Document:

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                                                                    Exhibit 10.1

                         SECURITIES PURCHASE AGREEMENT

 SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of June 28, 2000, by
                                      ---------
and between PILOT NETWORK SERVICES, INC., a Delaware corporation (the

"Company"), and Marshall Capital Management, Inc. (the "Purchaser").
 -------                                                ---------

 The Company wishes to sell to the Purchaser, and the Purchaser wishes to buy,
on the terms and subject to the conditions set forth in this Agreement, shares
(the "Preferred Shares") of the Company's Series A Convertible Preferred Stock,
      ----------------
par value $.01 per share (the "Preferred Stock"), and a Warrant in the form
                               ---------------
attached hereto as Exhibit A (the "Warrant"). The Preferred Shares are
                   ---------       -------
convertible pursuant to the terms of the Certificate of Designation relating to
the Preferred Stock, the form of which is attached hereto as Exhibit B (the
                                                             ---------
"Certificate of Designation") into shares (the "Conversion Shares") of the
---------------------------                     -----------------
Company's common stock, par value $.001 per share (the "Common Stock").
                                                        ------------
Dividends that have accrued on Preferred Shares and remain unpaid at the end of
a calendar quarter may, in certain circumstances, be paid in shares of Common
Stock (the "Dividend Shares"). The Warrant is exercisable into shares of Common
            ---------------
Stock (the "Warrant Shares") in accordance with its terms. The Preferred Shares,
            --------------
the Conversion Shares, the Dividend Shares, the Warrant and the Warrant Shares
are collectively referred to herein as the "Securities".  Any capitalized term
                                            ----------
used herein that is not otherwise defined shall have the meaning specified
therefor in the Certificate of Designation.

 The sale of the Preferred Shares and the Warrant by the Company hereunder will
be effected in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D") as promulgated by the
                                    ------------
Securities and Exchange Commission (the "Commission") under the Securities Act
                                         ----------
of 1933, as amended (the "Securities Act"). The Company has agreed to effect the
                          --------------
registration of the Conversion Shares, the Dividend Shares and the Warrant
Shares under the Securities Act pursuant to a Registration Rights Agreement of
even date herewith by and between the Company and the Purchaser (the
"Registration Rights Agreement").
------------------------------

  The Company and the Purchaser hereby agree as follows:

1.  PURCHASE AND SALE OF THE PREFERRED STOCK AND WARRANT.
    ----------------------------------------------------

  1.1  Agreement to Purchase and Sell.  Upon the terms and subject to the
       ------------------------------
satisfaction or waiver of the conditions set forth herein, the Company agrees to
sell and the Purchaser agrees to purchase (A) fifteen thousand (15,000)
Preferred Shares and (B) a Warrant exercisable into a number of Warrant Shares
equal to twenty five percent (25%) of the aggregate number of Conversion Shares
into which such Preferred Shares are convertible on the Closing Date (as defined
below) at the Market Price (as defined in the Certificate of Designation) then
in effect
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(assuming for purposes of such calculation that none of the limitations on such
conversion set forth herein or in the Certificate of Designation exist). The
Warrant shall have an exercise price equal to one hundred twenty percent (120%)
of the Market Price (as defined in the Warrant) and will mature on the fifth
(5th) anniversary of the Closing Date. The date on which the closing (the
"Closing") of the purchase and sale of the Preferred Shares and Warrant occurs
 -------
is hereinafter referred to as the "Closing Date". The purchase price for the
                                   ------------
Preferred Shares and Warrant being purchased by the Purchaser (the "Purchase
                                                                    --------
Price") shall be equal to the Stated Value of the Preferred Shares being
-----
purchased by the Purchaser. Subject to the satisfaction or waiver of the
conditions set forth herein, the Closing will be deemed to occur when the
Company and the Purchaser execute and deliver this Agreement and the other
Transaction Documents (as defined below), which delivery may be effected by
facsimile transmission, and full payment of the Purchaser's Purchase Price has
been made by wire transfer of immediately available funds against physical
delivery by the Company of duly executed certificates representing the Preferred
Shares and Warrant.

  1.2  Certain Definitions.  When used herein, the following terms shall have
       -------------------
 the respective meanings indicated:

  "Business Day" shall mean any day on which the Nasdaq National Market (the
   ------------
"NNM") and commercial banks in the cities of San Francisco and New York are open
for business.

  "Closing Bid Price" shall mean, with respect to the Common Stock, the closing
   -----------------
bid price for the Common Stock occurring on a given Trading Day on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets is
not then reporting such prices, by a comparable reporting service of national
reputation selected by the Company and reasonably acceptable to the Purchaser
(collectively, "Bloomberg") or if the foregoing does not apply, the last
                ---------
reported bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
bid price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc.  If the Closing Bid Price cannot be
calculated for such security on any of the foregoing bases, the Closing Bid
Price of such security shall be the fair market value as reasonably determined
by an independent investment banking firm selected by the Purchaser, and
reasonably acceptable to the Company, with the costs of such appraisal to be
borne by the Company.

  "Trading Day" shall mean any day on which the Common Stock is purchased and
   -----------
sold on the principal securities exchange or market on which the Common Stock is
then listed or traded.

                                      -2-
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2.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
    ----------------------------------------------------------

  The Purchaser hereby represents and warrants to the Company and agrees with
the Company that, as of the date of this Agreement:

  2.1  Authorization; Enforceability. The Purchaser is duly and validly
       -----------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Securities and to execute and deliver this Agreement. This
Agreement and the Registration Rights Agreement each constitutes the Purchaser's
valid and legally binding obligation, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and except as rights to indemnity and contribution may be
limited by federal or state securities laws.

  2.2  Accredited Investor; Purchase as Principal.  The Purchaser is an
       ------------------------------------------
accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Securities solely for its own account as a principal and not with
a present view to the public resale or distribution of all or any part thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act; provided,
however that in making such representation, the Purchaser does not agree to hold
any Securities for any minimum or specific term and reserves the right to sell,
transfer or otherwise dispose of the Securities at any time in accordance with
the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.

  2.3  Information.  The Company has provided the Purchaser with information
       -----------
regarding the business, operations and financial condition of the Company, and
has granted to the Purchaser the opportunity to ask questions of and receive
answers from representatives of the Company, its officers, directors, employees
and agents concerning the Company and materials relating to the terms and
conditions of the purchase and sale of the Securities. Neither such information
nor any other investigation conducted by the Purchaser or any of its
representatives shall modify, amend or otherwise affect the Purchaser's right to
rely on the Company's representations and warranties contained in this
Agreement.

  2.4  Limitations on Disposition.  The Purchaser acknowledges that, except as
       --------------------------
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act and may not be transferred or
resold without registration under the Securities Act or unless pursuant to an
exemption therefrom.

