Document:

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                    CONVERTIBLE DEBENTURE PURCHASE AGREEMENT

                                      Among

                         KANAKARIS COMMUNICATIONS, INC.

                                       and

                         THE INVESTORS SIGNATORY HERETO

                           Dated as of April 13, 2000

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                    Convertible Debenture Purchase Agreement

         CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of April 13, 2000, among KANAKARIS COMMUNICATIONS, INC., a Nevada corporation
(the "COMPANY"), and the investors signatory hereto (each such investor is a
"PURCHASER" and all such investors are, collectively, the "PURCHASERS").

         WHEREAS, the Purchasers (with the exception of Equilibrium Equity for
the purposes of this recital and Section 3.17 only) and the Company previously
entered into a certain Convertible Debenture Purchase Agreement dated as of
February 4, 2000, pursuant to which the Purchasers purchased $1,000,000 of
Convertible Debentures (the "Existing Debentures") from the Company and further
obligated themselves to purchase an additional $1,000,000 of the Company's
convertible debentures ("EXISTING ADDITIONAL DEBENTURES");

         WHEREAS, the Company and the Purchasers have agreed to the sale and
purchase of the Existing Additional Debentures as well as the sale and purchase
of an additional $2,000,000 of the Company's convertible debentures upon the
consummation of this Agreement, and have also agreed subject to the terms and
conditions herein set forth to the sale and purchase of the Additional
Debentures and the Additional Warrants (as such terms are defined below); and

         WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company (i)
an aggregate principal amount of $3,000,000 (which amount expressly includes the
Existing Additional Debentures) of the Company's 10% Convertible Debentures, due
May 1, 2001, which shall be in the form of EXHIBIT A (the "DEBENTURES") and
which are convertible into shares of the Company's Common Stock, $.001 par value
per share (the "COMMON STOCK"), and (ii) the Additional Debentures and the
Additional Warrants.

         IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt, sufficiency and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:

                                    ARTICLE I
                                PURCHASE AND SALE

         1.1 THE CLOSING

                  (a) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchasers and the Purchasers
shall, severally and not jointly, purchase from the Company the Debentures for
an aggregate purchase price of $3,000,000. The closing of the purchase and sale
of the Debentures (the "CLOSING") shall take place at the offices of Owen
Naccarato, Esq. ("ESCROWEE"), having an office at 19600 Fairchild, Suite 260,
Irvine, CA, 92612 immediately following the execution hereof or such later date
as the parties shall agree. The date of the Closing is hereinafter referred to
as the "CLOSING DATE."

<PAGE>

                  (b) Prior to the Closing Date, the parties shall deliver or
shall cause to be delivered the following: (A) the Company shall deliver to
Escrowee for the benefit of the Purchasers (1) the Debentures in the aggregate
principal amount indicated below each Purchaser's name on the signature page to
this Agreement, registered in the name of each such Purchaser, three (3) Common
Stock purchase warrants for every ten (10) dollars of principal amount indicated
below each Purchaser's name on the signature page of this Agreement , each in
the form of EXHIBIT D, registered in the name of the appropriate Purchasers,
pursuant to which the Purchasers shall have the right at any time and from time
to time thereafter through the fifth (5th) anniversary of the Closing Date to
acquire an aggregate of 900,000 shares of Common Stock, at an exercise price per
share (subject to adjustment as provided therein) equal to $1.90 (collectively,
the "WARRANTS"), (3) the legal opinion of Rutan & Tucker, LLP, outside counsel
to the Company in the form acceptable to the parties hereto, and (4) all other
documents, instruments and writings required to have been delivered at or prior
to the Closing by the Company pursuant to this Agreement, including (A) an
executed Registration Rights Agreement, dated the date hereof, by and among the
Company and the Purchasers, in the form of EXHIBIT B (the "REGISTRATION RIGHTS
AGREEMENT"), (B) an executed Escrow Agreement, dated the date hereof, by and
among the Company and the Purchasers, in the form of EXHIBIT F (the "Escrow
AGREEMENT"), (E) the Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT E, delivered to and acknowledged by the Company's transfer agent (the
"TRANSFER AGENT INSTRUCTIONS"), and (B) each Purchaser shall deliver toEscrowee,
for delivery to the Company the purchase price for the Debentures indicated
below such Purchaser's name on the signature page to this Agreement in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose, and to Escrowee for
delivery upon funding, all documents, instruments and writings required to have
been delivered at or prior to the Closing Date by such Purchaser pursuant to
this Agreement, including, without limitation, an executed Registration Rights
Agreement.

                  (c) The Company and the Purchasers agree that, upon the
declaration of effectiveness of the Registration Statement to be filed pursuant
to the Registration Rights Agreement (the "EFFECTIVE DATE "), provided that the
trading price of the Common Stock is at least $1.75 for the ten (10) consecutive
trading days immediately preceding the Effective Date, the Purchasers will be
obligated to purchase, and the Company shall be obligated to sell and issue to
the Purchasers, additional debentures ("ADDITIONAL DEBENTURES") in the aggregate
principal amount of Three Million Dollars ($3,000,000) and additional warrants
("ADDITIONAL WARRANTS") to purchase an aggregate of 900,000 shares of Common
Stock for an aggregate purchase price of Three Million Dollars ($3,000,000),
with the closing of such purchase to occur within forty-five (45) days of the
Effective Date. The terms of the Additional Debentures and the Additional
Warrants shall be identical to the terms of the Debentures and the Warrants to
be issued on the Closing Date, provided that the Initial Conversion Price (as
defined in the Debentures) for the Additional Debentures shall be ninety-seven
hundredths of one dollar ($.97). The Common Stock underlying the Additional
Debentures and the Additional Warrants shall be Registrable Securities (as
defined in the Registration Rights Agreement) and shall be included in the
Registration Statement to be filed pursuant to the Registration Rights Agreement

<PAGE>

         1.2 CERTAIN DEFINED TERMS. For purposes of this Agreement, "CONVERSION
PRICE," "ORIGINAL ISSUE DATE" and "TRADING DAY" shall have the meanings set
forth in the Debentures; "BUSINESS DAY" shall mean any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a day on which
banking institutions in the State of New York or the State of California are
authorized or required by law or other governmental action to close. .2 CERTAIN
DEFINED TERMS. For purposes of this Agreement, CONVERSIONPRICE,
ORIGINALISSUEDATE and TRADINGDAY shall have the meanings set forth in the
Debentures; BUSINESSDAY shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York or the State of California are authorized or required by
law or other governmental action to close.

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES

         2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to the Purchasers:

                  (a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada, with the requisite corporate power and authority to
own and use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in SCHEDULE
2.1(a) (collectively the "SUBSIDIARIES"). Each of the Subsidiaries is an entity,
duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Debentures or any of this Agreement, the
Registration Rights Agreement or the Warrants (collectively, the "TRANSACTION
DOCUMENTS"), (y) have or result in a material adverse effect on the results of
operations, assets, prospects, or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
of the Transaction Documents (any of (x), (y) or (z), a "MATERIAL ADVERSE
EFFECT").

                  (b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents and the Debentures has been duly executed by the
Company and, when delivered (or filed, as the case may be) in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. Neither
the Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.

                                      -3-
<PAGE>

                  (C) CAPITALIZATION. The number of authorized, issued and
outstanding capital stock of the Company is set forth in SCHEDULE 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as a result of the purchase and sale of the
Debentures and the Warrants and except as disclosed in SCHEDULE 2.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person (as
defined below) any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. To the knowledge of the Company, except as specifically disclosed
in the SEC Documents (as defined below) or SCHEDULE 2.1(c), no Person or group
of related Persons beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")), or has the right to acquire by agreement with or by obligation binding
upon the Company, in excess of 5% of the Common Stock. A "PERSON" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.

