number
of shares equal to (A) 19.99% of the number of outstanding shares of Common
Stock of the Company as of the Closing Date, which number is specified on
Annex V annexed hereto; provided, however, that such number is subject to
adjustment for subsequent stock splits, stock dividends and other similar
actions or transactions affecting the capital formation of the Company),
multiplied by (B) the relevant Holder Class Allocable Share (as defined below).

(iv)    If, for any reason whatsoever, there are no Debentures of a specific
Holder Class outstanding (a "Closed Class"), the Company shall promptly give
written notice (the "Closed Class Notice") of such fact to the then holders of
outstanding Debentures of all other Holder Classes. The Closed Class Notice
shall (A) identify the date on which the Holder Class became a Closed Class,
and (B) specify both the number of shares issued, in the aggregate to all
Holder Class Members of the Closed Class (the "Closed Class Issued Shares")
and the most recent Conversion Limit that was applicable to the Closed Class
(the "Closed Class Conversion Limit"). The term "Remaining Shares" means the
excess, if any, of the Closed Class Conversion Limit over the Closed Class
Issued Shares.

(v)     The Conversion Limit in effect on the Closing Date or as subsequently
adjusted as provided below shall be adjusted or further adjusted, as the case
may be, on the next date on which there is a new Closed Class which results in
Remaining Shares (a "Closed Class Date").  As of the Closed Class Date, the
Conversion Limit then in effect will be adjusted for each Holder Class as to
which there are still outstanding Debentures to be equal to the sum of (A) the
Conversion Limit in effect immediately prior to the Closed Date, plus (B) the
Remaining Share Conversion Limit (as defined below). The Conversion Limit, as
so adjusted, shall then be deemed to be the Conversion Limit for all Holder
Classes as to which Debentures are still outstanding on the relevant Closed
Class Date, subject to further adjustment, as provided in this subparagraph
(v) in the event there is a subsequent Closed Class Date.

(vi)    The "Remaining Share Conversion Limit" means the number of shares
equal to (C) the Remaining Shares, multiplied by (D) the relevant Adjusted
Holder Class Allocable Share (as defined below).

(vii)   The term "Holder Class Allocable Share" means the fraction of which
the numerator is the Original Debenture Amount of the relevant Holder Class
and the denominator is the aggregate Original Debenture Amount of all Holder
Classes.

(viii)  The term "Adjusted Holder Class Allocable Share" means, with respect
to each Holder Class as to which there are outstanding Debentures on the
Closed Class Date, the fraction of which the numerator is the Original
Debenture Amount of the relevant Holder Class and the denominator is the
aggregate Original Debenture Amount of all Holder Classes as to which there
are there are outstanding Debentures on the Closed Class Date.

(ix)    Nothing in this Section 4(j) shall be deemed to (A) permit a transfer
or assignment of the Debenture unless otherwise permitted by other provisions
of this Agreement or the Debenture or (B) limit or otherwise modify the
obligations of the Company to take certain actions or to make certain payments
to the Buyer or other parties (such as but not necessarily limited to, actions
with respect to the meeting contemplated by Section 4(d)(ii) hereof or
payments on redemption of the Debentures), or adversely affect the rights of
the Buyer or such other parties with respect thereto, as provided elsewhere in
this Agreement, the Debentures or any of the other Transaction Agreements.

k.      Grant of Security Interest to Buyers.

(i)     To secure its obligations to the Buyers and to all direct and indirect
permitted transferees and assignees of their interests in this Agreement and
the other Transaction Agreements, including, but not necessarily limited to,
the Debentures (any one or more of the Buyers and such transferees and
assignees individually and collectively referred to as the "Secured Party"),
the Company (sometimes referred to as the "Debtor") hereby grants, conveys,
transfers and assigns to the Secured Party a security interest in and to the
Collateral (as defined in Annex VII hereto) to the fullest extent permissible
under the Uniform Commercial Code or other governing security interests granted
by debtors or obligors to creditors or obligees as in effect in each
jurisdiction in which the Debtor's property may be found or deemed situate.

(ii)    Solely for administrative convenience and not for any other purpose,
each Secured Party has designated Krieger & Prager LLP as agent for the
Secured Party for purposes of execution of and identification on any financing
statement or similar instrument referring to or describing the Collateral.
Such designation shall remain in effect until canceled by such Secured Party;
provided, however, that such cancellation shall not affect the validity of any
action theretofore taken by such agent pursuant to this provision. The Debtor
acknowledges and agrees to honor such designation.

(iii)   Additional terms relating to the grant of this security interest are
specified in Annex VII annexed hereto, the terms of which are incorporated
herein by reference as if set forth herein in full.