  2.5  Legend.  The Purchaser understands that the certificates representing the
       ------
Securities may bear at issuance a restrictive legend in substantially the
following form:

                                      -3-
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          "The securities represented by this certificate have not been
          registered under the Securities Act of 1933, as amended (the
          "Securities Act"), or the securities laws of any state, and may not be
          offered or sold unless a registration statement under the Securities
          Act and applicable state securities laws shall have become effective
          with regard thereto, or an exemption from registration under such laws
          is available in connection with such offer or sale."

  Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or
transfer (including without limitation a pledge) of such Securities is
registered pursuant to an effective registration statement and the Purchaser
represents in writing to the Company that such Securities have been or are being
sold pursuant to such registration statement, (B) such Securities have been
publicly sold pursuant to Rule 144 ("Rule 144") and the Purchaser has delivered
                                     --------
to the Company customary Rule 144 broker's and seller's representation letters,
or (C) such Securities can be publicly sold pursuant to Rule 144(k) under the
Securities Act, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend is
stamped, the Company shall issue new certificates without such legend to the
holder promptly upon such holder's request (but in no event later than the third
(3rd) Business Day following delivery of such request).

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
    --------------------------------------------------------

  The Company hereby represents and warrants to the Purchaser and agrees with
the Purchaser that, as of the date of this Agreement:

  3.1  Organization, Good Standing and Qualification.  Each of the Company and
       ---------------------------------------------
its subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has all
requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. For purposes of this Agreement, the term "subsidiary" or "subsidiaries"
shall mean any entity or entities in which the Company beneficially owns 20% or
more of the voting equity thereof.

  3.2  Authorization; Consents.  The Company has the requisite corporate power
       -----------------------
and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents or other instruments executed and delivered by or on
behalf of the Company at the Closing (the instruments described in (i), (ii) and
(iii) being collectively referred to herein as the "Transaction Documents"), to
                                                    ---------------------
execute and file, and perform its obligations under the Certificate of
Designation, to issue and sell Preferred Shares

                                      -4-
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and a Warrant to the Purchaser in accordance with the terms hereof and to issue
and deliver Conversion Shares and Dividend Shares in accordance with the terms
of the Certificate of Designation and Warrant Shares in accordance with the
terms of the Warrant. All corporate action on the part of the Company by its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of, and the performance by the Company of its obligations
under, the Transaction Documents and (ii) the authorization, execution and
filing of, and the performance by the Company of its obligations under, the
Certificate of Designation has been taken, and no further consent or
authorization of the Company, its Board of Directors, its stockholders, any
governmental agency or organization (other than such approval as may be required
under the Securities Act and applicable state securities laws in respect of the
Registration Rights Agreement), or any other person or entity is required
(pursuant to any rule of the Nasdaq National Market or otherwise).

  3.3   Enforcement.  Each of the Transaction Documents constitutes a valid and
        -----------
legally binding obligation of the Company, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and except as rights to indemnity and contribution may be
limited by federal or state securities laws.

  3.4  Disclosure Documents; Agreements; Financial Statements; Other
       -------------------------------------------------------------
Information.  The Company has filed with the Commission all documents required
to be filed with the Commission since March 31, 1999 and prior to the date
hereof as required by the provisions of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act")
                                                        ------------
(collectively, the "Disclosure Documents"). The Company is not aware of any
                    --------------------
event occurring on or prior to the Closing Date (other than the transactions
effected hereby) that would require the filing of, or with respect to which the
Company intends to file, a Form 8-K after such date. Each Disclosure Document,
as of the date of the filing thereof with the Commission, conformed in all
material respects to the requirements of the Exchange Act and, as of the date of
such filing, such Disclosure Document did not contain an untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All material agreements required to be
filed as exhibits to the Disclosure Documents have been filed or incorporated by
reference as required by the applicable provisions of the Exchange Act.  Except
as described on Schedule 3.4 hereto, Neither the Company nor any of its
                -------------
subsidiaries is in breach of any agreement to which it is a party or by which it
is bound where such breach could have a material adverse effect on (i) the
consolidated business, operations, properties, financial condition, prospects or
results of operations of the Company and its subsidiaries taken as a whole, (ii)
the transactions contemplated hereby, by the other Transaction Documents or by
the Certificate of Designation, (iii) the Securities or (iv) the ability of the
Company to perform its obligations under this Agreement, the other Transaction
Documents or the Certificate of Designation (collectively, a "Material Adverse
                                                              ----------------
Effect"). Except as set forth in the Disclosure
------

                                      -5-
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Documents, the Company has no liabilities, contingent or otherwise, other than
liabilities incurred in the ordinary course of business which, under generally
accepted accounting principles, are not required to be reflected in such
financial statements (including the footnotes to such financial statements) and
which, individually or in the aggregate, are not material to the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. As of their respective dates, the financial statements of the Company
included in the Disclosure Documents have been prepared in accordance with
generally accepted accounting principles consistently applied at the times and
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments). The written information
described in paragraph 2.3 does not contain an untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

  3.5  Capitalization.  The capitalization of the Company, including its
       --------------
authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities (other than the Preferred Stock and Warrant) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares initially to be reserved for issuance upon conversion and
exercise of the Preferred Stock and Warrant is set forth on Schedule 3.5 hereto.
                                                            ------------
All of such outstanding shares of capital stock have been, or upon issuance will
be, validly issued, fully paid and non-assessable. Except as set forth on

Schedule 3.5,  no shares of the capital stock of the Company are subject to
--------------
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances created by or through the Company.  Except as
disclosed on Schedule 3.5, or as contemplated herein, the Company has no
             ------------
authorized and outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries.

Schedule 3.5 indicates any outstanding securities or obligations of the Company
------------
that have a preference in redemption or distribution upon liquidation that is
senior or pari passu with the Preferred Stock.