                  (d) ISSUANCE OF THE DEBENTURES AND THE WARRANTS. The
Debentures and the Warrants are duly authorized and, when issued and paid for in
accordance with the terms hereof, will be duly and validly issued, fully paid
and nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "LIENS"). The Company has on the date hereof
and will, at all times while the Debentures and the Warrants are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the holders of the Debentures and the Warrants, to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Debentures and the Warrants. Such number of reserved and available shares of
Common Stock is not less than the sum of (i) 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the Debentures,
assuming such conversion occurred on the Original Issue Date for the Debentures,
the Filing Date or the Effectiveness Date (each as defined in the Registration
Rights Agreement), whichever yields the lowest Conversion Price, (ii) the number
of shares of Common Stock issuable upon exercise of the Warrants, and (iii) the
number of shares Common Stock which would be issuable upon payment of interest
on the Debentures, assuming the Debentures are outstanding for one year and all
interest is paid in shares of Common Stock (such number of shares of Common
Stock as contemplated in clauses (i)-(iii), the "INITIAL MINIMUM"). All such
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of the Debentures and the Warrants. The shares of Common Stock issuable
upon conversion of the Debentures, as payment of interest thereon and upon
exercise of the Warrants are collectively referred to herein as the "UNDERLYING
SHARES." The Debentures, the Warrants and the Underlying Shares are collectively
referred to herein as, the "SECURITIES." When issued in accordance with the
Debentures and the Warrants, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable, free and clear of all Liens.

                                      -4-
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                  (e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its articles of incorporation, bylaws or other charter
documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.

                  (f) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.11, (ii) the filing with the Securities and Exchange Commission (the
"COMMISSION") of a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale of the Underlying
Shares by the Purchasers (the "UNDERLYING SHARES REGISTRATION STATEMENT"), (iii)
the application(s) to the Nasdaq National Market or OTC Bulletin Board
("NASDAQ") for the listing of the Underlying Shares for trading on the NASDAQ or
OTC Bulletin Board (and with any other national securities exchange or market on
which the Common Stock is then listed), (iv) applicable Blue Sky filings and (v)
in all other cases where the failure to obtain such consent, waiver,
authorization or order, or to give such notice or make such filing or
registration could not have or result in, individually or in the aggregate, a
Material Adverse Effect (collectively, the "REQUIRED APPROVALS").

                  (g) LITIGATION; PROCEEDINGS. Except as specifically disclosed
in SCHEDULE 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.

                                      -5-
<PAGE>

                  (h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or in
the aggregate, have or result in a Material Adverse Effect.

                  (i) PRIVATE OFFERING. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"). Neither the Company
nor any Person acting on its behalf has taken any action that could subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act.

                  (j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the three years preceding the
date hereof (or such shorter period as the Company was required by law to file
such material) (the foregoing materials being collectively referred to herein as
the "SEC DOCUMENTS" and, together with the Schedules to this Agreement as well
as due diligence materials delivered to Purchasers prior to the date hereof, the
"DISCLOSURE MATERIALS") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Since January 5, 2000, (a) there has
been no event, occurrence or development that has or that could result in a
Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the ordinary
course of business consistent with past practice and (y) liabilities not
required to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (c) the Company

                                      -6-
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has not altered its method of accounting or the identity of its auditors and (d)
the Company has not declared or made any payment or distribution of cash or
other property to its stockholders or officers or directors (other than in
compliance with existing Company stock option plans) with respect to its capital
stock, or purchased, redeemed (or made any agreements to purchase or redeem) any
shares of its capital stock. The Company last filed audited financial statements
with the Commission on January 5, 2000, and has not received any comments from
the Commission in respect thereof.

                  (k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

                  (l) CERTAIN FEES. Except for certain fees payable by the
Company to The N.I.R. Group, LLC, no fees or commissions will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker or bank with respect to the transactions contemplated by this
Agreement.

                  (m) SOLICITATION MATERIALS. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.

                  (n) FORM S-3 ELIGIBILITY. Assuming that between the date
hereof and January 11, 2001, the Company (i) timely files all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, and (ii) does not default on any of its material debt
obligations, the Company will be eligible to use Form S-3 promulgated under the
Securities Act to register its securities, on January 11, 2001, for resale with
the Commission.

                  (o) EXCLUSIVITY. The Company shall not issue and sell the
Debentures to any Person other than the Purchasers other than with the specific
prior written consent of Majority in Interest of the Purchasers.

                  (p) SENIORITY. No indebtedness of the Company is senior to the
Debentures in right of payment, whether with respect to interest or upon
liquidation, dissolution or otherwise.

                  (q) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. Except as
specified in SCHEDULE 2.1 (q) hereto, the Company has not, in the two years
preceding the date hereof, received notice (written or oral) from the NASDAQ OTC
Bulletin Board or any other stock exchange, market or trading facility on which
the Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such maintenance requirements.

                                      -7-
<PAGE>

                  (r) PATENTS AND TRADEMARKS PATENTS AND TRADEMARKS. The Company
has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
rights which are necessary or material for use in connection with its business,
and which the failure to so have would have a Material Adverse Effect
(collectively, the "INTELLECTUAL PROPERTY Rights"). To the best knowledge of the
Company all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights.

                  (s) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
set forth on SCHEDULE 6(b) to the Registration Rights Agreement, the Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.

                  (t) REGULATORY PERMITS REGULATORY PERMITS. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate Federal, state or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Documents, except
where the failure to possess such permits could not, individually or in the
aggregate, have or result in a Material Adverse Effect ("MATERIAL PERMITS"), and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

                  (u) TITLE. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property and personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all Liens, except for Liens as do not materialy
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its Subsidiaries. Any
real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.

                  (v) DISCLOSURE. The Company confirms that it has not provided
any of the Purchasers or its agents or counsel with any information that
constitutes or might constitute material non-public information. The Company
understands and confirms that the Purchasers shall be relying on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.

         2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser
hereby represents and warrants to the Company as follows:

                                      -8-
<PAGE>

                  (a) ORGANIZATION; AUTHORITY. Such Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by such Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of such Purchaser. Each of this Agreement,
the Registration Rights Agreement and the Escrow Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance with
its terms.

                  (b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to such Purchaser's right, subject
to the provisions of this Agreement and the Registration Rights Agreement, at
all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act and in
compliance with applicable state securities laws or under an exemption from such
registration. Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any amount of time.

                  (C) PURCHASER STATUS. At the time such Purchaser was offered
the Debentures and the Warrant, it was, and at the date hereof it is, and at
each exercise date under the Warrant, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.

                  (d) EXPERIENCE OF THE PURCHASER. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.

                  (e) ABILITY OF THE PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.

                  (f) ACCESS TO INFORMATION. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.

                                      -9-
<PAGE>

                  (g) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

                  (h) RELIANCERELIANCE. Such Purchaser understands and
acknowledges that (i) the Securities are being offered and sold to it without
registration under the Securities Act in a private placement that is exempt from
the registration provisions of the Securities Act and (ii) the availability of
such exemption, depends in part on, and the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and such Purchaser hereby
consents to such reliance.

                  The Company acknowledges and agrees that each of the
Purchasers makes no representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 2.2.

                                   ARTICLE III
                         OTHER AGREEMENTS OF THE PARTIES

         3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein. The Company
hereby consents to and agrees to register on the books of the Company and with
any transfer agent for the securities of the Company any transfer of Securities
by a Purchaser to an Affiliate of such Purchaser or to one or more funds or
managed accounts under common management with such Purchaser, and any transfer
among any such Affiliates or one or more funds or managed accounts, provided
that the transferee certifies to the Company that it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.