5.      TRANSFER AGENT INSTRUCTIONS.

a.      Promptly following the delivery by the Buyer of the Purchase Price for
the Debentures in accordance with Section 1(c) hereof, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to
time upon conversion of the Debentures in such amounts as specified from time
to time by the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement  prior to registration of the
Shares under the 1933 Act, registered in the  name of the Buyer or its nominee
and in such denominations to be specified  by the Buyer in connection with each
conversion of the Debentures.  The  Company warrants that no instruction other
than such instructions referred  to in this Section 5 and stop transfer
instructions to give effect to  Section 4(a) hereof prior to registration and
sale of the Shares under the  1933 Act will be given by the Company to the
transfer agent and that the  Shares shall otherwise be freely transferable on
the books and records of  the Company as and to the extent provided in this
Agreement, the  Registration Rights Agreement, and applicable law.  Nothing in
this  Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities.   If
the Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Buyer of  any
of the Securities in accordance with clause (1)(B) of Section 4(a) of  this
Agreement is not required under the 1933 Act, the Company shall  (except as
provided in clause (2) of Section 4(a) of this Agreement)  permit the transfer
of the Securities and, in the case of the Converted  Shares or the Warrant
Shares, as the case may be, promptly instruct the  Company's transfer agent to
issue one or more certificates for Common  Stock without legend in such name
and in such denominations as specified  by the Buyer.

b.      Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any  Debentures
by a person who is a non-U.S. Person, and following the  expiration of any then
applicable Restricted Period (as those terms are  defined in Regulation S), the
Company, shall, at its expense, take all  necessary action (including the
issuance of an opinion of counsel) to  assure that the Company's transfer agent
shall issue stock certificates  without restrictive legend or stop orders in
the name of Buyer (or its  nominee (being a non-U.S. Person) or such non-U.S.
Persons as may be  designated by Buyer) and in such denominations to be
specified at  conversion representing the number of shares of Common Stock
issuable upon  such conversion, as applicable.  Nothing in this Section 5,
however, shall  affect in any way Buyer's or such nominee's obligations and
agreement to  comply with all applicable securities laws upon resale of the
Securities.

c.      Subject to the provisions of this Agreement, the Company  will permit
the Buyer to exercise its right to convert the Debentures in  the manner
contemplated by the Debentures.

d.      The Company understands that a delay in the issuance of  the Shares of
Common Stock beyond the Delivery Date (as defined in the  Debentures) could
result in economic loss to the Buyer.  As compensation  to the Buyer for such
loss, the Company agrees to pay late payments to the  Buyer for late issuance
of Shares upon Conversion in accordance with the  following schedule (where
"No. Business Days Late" is defined as the  number of business days beyond the
Delivery Date):

                                Late Payment For Each
                            $10,000 of Debenture Principal
No. Business Days Late          Amount Being Converted

1                                       $100
2                                       $200
3                                       $300
4                                       $400
5                                       $500
6                                       $600
7                                       $700
8                                       $800
9                                       $900
10                                      $1,000
>10                                     $1,000 +$200 for each Business
                                        Day Late beyond 10 days

The Company shall pay any payments incurred under this Section in  immediately
available funds upon demand.  Nothing herein shall limit the  Buyer's right to
pursue actual damages for the Company's failure to issue  and deliver the
Common Stock to the Buyer.  Furthermore, in addition to  any other remedies
which may be available to the Buyer, in the event that  the Company fails for
any reason to effect delivery of such shares of  Common Stock by close of
business on the Delivery Date, the Buyer will be  entitled to revoke the
relevant Notice of Conversion by delivering a  notice to such effect to the
Company, whereupon the Company and the Buyer  shall each be restored to their
respective positions immediately prior to  delivery of such Notice of
Conversion.

e.      If, by the relevant Delivery Date, the Company fails for  any reason to
deliver the Shares to be issued upon conversion of a  Debenture and after such
Delivery Date, the holder of the Debentures being  converted  (a "Converting
Holder") purchases, in an open market  transaction or otherwise, shares of
Common Stock (the "Covering Shares")  in order to make delivery in satisfaction
of a sale of Common Stock by the  Converting Holder (the "Sold Shares"), which
delivery such Converting  Holder anticipated to make using the Shares to be
issued upon such  conversion (a "Buy-In"), the Company shall pay to the
Converting Holder,  in addition to all other amounts contemplated in other
provisions of the  Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment  Amount (as defined below).  The "Buy-In Adjustment Amount" is the
amount  equal to the excess, if any, of (x) the Converting Holder's total
purchase  price (including brokerage commissions, if any) for the Covering
Shares  over (y) the net proceeds  (after brokerage commissions, if any)
received  by the Converting Holder from the sale of the  Sold Shares.  The
Company  shall pay the Buy-In Adjustment Amount to the Company in immediately
available funds immediately upon demand by the Converting Holder.  By way  of
illustration and not in limitation of the foregoing, if the Converting  Holder
purchases shares of Common Stock having a total purchase price  (including
brokerage commissions) of $11,000 to cover a Buy-In with  respect to shares of
Common Stock it sold for net proceeds of $10,000, the  Buy-In Adjustment Amount
which Company will be required to pay to the  Converting Holder will be $1,000.