  3.6  Valid Issuance. The Preferred Shares are duly authorized and, when
       --------------
issued, sold and delivered in accordance with the terms hereof, (i) will be duly
and validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company (collectively, "Encumbrances"), (ii) based in
                                    ------------

                                      -6-
<PAGE>

part upon the representations of the Purchaser in this Agreement, will be
issued, sold and delivered in compliance with all applicable Federal and state
securities laws and (iii) will be entitled to all of the rights, preferences and
privileges set forth in the Certificate of Designation. The Warrant is duly
authorized and, when issued, sold and delivered in accordance with the terms
hereof, (i) will be duly and validly issued, fully paid and nonassessable, free
and clear of any Encumbrances and (ii) based in part upon the representations of
the Purchaser in this Agreement, will be issued, sold and delivered in
compliance with all applicable Federal and state securities laws. The Conversion
Shares are duly authorized and reserved for issuance and, when issued upon
conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation, will be duly and validly issued, fully paid and
nonassessable, free and clear of any Encumbrances. The Dividend Shares are duly
authorized and reserved for issuance and, when issued in accordance with the
terms of the Certificate of Designation, will be duly and validly issued, fully
paid and nonassessable, free and clear of any Encumbrances. The Warrant Shares
are duly authorized and, upon the issuance thereof in accordance with the terms
of the Warrant, will be duly and validly issued, fully paid and nonassessable,
free and clear of any Encumbrances. The Company's Board of Directors (i) has
unanimously determined that the issuance and sale of the Preferred Shares and
Warrant hereunder, and the consummation of the transactions contemplated hereby,
by the other Transaction Documents and by the Certificate of Designation
(including without limitation the issuance of the Conversion Shares upon
exercise of the Preferred Shares and the Warrant Shares upon exercise of the
Warrant), are in the best interests of the Company and (ii) has unanimously
approved the issuance of Conversion Shares upon exercise of the Preferred
Shares, the issuance of Dividend Shares in payment of Dividends and the issuance
of Warrant Shares upon exercise of the Warrant.

  3.7  No Conflict with Other Instruments. Except as described on Schedule 3.7
       ----------------------------------                         ------------
hereto, neither the Company nor any of its subsidiaries is in violation of any
provisions of its charter, bylaws or any other governing document as amended and
in effect on and as of the date hereof or in default (and no event has occurred
which, with notice or lapse of time or both, would constitute a default) under
any provision of any instrument or contract to which it is a party or by which
it is bound, or of any provision of any Federal, state or foreign judgment,
writ, decree, order, statute, rule or governmental regulation applicable to the
Company, which violation or default could reasonably be expected to have a
Material Adverse Effect. Except as described on Schedule 3.7 hereto, the (i)
                                                -------------
execution, delivery and performance of this Agreement and the other Transaction
Documents, (ii) execution and filing of the Certificate of Designation and (iii)
consummation of the transactions contemplated hereby and thereby (including
without limitation, the issuance of the Preferred Shares and the Warrant and the
reservation for issuance and issuance of the Conversion Shares, the Dividend
Shares and the Warrant Shares) will not, in any such case, result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, instrument
or contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company or of any of its subsidiaries or the
triggering of any preemptive or anti-dilution rights or rights of first refusal

                                      -7-
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or first offer, or any similar rights (whether pursuant to a "poison pill"
provision or otherwise), on the part of holders of the Company's securities or
any third party.

  3.8  Financial Condition; Taxes; Litigation.
       --------------------------------------

  3.8.1 The Company's financial condition is, in all material respects, as
described in the Disclosure Documents, except for changes in the ordinary course
of business and normal year-end adjustments that are not, in the aggregate,
materially adverse to the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.  Except as otherwise described in
the Disclosure Documents, there has been no material adverse change to the
Company's business, operations, properties, financial condition, prospects or
results of operations since the date of the Company's most recent audited
financial statements contained in the Disclosure Documents.

  3.8.2 The Company has filed all tax returns required to be filed by it and
paid all taxes which are due, except for taxes which it reasonably disputes or
which could not have a Material Adverse Effect.

  3.8.3 Neither the Company nor any of its subsidiaries is the subject of any
pending or, to the Company's knowledge, threatened inquiry, investigation or
administrative or legal proceeding by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, the Commission or any state
securities commission or other governmental or regulatory entity which could
have a Material Adverse Effect.

  3.8.4  Except as described in the Disclosure Documents, there is no claim,
litigation or administrative proceeding pending, or, to the Company's knowledge,
threatened or contemplated, against the Company or any of its subsidiaries, or
against any officer, director or employee of the Company or any such subsidiary
in connection with such person's employment therewith that, individually or in
the aggregate, could have a Material Adverse Effect.  Neither the Company nor
any of its subsidiaries is a party to or subject to the provisions of, any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality which could have a Material Adverse Effect.

     3.9  Reporting Company; Form S-3.  The Company is subject to the reporting
          ---------------------------
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required thereby.  The
Company is eligible to register for resale, in either a primary offering by the
Company or a secondary sale by a selling stockholder, shares of its Common Stock
on a registration statement on Form S-3 under the Securities Act. To the
Company's knowledge, there exist no facts or circumstances (including without
limitation any required approvals or waivers of any circumstances that may delay
or prevent the obtaining of accountant's consents) that would prohibit or delay
the preparation and filing of a

                                      -8-
<PAGE>

registration statement on Form S-3 with respect to the Registrable Securities
(as defined in the Registration Rights Agreement).

  3.10   Acknowledgement of Dilution.  The Company acknowledges that the
         ---------------------------
issuance of Conversion Shares or Warrant Shares may 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 Conversion Shares in accordance with the terms of the Certificate of
Designation and Warrant Shares in accordance with the terms of the Warrant, is
unconditional and absolute regardless of the effect of any such dilution.

  3.11  Intellectual Property. The Company and its subsidiaries each has the
        ---------------------
right to use adequate trademarks, trade names and other rights to inventions,
know-how, patents, copyrights, confidential information and other intellectual
property rights necessary to conduct the business now operated by it, and is not
aware of any infringement by a third party with respect to such rights or of any
infringement by it or conflict with asserted rights of others that, in any such
case, if determined adversely to the Company or any of its subsidiaries, could
individually or in the aggregate have a Material Adverse Effect.

  3.12  Registration Rights; Rights of Participation. Except as set forth on
        --------------------------------------------
Schedule 3.12, (A) the Company has not granted or agreed to grant to any person
or entity any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority and (B) no person or entity, including, but not limited
to, current or former stockholders of the Company, underwriters, brokers, agents
or other third parties, has any right of first refusal, preemptive right, right
of participation, anti-dilutive right or any similar right to participate in, or
to receive securities of the Company or other consideration as a result of, the
transactions contemplated by this Agreement, the other Transaction Documents or
the Certificate of Designation.

  3.13  Listing on Nasdaq National Market. The Common Stock is listed on the
        ----------------------------------
Nasdaq National Market, and trading in the Common Stock on such market has not
been suspended. The Company is in full compliance with the continued listing
criteria of the Nasdaq National Market, and does not reasonably anticipate that
the Common Stock will lose its listing on the Nasdaq National Market, whether by
reason of the transactions contemplated by this Agreement or the other
Transaction Documents, or otherwise and is not aware of any inquiry by or
received any notice from the Nasdaq National Market, or any other self-
regulatory or governmental entity, regarding any failure or alleged failure by
the Company to comply with such criteria or any other requirements of such
entity or applicable law.