                  (b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:

                                      -10-
<PAGE>

                  NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
         SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
         THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
         ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
         ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
         AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
         REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
         APPLICABLE STATE SECURITIES LAWS.

                  Except as otherwise provided herein, Underlying Shares shall
not contain the legend set forth above nor any other legend if the conversion of
Debentures, the payment of interest thereon, and exercise of the Warrants or
other issuances of Underlying Shares as contemplated hereby, by the Debentures
or the Warrants occurs at any time while an Underlying Shares Registration
Statement is effective under the Securities Act or, in the event there is not an
effective Underlying Shares Registration Statement, at such time, in the opinion
of counsel to the Company, such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue the legal opinion included in the Transfer Agent
Instructions to the Company's transfer agent on the day that the Underlying
Shares Registration Statement is declared effective by the Commission. The
Company agrees that, in the event any Underlying Shares are issued with a legend
in accordance with this Section 3.1(b), it will, within three (3) Trading Days
after request therefor by a Purchaser, provide such Purchaser with a certificate
or certificates representing such Underlying Shares, free from such legend at
such time as such legend would not have been required under this Section 3.1(b)
had such issuance occurred on the date of such request. The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in this Section.
However, the Company may provide appropriate instructions to any transfer agent
of the Company to enforce the provisions of this Section 3.1(b) when the
Underlying Shares Registration Statement is not effective. Notwithstanding
anything to the contrary contained in this section 3.1(b), Underlying Shares may
contain the foregoing legend while an Underlying Shares Registration Statement
is effective ONLY IF the Company delivers to the Purchasers along with any such
certificates complete and current prospectus with regard to the resale of such
Underlying Shares.

         3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and
payment of interest thereon in accordance with the terms of the Debentures, and
(ii) exercise of the Warrants in accordance with their terms, will result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon (x) conversion of the
Debentures and payment of interest thereon in accordance with the terms of the
Debentures, and (y) exercise of the Warrants in accordance with their terms, is
unconditional and absolute, subject to the limitations set forth herein in the
Debentures or pursuant to the Warrants, regardless of the effect of any such
dilution.

                                      -11-
<PAGE>

         3.3 FURNISHING OF INFORMATION. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.

         3.4 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers.

         3.5 INCREASE IN AUTHORIZED SHARES. If on any date the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) issuing 200% of the number of Underlying Shares
as would then be issuable upon a conversion in full of the Debentures and as
payment of any accrued and unpaid interest in respect thereof in shares of
Common Stock, or (b) issuing the number of Underlying Shares upon exercise in
full of the Warrants (the "CURRENT REQUIRED Minimum"), in either case, due to
the unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly (and in any case, within 30 Business Days from such date) prepare and
mail to the stockholders of the Company proxy or consent solicitation materials
requesting authorization to amend the Company's Articles of Incorporation to
increase the number of shares of Common Stock which the Company is authorized to
issue to at least such number of shares as reasonably requested by the
Purchasers in order to provide for such number of authorized and unissued shares
of Common Stock to enable the Company to comply with its issuance, conversion
exercise and reservation of shares obligations as set forth in this Agreement,
the Debentures and the Warrants (the sum of (x) the number of shares of Common
Stock then outstanding plus all shares of Common Stock issuable upon exercise of
all outstanding options, warrants and convertible instruments, and (y) the
Current Required Minimum, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the 60th day after delivery of
the proxy materials relating to such meeting) and (c) within five (5) Business
Days of obtaining such stockholder authorization (or such later period as
prescribed by statute), file an appropriate amendment to the Company's Articles
of Incorporation to evidence such increase.

                                      -12-
<PAGE>

         3.6 RESERVATION AND LISTING OF UNDERLYING SHARES. (a) The Company shall
(i) in the time and manner required by NASDAQ and such other exchange, market or
quotation system on which the Common Stock is traded, prepare and file with the
NASDAQ (and such other national securities exchange or market or trading or
quotation facility) an additional shares listing application covering a number
of shares of Common Stock which is not less than the Initial Minimum, (ii) take
all steps necessary to cause such shares of Common Stock to be approved for
listing in the OTC Bulletin Board or NASDAQ (as well as on any such other
national securities exchange or market or trading or quotation facility on which
the Common Stock is then listed) as soon as possible thereafter, and (iii)
provide to the Purchasers evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If the number of Underlying
Shares issuable upon conversion in full of the then outstanding Debentures, as
payment of interest thereon, and upon exercise of the then unexercised portion
of the Warrants exceeds 85% of the number of Underlying Shares previously listed
on account thereof with NASDAQ (and any such other required exchanges), then the
Company shall take the necessary actions to immediately list a number of
Underlying Shares as equals no less than the then Current Required Minimum.

                  (b) The Company shall maintain a reserve of shares of Common
Stock for issuance upon conversion of the Debentures and for payment of interest
thereupon in shares of Common Stock and upon exercise in full of the Warrants in
accordance with this Agreement, the Debentures and the Warrants, respectively,
in such amount as may be required to fulfill its obligations in full under the
Transaction Documents, which reserve shall equal no less than the then Current
Required Minimum.

         3.7 CONVERSION AND EXERCISE PROCEDURES. The Transfer Agent
Instructions, Conversion Notice (as defined in EXHIBIT A) and Form of Election
to Purchase under the Warrants set forth the totality of the procedures with
respect to the conversion of the Debentures and exercise of the Warrants,
including the form of legal opinion, if necessary, that shall be rendered to the
Company's transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to convert their Debentures and
exercise their Warrants as contemplated in the Debentures and the Warrants (as
applicable).

         3.8 NOTICE OF BREACHES. Each of the Company and the Purchasers shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.

         3.9 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The Company
shall honor conversions of the Debentures and exercises of the Warrants and
shall deliver Underlying Shares in accordance with the respective terms,
conditions and time periods set forth in the Debentures and the Warrants.

         3.10 SUBSEQUENT REGISTRATIONS. (a) The Company shall not, directly or
indirectly, without the prior written consent of the Purchasers, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its

                                      -13-
<PAGE>

Affiliates' equity or equity-equivalent securities (including the issuance of
any debt or other instrument is at any time over life thereof convertible into
or exchangeable for Common Stock or any other transaction intended to be exempt
or not subject to registration under the Securities Act (a "SUBSEQUENT
PLACEMENT") for a period of 180 days after the later to occur of the
Effectiveness Date (as defined in the Registration Rights Agreement) and the
date that the Commission first declares effective an Underlying Shares
Registration Statement, except (i) the granting of options or warrants to
employees, consultants, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares of Common Stock issuable
upon exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible securities of the Company, in each case only
if such security is disclosed in SCHEDULE 2.1(c), (iii) shares of Common Stock
or Common Stock Equivalents (as defined in the Debentures) permitted to be
issued without giving rise to an Event of Default under Sections 3(a)(xii) or
3(a)(xiii)(a) of the Debentures, and (iv) shares of Common Stock issuable upon
conversion of Debentures, as payment of interest thereon and upon exercise of
the Warrants in accordance with the Debentures or the Warrants, respectively,
unless (A) the Company delivers to the Purchasers a written notice (the
"SUBSEQUENT PLACEMENT Notice") of its intention effect such Subsequent
Placement, which Subsequent Placement Notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Placement shall be
effected, and attached to which shall be a term sheet or similar document
relating thereto and (B) the Purchasers shall not have notified the Company by
5:00 p.m. (New York City time) on the tenth (10th) Trading Day after their
receipt of the Subsequent Placement Notice of their willingness to cause the
Purchasers to provide (or to cause its sole designee to provide), subject to
completion of mutually acceptable documentation, financing to the Company on the
same terms set forth in the Subsequent Placement Notice. If the Purchasers shall
fail to notify the Company of their intention to enter into such negotiations
within such time period, the Company may effect the Subsequent Placement
substantially upon the terms and to the Persons (or Affiliates of such Persons)
set forth in the Subsequent Placement Notice; PROVIDED, that the Company shall
provide the Purchasers with a second Subsequent Placement Notice, and the
Purchasers shall again have the right of first refusal set forth above in this
paragraph (a), if the Subsequent Placement subject to the initial Subsequent
Placement Notice shall not have been consummated for any reason on the terms set
forth in such Subsequent Placement Notice within thirty (30) Trading Days after
the date of the initial Subsequent Placement Notice with the Person (or an
Affiliate of such Person) identified in the Subsequent Placement Notice. If the
Purchasers shall indicate a willingness to provide financing in excess of the
amount set forth in the Subsequent Placement Notice, then each Purchaser shall
be entitled to provide financing pursuant to such Subsequent Placement Notice up
to an amount equal to such Purchaser's pro rata portion of the aggregate
principal amount of Debentures purchased by the Purchasers under this Agreement,
but the Company shall not be required to accept financing from the Purchasers in
an amount in excess of the amount set forth in the Subsequent Placement Notice.