f.      In lieu of delivering physical certificates representing  the Common
Stock issuable upon conversion, provided the Company's transfer  agent is
participating in the Depository Trust Company ("DTC") Fast  Automated
Securities Transfer program, upon request of the Buyer and its  compliance with
the provisions contained in this paragraph, so long as the  certificates
therefor do not bear a legend and the Buyer thereof is not  obligated to return
such certificate for the placement of a legend  thereon, the Company shall use
its best efforts to cause its transfer  agent to electronically transmit the
Common Stock issuable upon conversion  to the Buyer by crediting the account of
Buyer's Prime Broker with DTC  through its Deposit Withdrawal Agent Commission
system.

g.      The Company will authorize its transfer agent to give  information
relating to the Company directly to the Buyer or the Buyer's  representatives
upon the request of the Buyer or any such representative.   The Company will
provide the Buyer with a copy of the authorization so  given to the transfer
agent.

6.      DELIVERY INSTRUCTIONS.

The Debentures shall be delivered by the Company to the Escrow  Agent pursuant
to Section 1(b) hereof, on a delivery against payment  basis, subject to the
specific provisions hereof, no later than on the  Closing Date.

7.      CLOSING DATE.

a.      The Closing Date shall occur on the date which is the  first NYSE
trading day after the fulfillment or waiver of all closing  conditions pursuant
to Sections 8 and 9 hereof or such other date and time  as is mutually agreed
upon by the Company and the Buyer.

b.      The closing of the purchase and issuance of Debentures  shall occur on
the Closing Date at the offices of the Escrow Agent and  shall take place no
later than 12:00 Noon, New York time, on such day or  such other time as is
mutually agreed upon by the Company and the Buyer.

c.      Notwithstanding anything to the contrary contained  herein, the Escrow
Agent will be authorized to release the Escrow Property  only upon satisfaction
of the conditions set forth in Sections 8 and 9  hereof.

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

The Buyer understands that the Company's obligation to sell  the Debentures to
the Buyer pursuant to this Agreement on the Closing Date  is conditioned upon:

a.      The execution and delivery of this Agreement by the  Buyer;

b.      Delivery by the Buyer to the Escrow Agent of good funds  as payment in
full of an amount equal to the Purchase Price for the  Debentures in accordance
with this Agreement;

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

d.      There shall not be in effect any law, rule or regulation  prohibiting
or restricting the transactions contemplated hereby, or  requiring any consent
or approval which shall not have been obtained.

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

The Company understands that the Buyer's obligation to  purchase the Debentures
on the Closing Date is conditioned upon:

a.      The execution and delivery of this Agreement and the  Registration
Rights Agreement by the Company;

b.      Delivery by the Company to the Escrow Agent of the  Debentures and
Warrants in accordance with this Agreement;

c.      The accuracy in all material respects on such Closing  Date of the
representations and warranties of the Company contained in  this Agreement,
each as if made on such date, and the performance by the  Company on or before
such date of all covenants and agreements of the  Company required to be
performed on or before such date;

d.      On such Closing Date, the Registration Rights Agreement  shall be in
full force and effect and the Company shall not be in default  thereunder;

e.      On such Closing Date, the Buyer shall have received an  opinion of
counsel for the Company, dated such Closing Date, in form,  scope and substance
reasonably satisfactory to the Buyer, substantially to  the effect set forth in
Annex III attached hereto;

f.      There shall not be in effect any law, rule or regulation  prohibiting
or restricting the transactions contemplated hereby, or  requiring any consent
or approval which shall not have been obtained; and

g.      From and after the date hereof to and including the  Closing Date, the
trading of the Common Stock shall not have been  suspended by the SEC or the
NASD and trading in securities generally on  the New York Stock Exchange or The
NASDAQ/SmallCap Market shall not have  been suspended or limited, nor shall
there be any outbreak or escalation  of hostilities involving the United States
or any material adverse change  in any financial market that in either case in
the reasonable judgment of  the Buyer makes it impracticable or inadvisable to
purchase the  Debentures.