  3.14  Solicitation; Other Issuances of Securities.  Neither the Company nor
        -------------------------------------------
any of its subsidiaries or affiliates, nor any person acting on its or their
behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection

                                      -9-
<PAGE>

with the offer or sale of the Securities, (ii) has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security,
under any circumstances that would require registration of the Securities under
the Securities Act or (iii) has issued any shares of Common Stock or shares of
any series of preferred stock or other securities or instruments convertible
into, exchangeable for or otherwise entitling the holder thereof to acquire
shares of Common Stock which would be integrated with the sale of the Securities
to the Purchaser or the issuance of the Conversion Shares for purposes of the
Securities Act or of any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated.

  3.15  Fees.  Except as described on Schedule 3.15 hereto, the Company is not
        ----                          -------------
obligated to pay any compensation or other fee, cost or related expenditure to
any underwriter, broker, agent or other representative or entity in connection
with the transactions contemplated hereby. The Company will indemnify and hold
harmless the Purchaser from and against any claim by any person or entity
alleging that the Purchaser is obligated to pay any such compensation, fee, cost
or related expenditure in connection with the transactions contemplated hereby.

  3.16   Regulatory Permits.  Each of the Company and its subsidiaries possesses
         ------------------
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct its business,
except where the failure to so possess such certificates, authorizations or
permits could not have a Material Adverse Effect, and neither the Company nor
any such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which revocation or modification could have a Material Adverse Effect.

     3.17  Key Employees. Each person whose name is set forth on Schedule 3.17
           -------------                                         -------------
(each, a "Key Employee") is currently serving in the capacity indicated on such
          ------------
schedule on a full-time basis. The Company has no knowledge of any fact or
circumstance (including without limitation (i) the terms of any agreement to
which such person is a party or any litigation in which such person is or may
become involved and (ii) any illness or medical condition that could reasonably
be expected to result in the disability or incapacity of such person) that would
limit or prevent any such person from serving in such capacity on a full-time
basis in the foreseeable future, or of any intention on the part of any such
person to limit or terminate his or her employment with the Company. Except as
described on Schedule 3.17, no Key Employee has borrowed money pursuant to a
             --------------
currently outstanding loan that is secured by Common Stock or any right or
option to receive Common Stock.

     3.18  Environment.  Except as disclosed in the Disclosure Documents (i)
           -----------
there is no environmental liability, nor factors likely to give rise to any
environmental liability, affecting any of the properties of the Company or any
of its subsidiaries that, individually or in the

                                      -10-
<PAGE>

aggregate, would have a Material Adverse Effect and (ii) neither the Company nor
any of the subsidiaries has violated any environmental law applicable to it now
or previously in effect, other than such violations or infringements that,
individually or in the aggregate, have not had and will not have a Material
Adverse Effect.

4.  COVENANTS OF THE COMPANY.
    ------------------------

  4.1  Corporate Existence.  The Company shall, so long as the Purchaser or any
       -------------------
affiliate of the Purchaser beneficially owns any Preferred Shares or the
Warrant, maintain its corporate existence in good standing under the
jurisdiction of its incorporation and shall pay all taxes owed by it when due
except for taxes which the Company reasonably disputes.

  4.2  Provision of Information.  The Company shall, so long as the Purchaser or
       ------------------------
any affiliate of the Purchaser beneficially owns any Preferred Shares or the
Warrant, provide the Purchaser with copies of all materials sent to
stockholders, in each such case at the same time that it mails such materials to
its stockholders.

  4.3  Form D; Blue-Sky Qualification.  The Company agrees to file a Form D with
       ------------------------------
respect to the Preferred Shares and Warrant as required under Regulation D and
to provide a copy thereof to the Purchaser promptly after such filing.  The
Company shall take such action as is necessary to qualify the Preferred Shares
and Warrant for sale under applicable state or "blue-sky" laws or obtain an
exemption therefrom, and shall provide evidence of any such action to the
Purchaser at the Purchaser's request.

  4.4  Reporting Status.  As long as the Purchaser or any affiliate of the
       ----------------
Purchaser beneficially owns any Securities and until the date on which any of
the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination. The Company agrees to
issue a press release describing the transactions contemplated by this Agreement
and the other Transaction Documents and, at the same time, to file with the
Commission a Form 8-K (or Form 10-K) in the form required by the Exchange Act
describing the terms of the transactions contemplated by this Agreement and the
other Transaction Documents, with this Agreement and all schedules and exhibits
attached to such Form 8-K (or Form 10-K) as an exhibit thereto, in each case on
or before the Business Day immediately following the Closing Date.

  4.5  Reservation of Common Stock. The Company shall at all times have
       ---------------------------
authorized and reserved for issuance, free from any preemptive rights, solely
for the purpose of effecting

                                      -11-
<PAGE>

conversions of the Preferred Shares and exercise of the Warrant, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of the Preferred Shares and exercise of the Warrant (the "Reserved
                                                                     --------
Amount"). As of the Closing Date, the Reserved Amount shall be equal to no less
------
than 200% of the number of shares of Common Stock issuable upon conversion of
all of the Preferred Shares at the Market Conversion Price (as defined in the
Certificate of Designation) then in effect and exercise of the Warrant in full
at the Exercise Price. If, on any date (a "Reserved Amount Trigger Date"), the
                                           ----------------------------
Reserved Amount is less than 150% of the number of shares of Common Stock then
issuable upon conversion of all of the Preferred Shares then outstanding and
exercise of the Warrant in full, the Company shall take action (including
without limitation soliciting stockholder approval for the authorization or
reservation of additional shares of Common Stock) to increase the Reserved
Amount to no less than 200% of the number of shares of Common Stock into which
all of the Preferred Shares then outstanding and the Warrant are convertible or
exercisable, as the case may be, such increase to be effected as soon as
practicable but no later than the fifth (5th) Business Day following the related
Reserved Amount Trigger Date (or, in the event that stockholder approval is
required for the authorization or reservation of additional shares of Common
Stock, the Company shall use its best efforts to obtain such approval by the
sixtieth (60th) day, but shall obtain it in no event later than the ninetieth
(90th) day, following such related Reserved Amount Trigger Date). The Company
shall not reduce the number of shares reserved for issuance hereunder without
the written consent of the holders of two-thirds of the Preferred Shares then
outstanding. Any calculation hereunder of the number of shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrant
shall be made without regard to any restriction or limitation on such conversion
or exercise that may be contained herein or in the Certificate of Designation,
including without limitation any restriction on the use of the Market Conversion
Price during the ninety day period following the Closing Date.

  4.6  Use of Proceeds.  The Company shall use the proceeds from the sale of the
       ---------------
Preferred Shares and Warrant for general corporate purposes only, in the
ordinary course of its business and consistent with past practice and, without
limiting the generality of the foregoing, shall not use such proceeds to make a
loan to any employee, officer, director or stockholder of the Company, to repay
any loan or other obligation of the Company to any such person or to repurchase
or pay a dividend on shares of Common Stock or other securities of the Company
(in any such case, regardless of whether such loan or payment was authorized by
the Company's Board of Directors prior to the date hereof), other than any such
repurchase or payment explicitly required or permitted by the terms of this
Agreement, the Certificate of Designation or the other Transaction Documents.