                  (b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common Stock permitted to be issued pursuant to paragraph (a)(i), (ii) and
(iv) of Section 3.10(a), the Company shall not, for a period of not less than 90

                                      -14-
<PAGE>

Trading Days after the date that the Underlying Shares Registration Statement is
declared effective by the Commission, without the prior written consent of the
Purchasers (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) register for resale any securities of the Company. Any
days that a Purchaser is not permitted to sell Underlying Shares under the
Underlying Shares Registration Statement shall be added to such 90 Trading Day
period for the purposes of (i) and (ii) above.

         3.11 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company shall:
(i) on the Closing Date issue a press release acceptable to the Purchasers
disclosing the transactions contemplated hereby and (ii) timely file with the
Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchasers promptly after the filing thereof. The Company shall, no less
than two (2) Business Days prior to the filing of any disclosure required by
clause (ii) above, provide a copy thereof to the Purchasers. No such filing or
disclosure may be made that mentions the Purchasers by name without the prior
consent of the Purchasers. Such filings shall be subject to Section 4.11 hereof.

         3.12 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection
with the sale of all or substantially all of the assets of the Company or
licensing arrangements in the ordinary course of the Company's business, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or allow any of the Intellectual Property Rights to become
subject to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and it would otherwise lapse if not renewed), without the prior
written consent of the Purchasers.

         3.13 USE OF PROCEEDSUSE OF PROCEEDS. The Company shall use the net
proceeds from the funds delivered to it for working capital purposes only and
not for the satisfaction of any Company debt (which, for such purposes, shall
include accounts payable) in excess of $200,000 or to redeem any Company equity
or equity-equivalent securities or to pay in excess of $20,000 to settle any
litigation or claim against the Company or any Subsidiary.

         3.14 REIMBURSEMENT. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in

                                      -15-
<PAGE>

addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.

         3.15 FORM S-3 ELIGIBILITY. The Company use its best efforts to, become
eligible to register for resale its securities pursuant to Form S-3 promulgated
under the Securities Act as soon as possible.

         3.16 CERTAIN TRADING RESTRICTIONS. The Purchasers will not enter into
any Short Sales (as hereinafter defined) at a price below the Initial Conversion
Price (as defined in the Debentures), PROVIDED, that the limitations set forth
in this Section shall cease to be in effect on the date that an Underlying
Shares Registration Statement is first declared effective by the Commission or
if, by the Effectiveness Date, the Underlying Shares Registration Statement has
not been declared effective by the Commission and, thereafter, shall resume on
the date, if any, the Underlying Shares Registration Statement is declared
effective by the Commission. For purposes of this Section, a "Short Sale" by a
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as
a short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by such Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in Common
Stock held by a Purchaser, Underlying Shares that have not yet been issued but
for which the Company has received a Conversion Notice (with respect to
Debentures) or Form of Election to Purchase (with respect to Warrants), as the
case may be, shall be deemed held long by a Purchaser.

         3.17 SATISFACTION. The Company confirms that the obligation of the
Purchasers to purchase the Existing Additional Debentures is hereby satisfied
and released.

         3.18 PROSPECTUS SUPPLEMENT. The Company shall, within two (2) business
days of the Closing Date, file with the Commission a prospectus supplement
pursuant to Rule 424(c) under the Securities Act reasonably acceptable to the
Purchasers with regard to the Company's Registration Statement on Form SB-2
(File No. 333-31748), which prospectus supplement will disclose the material
terms of the transactions contemplated hereby.

                                      -16-
<PAGE>

                                   ARTICLE IV
                                  MISCELLANEOUS

         4.1 FEES AND EXPENSES. Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Securities.

         4.2 ENTIRE AGREEMENT; AMENDMENTS. The Transaction Documents, together
with the Exhibits and Schedules thereto, and the Transfer Agent Instructions
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.

         4.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:

         If to the Company:   Kanakaris Communications, Inc.
                              3303 Harbor Boulevard, F-3
                              Costa Mesa, CA 92626

                              Facsimile No.:  (714) 549-8970
                              Attn: Alex Kanakaris

         With a copy to:      Larry Cerutti, Esq.
                              Rutan & Tucker, LLP
                              611 Anton Boulevard, 14th Floor
                              Costa Mesa, CA 92626

                              Facsimile No.:  (714) 546-9035

         If to a Purchaser:   To the address set forth under such
                              Purchaser's name on the signature pages hereto.

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

                                      -17-
<PAGE>

         4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.

         4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

         4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit each Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.

         4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

         4.8 GOVERNING LAW. The corporate laws of the State of Nevada shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Nassau and Suffolk Counties, respectively, New York,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.

         4.9 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and conversion or
exercise (as the case may be) of the Debentures and the Warrants.

                                      -18-
<PAGE>

         4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

         4.11 PUBLICITY. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission or any regulatory agency or
stock market or trading facility with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement, filings or other communications without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the names
of the Purchasers, or include the names of the Purchasers in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of the Purchasers, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law, in which case the Company shall provide the Purchasers with
prior notice of such disclosure.

         4.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.

         4.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. The Company and each of the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.

         4.14 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant

                                      -19-
<PAGE>

hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGE FOLLOWS]

                                      -20-
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.

                                    KANAKARIS COMMUNICATIONS, INC.

                                    By: /S/ Alex Kanakaris
                                       ------------------------------------
                                       Name:     Alex Kanakaris
                                       Title:    President

                                    NEW MILLENNIUM CAPITAL PARTNERS II, LLC
                                    By:  FIRST STREET MANAGER II, LLC,
                                         its Manager

                                    By: /S/ Glenn A. Arbeitman
                                       ------------------------------------
                                    Name:        Glenn A. Arbeitman
                                    Title:       Manager

                                    155 First Street, Suite B
                                    Mineola, New York 11501
                                    Facsimile No.: 516-739-7115

                                    Debentures Purchase Price:      $625,000.00

                                    AJW PARTNERS, LLC

                                    By:           SMS GROUP, LLC, its Manager

                                    By: /S/ Corey S. Ribotsky
                                       ------------------------------------
                                    Name:        Corey S. Ribotsky
                                    Title:       Manager

                                    155 First Street, Suite B
                                    Mineola, New York 11501
                                    Facsimile No.: 516-739-7115

                                    Debentures Purchase Price:       $625,000.00

                    HOLDER SIGNATURES CONTINUED ON NEXT PAGE

                                      -21-
<PAGE>

                                    EQUILIBRIUM EQUITY, LLC

                                    By: /S/ Corey S. Ribotsky
                                       ------------------------------------
                                                 Corey S. Ribotsky
                                                 Manager

                                    155 First Street, Suite B
                                    Mineola, New York 11501
                                    Facsimile No.: 516-739-7115

                                    Debentures Purchase Price:       $250,000.00

                                    BANK INSINGER DE BEAUFORT

                                    By: /s/ R. De Beaufort   /s/ C. Meemskerk
                                       -----------------------------------------
                                    Name: R. De Beaufort         C. Meemskerk
                                    Title: Director              Holder of Proxy

                                    ------------------------------------

                                    ------------------------------------
                                    Facsimile No.:[                    ]
                                    Attn:[                    ]

                                    Debentures Purchase Price:        $1,500,000

                                      -22-NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.