10.     GOVERNING LAW:  MISCELLANEOUS.

a.      This Agreement shall be governed by and interpreted in  accordance with
the laws of the State of Delaware for contracts to be  wholly performed in such
state and without giving effect to the principles  thereof regarding the
conflict of laws.  Each of the parties consents to  the jurisdiction of the
federal courts whose districts encompass any part  of the City of New York or
the state courts of the State of New York  sitting in the City of New York in
connection with any dispute arising  under this Agreement and hereby waives, to
the maximum extent permitted by  law, any objection, including any objection
based on forum non conveniens,  to the bringing of any such proceeding in such
jurisdictions.  To the  extent determined by such court, the Company shall
reimburse the Buyer for  any reasonable legal fees and disbursements incurred
by the Buyer in  enforcement of or protection of any of its rights under any of
the  Transaction Agreements.

b.      Failure of any party to exercise any right or remedy  under this
Agreement or otherwise, or delay by a party in exercising such  right or
remedy, shall not operate as a waiver thereof.

c.      This Agreement shall inure to the benefit of and be  binding upon the
successors and assigns of each of the parties hereto.

d.      All pronouns and any variations thereof refer to the  masculine,
feminine or neuter, singular or plural, as the context may  require.

e.      A facsimile transmission of this signed Agreement shall  be legal and
binding on all parties hereto.

f.      This Agreement may be signed in one or more  counterparts, each of
which shall be deemed an original.

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

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

 i.     This Agreement may be amended only by an instrument in  writing signed
by the party to be charged with enforcement thereof.

j.      This Agreement supersedes all prior agreements and  understandings
among the parties hereto with respect to the subject matter  hereof.

11.     NOTICES.  Any notice required or permitted hereunder  shall be given in
writing (unless otherwise specified herein) and shall be  deemed effectively
given on the earliest of

(a) the date delivered, if delivered by personal delivery as  against written
receipt therefor or by confirmed facsimile  transmission,

(b) the seventh business day after deposit, postage prepaid,  in the United
States Postal Service by registered or certified  mail, or

(c) the third business day after mailing by international  express courier,
with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at  the
following addresses (or at such other addresses as such party may  designate by
ten (10) days' advance written notice similarly given to each  of the other
parties hereto):

COMPANY:        AMERICAN CHAMPION ENTERTAINMENT, INC.
                   1694 The Alameda, Suite 100
                     San Jose, CA 95126-2219
                  Attn: Anthony K. Chan, President
                   Telephone No.: (408) 288-8199
                   Telecopier No.: (408) 288-8098

with a copy to:
                      Sichenzia Ross & Friedman
                  135 West 50th Street, 20th Floor
                         New York, NY 10020
                     Attn: Gregory Sichenzia, Esq.
                    Telephone No.: (212) 664-1200
                    Telecopier No.: (212) 664-7329

BUYER:       At the address set forth on the signature page of this Agreement.

with a copy to:
                       Krieger & Prager LLP, Esqs.
                        39 Broadway, Suite 1440
                           New York, NY 10006
                        Attn: Samuel Krieger, Esq.
                        New York, New York 10016
                     Telephone No.: (212) 363-2900
                     Telecopier No.: (212) 363-2999

ESCROW AGENT:          Krieger & Prager LLP, Esqs.
                        39 Broadway, Suite 1440
                           New York, NY 10006
                        Attn: Samuel Krieger, Esq.
                         New York, New York 10016
                     Telephone No.: (212) 363-2900
                     Telecopier No.: (212) 363-2999

12.     SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Debentures and payment of
the Purchase Price, and shall inure to the benefit of the Buyer and the
Company and their respective successors and assigns.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]

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

AMOUNT AND PURCHASE PRICE OF DEBENTURES:     $_______________

        SIGNATURES FOR ENTITIES

IN WITNESS WHEREOF, the undersigned represents that the foregoing statements
are true and correct and that it has caused this Securities Purchase Agreement
to be duly executed on its behalf this ____day  of January, 2000.

________________________________           ______________________________

Address                                    Printed Name of Subscriber
________________________________
                                           By: __________________________

________________________________          (Signature of Authorized Person)

Telecopier No. _________________           ______________________________

________________________________           Printed Name and Title

________________________________
Jurisdiction of Incorporation
or Organization

As of the date set forth below, the undersigned hereby accepts this  Agreement
and represents that the foregoing statements are true and  correct and that it
has caused this Securities Purchase Agreement to be  duly executed on its
behalf.

AMERICAN CHAMPION ENTERTAINMENT, INC.

By: ____________________________

Title:   President & CEO
Date: ____________________

Investors:

Amro International S.A.                         $500,000.00

The Endeavour Capital Fund S.A.                 $500,000.00

Esquire Trade and Finance                       $125,000.00

Austinvest Anstalt Balzers                      $125,000.00
                                               ______________

Total Original Debentures                     $1,250,000.00

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