  4.7   Listing on Nasdaq National Market.  The Company shall (i) promptly
        ---------------------------------
following the Closing, take such action as may be necessary to include for
listing all of the Conversion Shares, Dividend Shares and Warrant Shares that
may be issued by the Company under the Preferred Shares and Warrant on the
Nasdaq National Market, and (ii) use its reasonable

                                      -12-
<PAGE>

commercial efforts to maintain the designation and quotation, or listing, of the
Common Stock on the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange for a minimum of five (5) years following the Closing
Date.

  4.8  Use of Name.  Except as may be required by applicable law, no party shall
       -----------
use, directly or indirectly, any other party's name or the name of any of its
affiliates in any advertisement, announcement, press release or other similar
communication unless it has received the prior written consent of such other
party for the specific use contemplated (which consent will not be unreasonably
withheld) or as otherwise required by applicable law or regulation.

  4.9   Right of First Offer. Prior to any offer or sale by the Company of any
        --------------------
Equity Securities (as defined below) during the period beginning on the Closing
Date and ending on the twelve (12) month anniversary of the Closing Date, the
Company must first deliver to the Purchaser, at least twenty (20) Trading Days
prior to the issuance thereof, written notice describing the proposed issuance,
including the terms and conditions thereof, and the Purchaser shall have an
option during the ten (10) Trading Day period following delivery of such notice
to purchase all or any part of the Equity Securities being offered on the same
terms as contemplated by such issuance (the "Right of First Offer").  In the
                                             --------------------
event that the Purchaser either does not give notice within such ten Trading Day
period that it intends to exercise the foregoing option or informs the Company
in writing that it does not intend to participate in all or any part of such
issuance, the Company may offer any Equity Securities that are not purchased by
the Purchaser to a third party on the same terms as were offered to the
Purchaser. For purposes hereof, "Equity Security" shall mean Common Stock or any
                                 ---------------
other equity security of the Company, or any security convertible into, or
exercisable or exchangeable for, Common Stock or any such equity security.  The
Right of First Offer will not apply to the issuance of Equity Securities
pursuant to (i) an employee stock option, purchase or benefit plan or program
duly adopted by the Company, (ii) any options, warrant, convertible securities
or rights or agreements to purchase securities of the Company outstanding on the
date hereof; (iii) any firm-commitment underwritten public offering of Equity
Securities in an amount not less than $40,000,000, (iv) any securities issued
for consideration other than cash pursuant to a merger, consolidation,
acquisition or similar business combination with a third party, the primary
purpose of which is not the raising of capital, (v) shares of Common Stock
issued upon conversion of the Preferred Shares or exercise of the Warrant, (vi)
any Equity Securities issued pursuant to any equipment leasing arrangement or
debt financing from a bank or other financial institution, or (vii) any Equity
Securities issued in connection with strategic transactions involving the
Company and third parties, including by way of example (A) joint ventures,
manufacturing, marketing or distribution arrangements or (B) technology transfer
or development arrangements (each, an "Exempt Transaction").
                                       ------------------

  4.10   Capital Raising Limitations.  Other than as set forth on Schedule 4.10,
         ---------------------------                              -------------
the Company agrees that it will not, without the Purchaser's prior written
consent, (A) during the period beginning on the Closing Date and ending on the
one hundred and eightieth (180th) day

                                      -13-
<PAGE>

following the Closing Date, offer for sale, issue or sell any Equity Securities
(other than in an Exempt Transaction), or (B) during the period beginning on the
Closing Date and ending on the one hundred and eightieth (180th) day following
the date on which the Registration Statement is declared effective by the
Commission, file a registration statement relating to any Equity Securities
(other than any Equity Securities issued in an Exempt Transaction).

     4.11  Management Restrictions. During (i) the period beginning on the
           -----------------------
Closing Date and ending on the date on which the Registration Statement (as
defined in the Registration Rights Agreement) has been declared effective by the
Commission (the "Effective Date"), and (ii) the period beginning on the
                 --------------
Effective Date and ending on the one hundred and fiftieth (150th) day following
the Closing Date, no Key Employee may, directly or indirectly, sell, transfer or
otherwise dispose of  any Common Stock held or beneficially owned by such
individual, whether through the writing or purchase of options, futures or
derivative instruments, or otherwise; provided, however, that the limitation set
                                      --------  -------
forth in clause (ii) above shall not apply to any sale, transfer or other
disposition by a Key Employee of a number of shares of Common Stock that does
not exceed, singly or in the aggregate with any other sales, transfers or other
dispositions made by such Key Employee during the period described in clause
(ii), ten percent (10%) of such Key Employee's holdings of Common Stock as of
the Closing Date. The Company shall obtain from each Key Employee, on or before
the Closing Date, such individual's written agreement (collectively, the
"Management Restriction Agreements") to be bound by the terms of this paragraph
----------------------------------
4.11.  Notwithstanding the foregoing, the restrictions set forth in this Section
4.11 shall not apply to any Key Employee after such time, if any, as the Key
Employee's employment with the Company is terminated.

  4.12  Stockholder Approval.  The Company agrees that, at the next annual
        --------------------
meeting of the holders of its Common Stock, which shall be held not later than
October 1, 2000, it will recommend to such holders that they approve the
issuance pursuant to a Conversion at Maturity (as defined in the Certificate of
Designation) of Conversion Shares and Warrant Shares in excess of the Cap Amount
(as defined in the Certificate of Designation) ("Stockholder Approval").  If the
                                                 --------------------
Company does not obtain the Stockholder Approval at such meeting, the Company
shall, at a meeting of the holders of its Common Stock which shall be held not
later than October 1, 2001, recommend to such holders that they approve such
issuance.