No. 1                                                                $625,000.00

                                  -------------
                            10% CONVERTIBLE DEBENTURE
                                 DUE MAY 1, 2001

THIS DEBENTURE is issued by KANAKARIS COMMUNICATIONS, INC. a corporation having
a principal place of business at 3303 Harbor Boulevard, F-3, Costa Mesa, CA
92626 (the "COMPANY"), and is designated as the Company's 10% Convertible
Debentures, due May 1, 2001 (the "DEBENTURES").

         FOR VALUE RECEIVED, the Company promises to pay to NEW MILLENNIUM
CAPITAL PARTNERS II, LLC, or its registered assigns (the "HOLDER"), the
principal sum of Six Hundred Twenty-five Thousand and no/100 ($625,000.00) on
May 1, 2001 or such earlier date as the Debentures are required or permitted to
be repaid as provided hereunder (the "MATURITY DATE") and to pay interest to the
Holder on such principal sum at the rate of 10% per annum, payable on a
quarterly basis on March 31, June 30, September 30 and December 31 of each year
while such Debentures are outstanding (each an "INTEREST PAYMENT DATE") and on
each Conversion Date (as defined herein) for such principal amount, commencing
on the earlier to occur of a Conversion Date for such principal amount and June
30, 2000, in cash or shares of Common Stock (as defined in Section 7). Subject
to the terms and conditions herein, the decision whether to pay interest
hereunder in Common Stock or cash shall be at the discretion of the Company.
Interest shall accrue daily commencing on the Original Issue Date (as defined in
Section 7) until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been
made. Any interest not paid on any Interest Payment Date shall continue to
accrue and shall be due and payable upon conversion of the Debentures. Interest
hereunder will be paid to the Person (as defined in Section 7) in whose name

<PAGE>

this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "DEBENTURE REGISTER"). All overdue
accrued and unpaid interest shall entail a late fee at the rate of 15% per annum
(to accrue daily, from the date such interest is due hereunder through and
including the date of payment), payable in cash. Not less than ten (10) Trading
Days (as defined in Section 7) prior to Interest Payment Date, the Company shall
provide the Holder notice of its intention to pay interest in cash or shares of
Common Stock (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until revised). If
interest is paid in shares of Common Stock, the number of shares of Common Stock
issuable on account of such interest shall equal the cash amount of such
interest on such Interest Payment Date divided by the Conversion Price (as
defined below) on such date. Notwithstanding anything to contrary set forth
herein, for purposes of determining the number of shares of Common Stock that
are issuable as payment of interest hereunder, the Conversion Price shall not be
subject to any floor.

         Notwithstanding anything to the contrary contained herein, the Company
may not issue shares of Common Stock in payment of interest on the principal
amount if:

                  (i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay interest hereunder in shares of Common Stock;

                  (ii) after the Interest Effectiveness Date (as defined in
Section 7) such shares (x) are not registered for resale pursuant to an
effective Underlying Shares Registration Statement (as defined in Section 7) and
(y) may not be sold without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as defined in Section 7), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the applicable
Holder and such transfer agent (if the Company is permitted and elects to pay
interest in shares of Common Stock under this clause (ii) prior to the Interest
Effectiveness Date and thereafter an Underlying Shares Registration Statement
shall be declared effective by the Commission (as defined in Section 7), the
Company shall, within three (3) Trading Days after the date of such declaration
of effectiveness, exchange such shares for shares of Common Stock in accordance
with the terms and conditions contained in the Purchase Agreement (as defined in
Section 7).

                  (iii) such shares are not listed or quoted on either the
Nasdaq National Market ("NASDAQ") or on the New York Stock Exchange, American
Stock Exchange or the Nasdaq SmallCap Market or OTC Bulletin Board (each, a
"SUBSEQUENT MARKET");

                  (iv) the Company has failed to timely satisfy its conversion
obligations hereunder; or

                  (v) the issuance of such shares would result in a violation of
Section 4(a)(ii)(A).

         This Debenture is subject to the following additional provisions:

                                      -2-
<PAGE>

                  SECTION 1. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.

                  SECTION 2. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 7) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

                  SECTION 3 EVENTS OF DEFAULT.

                  (a) "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

                  (i) any default in the payment of the principal of, interest
         on or liquidated damages in respect of, this Debenture, free of any
         claim of subordination except in accordance with a subordination
         agreement executed by the Holder, as and when the same shall become due
         and payable (whether on the applicable Interest Payment Date, a
         Conversion Date or the Maturity Date or by acceleration or otherwise);

                  (ii) the Company shall fail to observe or perform any other
         covenant, agreement or warranty contained in, or otherwise commit any
         breach of any of, this Debenture, the Purchase Agreement or the
         Registration Rights Agreement (as defined in Section 7) and such
         failure or breach shall not have been remedied within 30 days after the
         date on which notice of such failure or breach shall have been given;

                  (iii) the Company or any of its subsidiaries shall commence,
         or there shall be commenced against the Company or any such subsidiary
         a case under any applicable bankruptcy or insolvency laws as now or
         hereafter in effect or any successor thereto, or the Company commences
         any other proceeding under any reorganization, arrangement, adjustment
         of debt, relief of debtors, dissolution, insolvency or liquidation or
         similar law of any jurisdiction whether now or hereafter in effect
         relating to the Company or any subsidiary thereof or there is commenced
         against the Company or any subsidiary thereof any such bankruptcy,
         insolvency or other proceeding which remains undismissed for a period
         of 60 days; or the Company or any subsidiary thereof is adjudicated
         insolvent or bankrupt; or any order of relief or other order approving
         any such case or proceeding is entered; or the Company or any
         subsidiary thereof suffers any appointment of any custodian or the like
         for it or any substantial part of its property which continues
         undischarged or unstayed for a period of 60 days; or the Company or any
         subsidiary thereof makes a general assignment for the benefit of
         creditors; or the Company shall fail to pay, or shall state that it is

                                      -3-
<PAGE>

         unable to pay, or shall be unable to pay, its debts generally as they
         become due; or the Company or any subsidiary thereof shall call a
         meeting of its creditors with a view to arranging a composition,
         adjustment or restructuring of its debts; or the Company or any
         subsidiary thereof shall by any act or failure to act indicate its
         consent to, approval of or acquiescence in any of the foregoing; or any
         corporate or other action is taken by the Company or any subsidiary
         thereof for the purpose of effecting any of the foregoing;

                  (iv) the Company shall default in any of its obligations under
         any mortgage, credit agreement or other facility, indenture agreement
         or other instrument under which there may be issued, or by which there
         may be secured or evidenced any indebtedness of the Company in an
         amount exceeding fifty thousand dollars ($50,000), whether such
         indebtedness now exists or shall hereafter be created and such default
         shall result in such indebtedness becoming or being declared due and
         payable prior to the date on which it would otherwise become due and
         payable;

                  (v) the Common Stock shall be delisted from either the NASDAQ
         or a Subsequent Market or shall be suspended from trading on the NASDAQ
         without resuming trading and/or being relisted thereon or on a
         Subsequent Market or having such suspension lifted, as the case may be,
         within two (2) days;

                  (vi) the Company shall be a party to any Change of Control
         Transaction (as defined in Section 7), shall agree to sell or dispose
         all or in excess of 50% of its assets in one or more transactions
         (whether or not such sale would constitute a Change of Control
         Transaction), or shall redeem or repurchase more than a de minimis
         number of shares of Common Stock or other equity securities of the
         Company (other than redemptions of Underlying Shares (as defined in
         Section 7));

                  (vii) an Underlying Shares Registration Statement shall not
         have been declared effective by the Commission on or prior to the 90th
         day after the date hereof (the "Effectiveness Date").