5.  CONDITIONS TO CLOSING.
    ---------------------

  5.1  Conditions to Purchaser's Obligations at Closing.  The Purchaser's
       -------------------------------------------------
obligations at the Closing, including without limitation its obligation to
purchase the Preferred Shares and Warrant being purchased by the Purchaser, are
conditioned upon the satisfaction by the Company (or waiver by the Purchaser) of
each of the following events as of the Closing Date:

                                      -14-
<PAGE>

          5.1.1     the representations and warranties of the Company set
                    forth in this Agreement shall be true and correct in all
                    material respects as of such date as if made on such date;

          5.1.2     the Company shall have complied with or performed in all
                    material respects all of the agreements, obligations and
                    conditions set forth in this Agreement that are required to
                    be complied with or performed by the Company on or before
                    the Closing;

          5.1.3     the Closing Date shall occur on a date that is not later
                    than June 28, 2000;

          5.1.4     the Company shall have delivered to the Purchaser a
                    certificate, signed by an officer of the Company, certifying
                    that (i) that the representations and warranties of the
                    Company set forth herein are true and correct as of the
                    Closing Date and (ii) the other conditions specified in this
                    paragraph 5.1 have been fulfilled as of the Closing, it
                    being understood that the Purchaser may rely on such
                    certificate as though it were a representation and warranty
                    of the Company made herein;

          5.1.5     the Company shall have delivered to the Purchaser an
                    opinion of counsel for the Company, dated as of such date,
                    in substantially the form set forth on Exhibit 5.1.5 hereto;

          5.1.6     the Company shall have delivered to the Purchaser duly
                    executed certificates representing the Preferred Shares and
                    Warrant being purchased by the Purchaser against payment of
                    the Purchase Price as specified in paragraph 1.1 above;

          5.1.7     the Company shall have executed and delivered the
                    Registration Rights Agreement;

          5.1.8     the Common Stock shall be listed for trading on the Nasdaq
                    National Market and no suspension of trading in the Common
                    Stock on such exchange shall have occurred and be continuing
                    as of the Closing Date;

          5.1.9     the Company shall have authorized and reserved for
                    issuance the number of shares of Common Stock required to be
                    reserved under

                                      -15-
<PAGE>

                    paragraph 4.5 hereof, and shall have provided
                    the Purchaser with reasonable evidence thereof;

          5.1.10    the Company shall have delivered to the Purchaser the
                    Management Restriction Agreements duly executed by each Key
                    Employee;

          5.1.11    the Company shall have delivered to the Purchaser proposed
                    "final" drafts of each Schedule to this Agreement, together
                    with a proposed "final draft" of the opinion required by
                    5.5.1, no later than the close of business on June 26, 2000;
                    and

          5.1.12    the Company shall have received from its outside auditors
                    an unqualified opinion for inclusion in the Company's Form
                    10-K for the fiscal year ended March 31, 2000.

  5.2  Conditions to Company's Obligations at the Closing.  The Company's
       ---------------------------------------------------
obligations at the Closing are conditioned upon the satisfaction (or waiver by
the Company) of each of the following events as of the Closing Date:

          5.2.1     the representations and warranties of the Purchaser shall
                    be true and correct in all material respects as of such date
                    as if made on such date; and

          5.2.2     the Purchaser shall have complied with or performed in all
                    material respects all of the agreements, obligations and
                    conditions set forth in this Agreement that are required to
                    be complied with or performed by the Purchaser on or before
                    the Closing.

6.  MISCELLANEOUS.
    -------------

  6.1  Survival.  The representations and warranties made by the parties herein
       --------
shall survive the Closing notwithstanding any due diligence investigation made
by or on behalf of the party seeking to rely thereon.  In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that in such case the
parties shall negotiate in good faith to replace such provision with a new
provision which is not illegal, unenforceable or void, as long as such new
provision does not materially change the economic benefits of this Agreement to
the parties.

  6.2  Successors and Assigns.  The terms and conditions of this Agreement shall
       ----------------------
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the

                                      -16-
<PAGE>

parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
permitted assigns any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided in this Agreement. The
Purchaser may assign its rights and obligations hereunder, in connection with
any private sale or transfer of Securities pursuant to Section 2.4, as long as,
as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term "Purchaser" shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto. The
Company may not assign it rights or obligations under this Agreement except as
may be specifically provided by this Agreement or the other Transaction
Documents.

  6.3  No Reliance.  Each party acknowledges that (i) it has such knowledge in
       -----------
business and financial matters as to be fully capable of evaluating this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby, (ii) it is not relying on any advice or representation of
the other party in connection with entering into this Agreement, the other
Transaction Documents or such transactions (other than the representations made
in this Agreement or the other Transaction Documents), (iii) it has not received
from such party any assurance or guarantee as to the merits (whether legal,
regulatory, tax, financial or otherwise) of entering into this Agreement or the
other Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the advice of
its advisors as it has deemed necessary, and not on any view (whether written or
oral) expressed by such party.

  6.4   Injunctive Relief.  The Company acknowledges that a breach by it of its
        -----------------
obligations hereunder will cause irreparable harm to the Purchaser and that the
remedy or remedies at law for any such breach will be inadequate and agrees, in
the event of any such breach, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate and specific
performance of such obligations without the necessity of showing economic loss.

  6.5  Governing Law; Jurisdiction.  This Agreement shall be governed by and
       ---------------------------
construed under the laws of the State of Delaware without regard to the conflict
of laws provisions thereof. Each party hereby irrevocably submits to the non-
exclusive jurisdiction of the state and federal courts sitting in the County of
New Castle, Delaware, for the adjudication of any dispute hereunder or under any
Transaction Document or the Certificate of Designation or in connection herewith
or therewith or with any transaction contemplated hereby or thereby or discussed
herein or therein, 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
brought in an inconvenient forum or that the venue of such suit,

                                      -17-
<PAGE>

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 (certified or registered mail, return
receipt requested) 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.

  6.6  Counterparts.  This Agreement may be executed in any number of
       ------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

  6.7  Headings; Drafting.  The headings used in this Agreement are used for
       ------------------
convenience only and are not to be considered in construing or interpreting this
Agreement.  The parties shall be deemed to have participated jointly in the
drafting of this Agreement and the other Transaction Documents, and no provision
hereof or thereof shall be construed against any party as the drafter thereof.

  6.8  Notices.  Any notice, demand or request required or permitted to be given
       -------
by any party to any other party pursuant to the terms of this Agreement shall be
in writing and shall be deemed given (i) when delivered personally or by
verifiable facsimile transmission (with an original to follow) on or before 5:00
p.m., eastern time, on a Business Day or, if such day is not a Business Day, on
the next succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) on the Business
Day actually received if deposited in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed to the parties as
follows:

  If to the Company:

  Pilot Network Services, Inc.
  1080 Marina Village Parkway
  Alameda, California 94501
  Attn: Chief Financial Officer
  Tel: (510) 433-7800
  Fax: (510)

  with a copy to:

  Heller Ehrman White & McAuliffe LLP
  333 Bush Street
  San Francisco, California  94104
  Attn:  Timothy G. Hoxie

                                      -18-
<PAGE>

  Tel:  (415) 772-6000
  Fax:  (415) 772-6268

  if to the Purchaser

  Marshall Capital Management, Inc.
  11 Madison Avenue - 7th Floor
  New York, New York 10010
  Attn:  Allan Weine
  Tel:   (212) 325-0038/(312) 750-3239
  Fax:   (212) 325-6519/(312) 750-1031

  with a copy to:

  Solomon, Zauderer, Ellenhorn, Frischer & Sharp
  45 Rockefeller Plaza
  New York, New York 10111
  Attn:  Robert L. Mazzeo
  Tel:   (212) 956-3700
  Fax:   (212) 956-4068

A party may change the address to be used for delivery of notices to it
hereunder by delivering written notice of such change to each other party in the
manner indicated in this paragraph 6.8.

  6.9  Expenses.  The Company and the Purchaser each shall pay all costs and
       --------
expenses that it incurs in connection with the negotiation, execution, delivery
and performance of this Agreement; provided, however, that the Company shall
                                   --------  -------
reimburse the Purchaser at the Closing for the out-of-pocket expenses (including
without limitation reasonable legal fees and expenses) incurred by it in
connection its due diligence investigation of the Company and the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transaction Documents up to the amount of forty thousand dollars ($40,000), such
amount to be debited from the Purchase Price payable by the Purchaser at the
Closing.

  6.10  Entire Agreement; Amendments; Waiver.  This Agreement and the other
        ------------------------------------
Transaction Documents constitute the entire agreement between the parties with
regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties.  Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the Purchaser.

                                      -19-
<PAGE>

                  [Remainder of Page Intentionally Left Blank]

                                      -20-
<PAGE>

        IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.

PILOT NETWORK SERVICES, INC.

By: /s/ M. Marketta Silvera
    ________________________
    Name:
    Title:

MARSHALL CAPITAL MANAGEMENT, INC.

By: /s/ Allan Weine
    ________________________
     Allan Weine, President

                                      -21-SUBSCRIPTION AGREEMENT

Dear Subscriber:

         You (the  "Subscriber")  hereby  agree to purchase,  and Endovasc  Ltd.
Inc., a Nevada corporation (the "Company") hereby agrees to issue and to sell to
the  Subscriber,  the  number of shares  of Series A 8%  Cumulative  Convertible
Preferred  Stock,  $.001  par  value  (the  "Preferred  Stock")  convertible  in
accordance  with the terms thereof into shares of the Company's  $.001 par value
common stock (the "Company  Shares") as set forth on the  signature  page hereof
for the  aggregate  consideration  as set  forth on the  signature  page  hereof
("Purchase Price").  The Certificate to Set Forth  Designations,  Voting Powers,
Preferences,  Limitations,  Restrictions,  and  Relative  Rights  of Series A 8%
Cumulative  Convertible  Preferred  Stock,  $.001 Par Value Per Share is annexed
hereto as Exhibit A  ("Certificate  of  Designation").  (The Company  Shares are
sometimes referred to herein as the "Shares" or "Common Stock").  (The Preferred
Stock, the Company Shares,  and Common Stock Purchase  Warrants  issuable to the
Warrant Recipients ("Warrants"), identified on Schedule B hereto, and the Common
Stock issuable upon exercise of the Warrants are collectively referred to herein
as, the "Securities").  Upon acceptance of this Agreement by the Subscriber, the
Company shall issue and deliver to the  Subscriber  the Preferred  Stock (and to
the Warrant  Recipients the Warrants)  against payment,  by federal funds (U.S.)
wire  transfer of the Purchase  Price.  This  Subscription  Agreement  and other
similar  Subscription  Agreements and the  Subscription  Agreements  relating to
Series A Preferred  Stock to be issued in  connection  with the Put described in
Section  11  hereof  relate to the  offering  of a maximum  of  45,000shares  of
Preferred Stock for the aggregate Purchase Price of $4,500,000.

     The following terms and conditions shall apply to this subscription.

     1.  Subscriber's  Representations  and  Warranties.  The Subscriber  hereby
represents and warrants to and agrees with the Company that:

          (a) Information on Company. The Subscriber has been furnished with and
     has read the  Company's  Form 10SB,  12G/A filed on April 12, 2000 with the
     U.S. Securities and Exchange  Commission (the "Commission")  (collectively,
     with  exhibits  thereto,  hereinafter  referred  to as the  "Reports").  In
     addition,   the  Subscriber  has  received  from  the  Company  such  other
     information  concerning  its  operations,  financial  condition  and  other
     matters as the  Subscriber  has  requested,  and considered all factors the
     Subscriber  deems material in deciding on the  advisability of investing in
     the Securities  (such  information in writing is  collectively,  the "Other
     Written Information").

          (b)  Information  on  Subscriber.  The  Subscriber  is an  "accredited
     investor",  as such term is  defined in  Regulation  D  promulgated  by the
     Commission under the Securities Act of 1933, as amended,  is experienced in
     investments  and business  matters,  has made  investments of a speculative
     nature  and  has  purchased  securities  of  United  States  publicly-owned
     companies in private placements in the past and, with its  representatives,
     has such  knowledge and  experience in  financial,  tax and other  business
     matters  as to enable  the  Subscriber  to  utilize  the  information  made
     available by the Company to evaluate the merits and risks of and to make an
     informed investment  decision with respect to the proposed purchase,  which
     represents a speculative  investment.  The Subscriber has the authority and
     is duly and legally  qualified  to  purchase  and own the  Securities.  The
     Subscriber  is able to bear the risk of such  investment  for an indefinite
     period and to afford a complete loss thereof.
<PAGE>
          (c) Purchase of Company  Shares.  On the Closing Date,  the Subscriber
     will purchase the Preferred  Stock and Warrants for its own account and not
     with a view to any distribution thereof.

          (d) Compliance  with  Securities  Act. The Subscriber  understands and
     agrees that the Securities  have not been  registered  under the Securities
     Act of 1933,  as amended (the "1933 Act") by reason of their  issuance in a
     transaction that does not require registration under the 1933 Act, and that
     such Securities must be held unless a subsequent  disposition is registered
     under the 1933 Act or is exempt from such registration.

          (e) Preferred  Stock and Company Shares Legend.  The Preferred  Stock,
     Company  Shares,  and the shares of Common Stock issuable upon the exercise
     of the Warrants shall bear the following legend:

                  "THE  SHARES  REPRESENTED  BY THIS  CERTIFICATE  HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
                  SHARES  MAY  NOT  BE  SOLD,   OFFERED  FOR  SALE,  PLEDGED  OR
                  HYPOTHECATED  IN  THE  ABSENCE  OF AN  EFFECTIVE  REGISTRATION
                  STATEMENT OR AN OPINION OF COUNSEL REASONABLY  SATISFACTORY TO
                  ENDOVASC LTD. THAT SUCH REGISTRATION IS NOT REQUIRED."

          (f) Warrants Legend. The Warrants shall bear the following legend:

                  "THIS WARRANT AND THE COMMON SHARES  ISSUABLE UPON EXERCISE OF
                  THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
                  WARRANT AND THE COMMON  SHARES  ISSUABLE UPON EXERCISE OF THIS
                  WARRANT  MAY  NOT  BE  SOLD,  OFFERED  FOR  SALE,  PLEDGED  OR
                  HYPOTHECATED  IN  THE  ABSENCE  OF AN  EFFECTIVE  REGISTRATION
                  STATEMENT  AS TO THIS  WARRANT  UNDER SAID ACT AND  APPLICABLE
                  STATE  SECURITIES  LAWS OR AN OPINION  OF  COUNSEL  REASONABLY
                  SATISFACTORY  TO ENDOVASC LTD. THAT SUCH  REGISTRATION  IS NOT
                  REQUIRED."