                  (viii) if, during the Effectiveness Period, the effectiveness
         of the Underlying Shares Registration Statement lapses for any reason
         for more than an aggregate of fifteen (15) Trading Days (which need not
         be consecutive days), or the Holder shall not be permitted to resell
         Registrable Securities under the Underlying Shares Registration
         Statement for more than an aggregate of fifteen (15) Trading Days
         (which need not be consecutive days);

                  (ix) an Event (as hereinafter defined) shall not have been
         cured to the satisfaction of the Holder prior to the expiration of
         thirty (30) days from the Event Date (as defined below) relating
         thereto (other than an Event resulting from a failure of an Underlying
         Shares Registration Statement to be declared effective by the
         Commission on or prior to the Effectiveness Date, which shall be
         covered by Section 3(a)(vii));

                                      -4-
<PAGE>

                  (xi) the Company shall fail for any reason to deliver
         certificates to a Holder prior to the tenth (10th) day after a
         Conversion Date pursuant to Section 4(b) or the Company shall provide
         notice to the Holder, including by way of public announcement, at any
         time, of its intention not to comply with requests for conversions of
         any Debentures in accordance with the terms hereof;

                  (xii) the Company shall fail for any reason to deliver the
         payment in cash pursuant to a Buy-In within seven (7) days after notice
         is deemed delivered hereunder;

                  (xiii) the Company shall issue any shares of Common Stock or
         Common Stock Equivalents (as defined herein) in connection with or to
         any present or future lender or creditor of the Company or any
         subsidiary thereof other than Common Stock or Common Stock Equivalents
         which are restricted and which have no demand or "piggy back"
         registration rights;

                  (xiv) the Company shall agree to pay or settle any litigation
         or claim for an amount in stock or cash that exceeds the insurance
         coverage for such litigation or claim; or

                  (xv) the Company shall restructure any material portion of its
         present or future debt obligations or payables.

                  (b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Optional Prepayment Price (as defined in
Section 7) plus (ii) the product of (A) the number of Underlying Shares issued
in respect of conversions hereunder or as payment of interest hereunder, in
either case, within thirty (30) days of the date of a declaration of an Event of
Default and then held by the Holder and (B) the Per Share Market Value (as
defined in Section 7) on the date prepayment is due or the date the full
prepayment price is paid, whichever is greater. Interest shall accrue on the
prepayment amount hereunder from the seventh day after such amount is due (being
the date of an Event of Default) through the date of prepayment in full thereof
at the rate of 15% per annum. All Debentures and Underlying Shares for which the
full repayment price hereunder shall have been paid in accordance herewith shall
be promptly surrendered to or as directed by the Company. The Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.

                  SECTION 4. CONVERSION.

                                      -5-
<PAGE>

                  (a) (i) CONVERSION AT OPTION OF HOLDER. This Debenture shall
be convertible into shares of Common Stock at the option of the Holder, in whole
or in part at any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section 4(a)(ii) hereof).
The number of shares of Common Stock issuable upon a conversion hereunder shall
be determined by dividing the outstanding principal amount of this Debenture to
be converted, plus all accrued but unpaid interest thereon, by the Conversion
Price. The Holder shall effect conversions by surrendering the Debentures (or
such portions thereof) to be converted, together with the form of conversion
notice attached hereto as EXHIBIT A (a "CONVERSION NOTICE") to the Company. Each
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Conversion Notice is deemed to have been
delivered hereunder (a "CONVERSION DATE"). If no Conversion Date is specified in
a Conversion Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered hereunder. Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable. If the Holder is converting less than
all of the principal amount represented by the Debenture(s) tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall honor such conversion to the
extent permissible hereunder and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.

                           (ii) CERTAIN CONVERSION RESTRICTIONS

                           (A)(1) A Holder may not convert Debentures or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 7) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interest on, the Debentures held by such Holder after
application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of Debentures are convertible shall be in the sole discretion
of the Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 5 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.

                           (2) A Holder may not convert Debentures or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, the Debentures held by such Holder after application of this
Section. The Holder shall have the sole authority and obligation to determine

                                      -6-
<PAGE>

whether the restriction contained in this Section applies and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures are
convertible shall be in the sole discretion of the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and not to any
other Holder) upon not less than 15 days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.

                           (B) If the Common Stock is then listed for trading on
the NASDAQ or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue in
excess of 6,217,844 shares of Common Stock upon conversions of Debentures or as
payment of interest thereon in shares of Common Stock, which number shall be
subject to adjustment pursuant to Sections 4(c)(ii), (iii), (v), (vi) and (x)
(such number of shares, the "ISSUABLE MAXIMUM"). The Issuable Maximum equals
19.999% of the number of shares of Common Stock outstanding immediately prior to
the closing of transactions set forth in the Purchase Agreement. If on any
Conversion Date (A) the Common Stock is listed for trading on the NASDAQ or the
Nasdaq SmallCap Market, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding Debentures and as payment of interest
thereon in shares of Common Stock, together with any shares of Common Stock
previously issued upon conversion of Debentures and as payment of interest
thereon, would exceed the Issuable Maximum, and (C) the Company shall not have
previously obtained the vote of shareholders (the "SHAREHOLDER APPROVAL"), if
any, as may be required by the applicable rules and regulations of the Nasdaq
Stock Market (or any successor entity) applicable to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof, then the Company shall issue to the Holder so requesting a conversion a
number of shares of Common Stock equal to the Issuable Maximum and, with respect
to the remainder of the principal amount of Debentures then held by such Holder
for which a conversion in accordance with the Conversion Price would result in
an issuance of shares of Common Stock in excess of the Issuable Maximum (the
"EXCESS PRINCIPAL"), the converting Holder shall have the option to require the
Company to either (1) use its best efforts to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the 75th day after such request, or (2) pay cash to the converting Holder
in an amount equal to the OptionalPrepayment Amount for the Excess Principal. If
the Company fails to pay the OptionalPrepayment Amount in full pursuant to this
Section, the Company will pay interest thereon at a rate of 15% per annum to the
converting Holder, accruing daily from the Conversion Date until such amount,
plus all such interest thereon, is paid in full.

                  (b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of trading restrictions representing the number
of shares of Common Stock being acquired upon the conversion of Debentures
(subject to the limitations set forth in Section 4(a)(ii) hereof), (ii)
Debentures in a principal amount equal to the principal amount of Debentures not
converted, (iii) a bank check in the amount of accrued and unpaid interest (if
the Company has elected or is required to pay accrued interest in cash), and
(iv) if the Company has elected and is permitted hereunder to pay accrued

                                      -7-
<PAGE>

interest in shares of Common Stock, certificates, which shall be free of trading
restrictions (other than those required by Section 3.1 (b) of the Purchase
Agreement), representing such shares of Common Stock; PROVIDED, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of the principal amount of Debentures until
Debentures are delivered for conversion to the Company, or the Holder notifies
the Company that such Debentures have been lost, stolen or destroyed and
provides a bond (or other adequate security) reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith. The Company shall, upon request of the Holder, if available, use its
best efforts to deliver any certificate or certificates required to be delivered
by the Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If in the case of any Conversion Notice such certificate or
certificates, including for purposes hereof, any shares of Common Stock to be
issued on the Conversion Date on account of accrued but unpaid interest
hereunder, are not delivered to or as directed by the applicable Holder by the
third (3rd) Trading Day after the Conversion Date, the Holder shall be entitled
by written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates representing the
principal amount of Debentures tendered for conversion.

                           (ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid interest hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $1,000 for each Trading Day after such
third (3rd) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon conversion
within the period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversions of Debentures or as payment of interest thereon by the third (3rd)
Trading Day after the Conversion Date, the Holder may, by notice to the Company,
require the Company to issue shares of Common Stock pursuant to Section 4(c),
except that for such purpose the Conversion Price applicable thereto shall be
the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provision of this Section.

                           (iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid interest hereunder, by the third (3rd) Trading Day after the
Conversion Date, and if after such third (3rd) Trading Day the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the Holder

                                      -8-
<PAGE>

anticipated receiving upon such conversion (a "BUY-IN"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commisions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder anticipated receiving from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either reissue
Debentures in principal amount equal the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its delivery
requirements under Section 4(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of Debentures with respect to which the market price of
the Underlying Shares on the date of conversion was a total of $10,000 under
clause (A) of the immediately preceding sentence, the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in such Buy-In.

                  (c) (i) The conversion price (the "CONVERSION PRICE") in
effect on any Conversion Date shall be the lesser of (A) Ninety-seven Hundredths
of One Dollar ($.97) the "INITIAL CONVERSION PRICE") and (B) 66.66% of the
average closing bid price during the twenty (20) Trading Days immediately
preceding the applicable Conversion Date, PROVIDED, that such twenty (20)
Trading Day period shall be extended for the number of Trading Days during such
period in which (A) trading in the Common Stock is suspended by the NASDAQ or a
Subsequent Market on which the Common Stock is then listed, or (B) after the
date declared effective by the Commission, the Underlying Shares Registration
Statement is not effective, or (C) after the date declared effective by the
Commission, the Prospectus included in the Underlying Shares Registration
Statement may not be used by the Holder for the resale of Underlying Shares. If
(a) an Underlying Shares Registration Statement is not filed on or prior to the
Filing Date (as defined under the Registration Rights Agreement) (if the Company
files such Underlying Shares Registration Statement without affording the Holder
the opportunity to review and comment on the same as required by Section 3(a) of
the Registration Rights Agreement, the Company shall not be deemed to have
satisfied this clause (a)), or (b) the Company fails to file with the Commission
a request for acceleration in accordance with Rule 12d1-2 promulgated under the
Exchange Act, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Shares Registration Statement will not be "reviewed," or not subject
to further review, or (c) the Underlying Shares Registration Statement is not
declared effective by the Commission on or prior to the Effectiveness Date, or
(d) such Underlying Shares Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the Effectiveness
Period (as defined in the Registration Rights Agreement), without being

                                      -9-
<PAGE>

succeeded within ten (10) days by an amendment to such Underlying Shares
Registration Statement or by a subsequent Underlying Shares Registration
Statement filed with and declared effective by the Commission, or (e) the Common
Stock shall be delisted or suspended from trading on the NASDAQ or on any
Subsequent Market for more than three (3) Business Days (which need not be
consecutive days), (f) the conversion rights of the Holders are suspended for
any reason or (g) an amendment to the Underlying Shares Registration Statement
is not filed by the Company with the Commission within ten (10) days of the
Commission's notifying the Company that such amendment is required in order for
the Underlying Shares Registration Statement to be declared effective (any such
failure or breach being referred to as an "EVENT," and for purposes of clauses
(a), (c), (f) the date on which such Event occurs, or for purposes of clause (b)
the date on which such five (5) day period is exceeded, or for purposes of
clauses (d) and (g) the date which such 10 day-period is exceeded, or for
purposes of clause (e) the date on which such three (3) Business Day-period is
exceeded, being referred to as "EVENT DATE"), then, on the Event Date and on
each monthly anniversary thereof until such time as the applicable Event is
cured, the Company shall pay to the Holder 2.5% of the aggregate principal
amount of the Debentures then outstanding in cash, as liquidated damages and not
as penalty. The provisions of this Section are not exclusive and shall in no way
limit the Company's obligations under the Registration Rights Agreement.

                           (ii) If the Company, at any time while any Debentures
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d) issue
by reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Initial Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.

                           (iii) If the Company, at any time while any
Debentures are outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Per Share
Market Value at the record date mentioned below, then the Initial Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate offering price

                                      -10-
<PAGE>

of the total number of shares so offered would purchase at such Per Share Market
Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants. However, upon the expiration of any such right, option or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any such
right, option or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Initial
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights, options or warrants been
made on the basis of offering for subscription or purchase only that number of
shares of the Common Stock actually purchased upon the exercise of such rights,
options or warrants actually exercised.

                           (iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while Debentures are outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that is convertible into
or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS")
entitling any Person to acquire shares of Common Stock at a price per share less
than the Conversion Price, then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such shares of Common Stock or
such Common Stock Equivalents plus the number of shares of Common Stock which
the offering price for such shares of Common Stock or Common Stock Equivalents
would purchase at the Conversion Price, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of shares of Common Stock so issued or issuable,
PROVIDED, that for purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued. Notwithstanding anything contained
herein to the contrary, this Section 4(c)(iv) shall not be applicable with
respect to the issuance of Common Stock underlying the Existing Debentures (as
defined in the Purchase Agreement.

                           (v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value determined as of the record date mentioned above, and of
which the numerator shall be such Per Share Market Value on such record date
less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of Directors in good faith;
PROVIDED, HOWEVER, that in the event of a distribution exceeding ten percent

                                      -11-
<PAGE>

(10%) of the net assets of the Company, if the Holders of a majority in interest
of the Debentures dispute such valuation, such fair market value shall be
determined by a nationally recognized or major regional investment banking firm
or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "APPRAISER") selected in good faith by the holders of a majority in
interest of Debentures then outstanding; and PROVIDED, FURTHER, that the
Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in good faith, in which case the fair
market value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

                           (vi) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holders shall have the
right thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.

                           (vii) All calculations under this Section 4 shall be
made to the nearest 1/100th of a cent or share, as the case may be.

                           (viii) Whenever the Initial Conversion Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly
mail to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

                           (ix) If (A) the Company shall declare a dividend (or
any other distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock; (C)
the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,

                                      -12-
<PAGE>

any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of the event
triggering such notice.

                           (x) In case of any (1) merger or consolidation of the
Company with or into another Person that would constitute a Change of Control
Transaction, or (2) sale by the Company of more than one-half of the assets of
the Company (on an as valued basis) in one or a series of related transactions,
or (3) tender or other offer or exchange (whether by the Company or another
Person) pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, stock, cash or property of the
Company or another Person; then a Holder shall have the right to (A) if
permitted under Section 3(b) hereof, exercise its rights of prepayment under
Section 3(b) with respect to such event, (B) convert its aggregate principal
amount of Debentures then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of Debentures could have been converted immediately
prior to such merger, consolidation or sales would have been entitled, (C) in
the case of a merger or consolidation, (x) require the surviving entity to issue
shares of convertible preferred stock or convertible debentures with such
aggregate stated value or in such face amount, as the case may be, equal to the
aggregate principal amount of Debentures then held by such Holder, plus all
accrued and unpaid interest and other amounts owing thereon, which newly issued
shares of preferred stock or debentures shall have terms identical (including
with respect to conversion) to the terms of this Debenture (except, in the case
of preferred stock, as may be required to reflect the differences between equity
and debt) and shall be entitled to all of the rights and privileges of a Holder
of Debentures set forth herein and the agreements pursuant to which the

                                      -13-
<PAGE>

Debentures were issued (including, without limitation, as such rights relate to
the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation, or (D) in the
event of an exchange or tender offer or other transaction contemplated by clause
(3) of this Section, tender or exchange its aggregate principal amount of
Debentures for such securities, stock, cash and other property receivable upon
or deemed to be held by holders of Common Stock that have tendered or exchanged
their shares of Common Stock following such tender or exchange, and such Holder
shall be entitled upon such exchange or tender to receive such amount of
securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of Debentures could have been converted (taking into
account all then accrued and unpaid dividends) immediately prior to such tender
or exchange would have been entitled as would have been issued. In the case of
clause (C), the conversion price applicable for the newly issued shares of
convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction and the Conversion Price in effect immediately prior
to the effectiveness or closing date for such transaction. The terms of any such
merger, sale, consolidation, tender or exchange shall include such terms so as
continue to give the Holders of Debentures the right to receive the securities,
cash and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
events.

                  (d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.

                  (e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.

                                      -14-
<PAGE>

                  (f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

                  (g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
3303 Harbor Boulevard, F-3, Costa Mesa, CA 92626 facsimile number (714)
549-8970, attention Chief Executive Officer, with a copy to Larry Cerutti, Esq.,
Rutan & Tucker, LLP, 611 Anton Boulevard, 14th Floor, Costa Mesa, CA 92626,
telephone number (714)641-3450, facsimile number (714)546-9035, or such other
address or facsimile number as the Company may specify for such purposes by
notice to the Holders delivered in accordance with this Section, with a copy to
The N.I.R. Group, LLC, 155 First Street, Suite B, Mineola, NY 11501(facsimile
number (516)739-7115), attention CSR. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder of the Debentures at the facsimile telephone
number or address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 8:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if send by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.

                                      -15-
<PAGE>

                  SECTION 5. OPTIONAL PREPAYMENT.

                  (a) The Company shall have the right, exercisable at any time
upon twenty (20) Trading Days prior written notice to the Holders of the
Debentures to be prepaid and accompanied by any waiver required by holders of
senior indebtedness of the Company for such prepayment (the "OPTIONAL PREPAYMENT
NOTICE"), to prepay, all or any portion of the outstanding principal amount of
the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered. The prepayment price applicable to
such prepayments shall equal the Optional Prepayment Price (as defined in
Section 7) and shall be paid in cash. Any such prepayment shall be free of any
claim of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
twentieth (20th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (the 20th Trading Day after receipt by the
Holders of an Optional Prepayment Notice is referred to herein as the "OPTIONAL
PREPAYMENT DATE").

                  (b) If any portion of the Optional Prepayment Price shall not
be paid by the Company by the second (2nd) Business Day following the Optional
Prepayment Date, the Optional Prepayment Price shall be increased by 15% per
annum (to accrue daily) until paid (which amount shall be paid as liquidated
damages and not as a penalty). In addition, if any portion of the optional
Prepayment Price remains unpaid through the expiration of the Optional
Prepayment Date, the Holder subject to such prepayment may elect by written
notice to the Company to either (x) demand conversion in accordance with the
formula and the time period therefor set forth in Section 4 of any portion of
the principal amount of Debentures for which the Optional Prepayment Price, plus
accrued liquidated damages thereof, has not been paid in full (the "UNPAID
PREPAYMENT PRINCIPAL AMOUNT"), in which event the applicable Per Share Market
Value shall be the lower of the Per Share Market Value calculated on the
Optional Prepayment Date and the Per Share Market Value as of the Holder's
written demand for conversion, or (y) invalidate AB INITIO such optional
redemption, notwithstanding anything herein contained to the contrary. If the
Holder elects option (x) above, the Company shall within three (3) Trading Days
such election is deemed delivered hereunder to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Prepayment Principal Amount subject
to such conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if the Holder elects option (y) above, the Company shall
promptly, and in any event not later than three (3) Trading Days from receipt of
notice of such election, return to the Holder new Debentures for the full Unpaid
Prepayment Principal Amount. If, upon an election under option (x) above, the
Company fails to deliver the shares of Common Stock issuable upon conversion of
the Unpaid Prepayment Principal Amount within the time period set forth in this
Section, the Company shall pay to the Holder in cash, as liquidated damages and
not as a penalty, $2,500 per day until the Company delivers such Common Stock to
the Holder.

                  SECTION 6. INTENTIONALLY OMITTED

                  SECTION 7. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:

                                      -16-
<PAGE>

                  "BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of California are authorized or required by law
or other government action to close.

                  "CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 33% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 33% of such securities following such
transaction or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the Common Stock, $.001 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

                  "INTEREST EFFECTIVENESS DATE" means the earlier to occur of
(x) the Effectiveness Date and (y) the date that an Underlying Shares
Registration Statement is declared effective by the Commission.

                  "OPTIONAL PREPAYMENT PRICE" for any Debentures shall equal
120% of principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon.

                  "ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.

                  "PER SHARE MARKET VALUE" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or a Subsequent Market
(which shall include, without limitation, the OTC Bulletin Board), the closing
bid price for a share of Common Stock in the over-the-counter market, as

                                      -17-
<PAGE>

reported by the National Quotation Bureau Incorporated or similar organization
or agency succeeding to its functions of reporting prices) at the close of
business on such date, or (c) if the Common Stock is not then reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an Appraiser selected
in good faith by the Holders of a majority in interest of the principal amount
of Debentures then outstanding.

                  "PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.

                  "PURCHASE AGREEMENT" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.

                  "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.

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

                  "TRADING DAY" means (a) a day on which the Common Stock is
traded on the NASDAQ or on such Subsequent Market on which the Common Stock is
then listed or quoted, or (b) if the Common Stock is not listed on the NASDAQ or
a Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); PROVIDED, HOWEVER, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

                  "UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.

                  "UNDERLYING SHARES REGISTRATION STATEMENT" means registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.

                                      -18-
<PAGE>

                  SECTION 8. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of
the Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.

                  SECTION 9. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.

                  SECTION 10. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.

                  SECTION 11. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holders hereby irrevocably submit
to the exclusive jurisdiction of the state and federal courts sitting in the
County of Nassau, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, or that such suit, action or proceeding is improper. Each of the
Company and the Holder hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.

                  SECTION 12. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.

                  SECTION 13. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.

                                      -19-
<PAGE>

                  SECTION 14. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.

                  SECTION 15. The payment obligations under this Debenture and
the obligations of the Company to the Holder arising upon the conversion of all
or any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Escrow Agreement (as defined in the Purchase Agreement).

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGE FOLLOWS]

                                      -20-
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.

                                            KANAKARIS COMMUNICATIONS, INC.

                                           By: /S/ Alex Kanakaris
                                              -------------------------------
                                              Name: Alex Kanakaris
                                              Title: President

Attest:

By:___________________________
   Name:
   Title:

                                      -21-
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert the Debenture)

The undersigned hereby elects to convert the attached Debenture into shares of
Common Stock, $.001 par value per share (the "Common Stock"), of
____________________(the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.

Conversion calculations:    ____________________________________________________
                            Date to Effect Conversion

                            ____________________________________________________
                            Principal Amount of Debentures to be Converted

                            ____________________________________________________
                            Number of shares of Common Stock to be Issued

                            ____________________________________________________
                            Applicable Conversion Price

                            ____________________________________________________
                            Signature

                            ____________________________________________________
                            Name

                            ____________________________________________________
                            Address

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