          (g)  Communication  of  Offer.  The offer to sell the  Securities  was
     directly  communicated  to the  Subscriber.  At no time was the  Subscriber
     presented with or solicited by any leaflet,  newspaper or magazine article,
     radio or television advertisement, or any other form of general advertising
     or solicited or invited to attend a promotional  meeting  otherwise than in
     connection and concurrently with such communicated offer.

          (h) Correctness of Representations. The Subscriber represents that the
     foregoing  representations  and  warranties  are true and correct as of the
     date hereof, must be true as of the Closing Date (as hereinafter  defined),
     and unless the  Subscriber  otherwise  notifies  the  Company  prior to the
     Closing  Date,  shall be true  and  correct  as of the  Closing  Date.  The
     foregoing representations and warranties shall survive the Closing Date.
<PAGE>
     2. Company  Representations  and  Warranties.  The Company  represents  and
warrants to and agrees with the Subscriber that:

          (a)  Due   Incorporation.   Each  of  the  Company  and  each  of  its
     subsidiaries is a corporation  duly organized,  and validly  existing under
     the laws of the state of its incorporation and has the requisite  corporate
     power  to own its  properties  and to carry on its  business  as now  being
     conducted.  The Company and each of its subsidiaries is duly qualified as a
     foreign  corporation  to do  business  and  is in  good  standing  in  each
     jurisdiction  where the nature of the business  conducted or property owned
     by it makes such qualification necessary, other than those jurisdictions in
     which the failure to so qualify would not have a material adverse effect on
     the business, operations or prospects or condition (financial or otherwise)
     of the Company.

          (b) Outstanding  Stock.  All issued and outstanding  shares of capital
     stock of the Company and each of its  subsidiaries has been duly authorized
     and validly issued and are fully paid and non-assessable.

          (c)   Authority;   Enforceability.   This   Agreement  has  been  duly
     authorized,  executed  and  delivered  by the  Company  and is a valid  and
     binding  agreement  enforceable  in accordance  with its terms,  subject to
     bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
     similar laws of general  applicability  relating to or affecting creditors'
     rights generally and to general  principles of equity;  and the Company has
     full corporate  power and authority  necessary to enter into this Agreement
     and to perform its obligations  hereunder and all other agreements  entered
     into by the Company relating hereto.

          (d)  Additional  Issuances.  Except  as  described  on the  Disclosure
     Schedule annexed hereto, there are no outstanding  agreements or preemptive
     or similar rights  affecting the Company's  common stock and no outstanding
     rights,  warrants or options to acquire, or instruments convertible into or
     exchangeable for, or agreements or understandings  with respect to the sale
     or issuance of any shares of common stock or equity of the Company or other
     equity  interest  in any of the  subsidiaries  of the  Company,  except  as
     described in the Reports or Other Written Information.

          (e)  Consents.  No consent,  approval,  authorization  or order of any
     court,  governmental  agency or body or arbitrator having jurisdiction over
     the  Company,  or  any  of  its  affiliates  or  NASDAQ  or  the  Company's
     Shareholders  is required for  execution of this  Agreement,  and all other
     agreements entered into by the Company relating hereto, including,  without
     limitation issuance and sale of the Securities,  and the performance of the
     Company's obligations hereunder.

          (f)  No  Violation  or  Conflict.  Assuming  the  representations  and
     warranties  of the  Subscriber  in Paragraph 1 are true and correct and the
     Subscriber complies with its obligations under this Agreement,  neither the
     issuance and sale of the Securities nor the  performance of its obligations
     under this Agreement and all other  agreements  entered into by the Company
     relating thereto by the Company will:

               (i) violate,  conflict with, result in a breach of, or constitute
          a default (or an event which with the giving of notice or the lapse of
          time or both would be reasonably likely to constitute a default) under
          (A) the articles of  incorporation,  charter or bylaws of the Company,
          or any of its affiliates,  (B) to the Company's knowledge, any decree,
          judgment,  order,  law,  treaty,  rule,  regulation  or  determination
          applicable  to the  Company,  or any of its  affiliates  of any court,
          governmental  agency or body, or arbitrator  having  jurisdiction over
          the Company, or any of its affiliates or over the properties or assets
          of the Company,  or any of its affiliates,  (C) the terms of any bond,
          debenture,  note  or  any  other  evidence  of  indebtedness,  or  any
          agreement,  stock  option or other  similar  plan,  indenture,  lease,
          mortgage,  deed of trust or other instrument to which the Company,  or
          any of its affiliates is a party, by which the Company,  or any of its
          affiliates is bound, or to which any of the properties of the Company,
          or any of its affiliates is subject, or (D) the terms of any "lock-up"
          or similar provision of any underwriting or similar agreement to which
          the Company, or any of its affiliates is a party; or
<PAGE>
               (ii) result in the creation or imposition of any lien,  charge or
          encumbrance  upon the  Securities or any of the assets of the Company,
          or any of its affiliates.

          (g) The Securities. The Securities upon issuance:

               (i) are,  or will be, free and clear of any  security  interests,
          liens,  claims or other  encumbrances,  subject to  restrictions  upon
          transfer under the 1933 Act and State laws;

               (ii) have been,  or will be, duly and validly  authorized  and on
          the date of issuance and on the Closing Date, as hereinafter  defined,
          and the date the Preferred  Stock is  converted,  and the Warrants and
          Placement  Warrants are  exercised,  the  Securities  will be duly and
          validly  issued,  fully  paid  and  nonassessable  (and if  registered
          pursuant  to  the  1933  Act,  and  resold  pursuant  to an  effective
          registration  statement will be free trading and unrestricted provided
          the Subscriber complies with the Prospectus delivery requirements);

               (iii)  will not have  been  issued  or sold in  violation  of any
          preemptive or other similar rights of the holders of any securities of
          the Company;

               (iv) will not subject the holders  thereof to personal  liability
          by reason of being such holders; and

          (h)  Litigation.  There is no pending or, to the best knowledge of the
     Company,  threatened action,  suit,  proceeding or investigation before any
     court,  governmental agency or body, or arbitrator having jurisdiction over
     the Company,  or any of its  affiliates  that would affect the execution by
     the Company or the performance by the Company of its obligations under this
     Agreement,  and all other  agreements  entered into by the Company relating
     hereto.

          (i) Reporting  Company.  The Company is a publicly-held  company whose
     common stock is (and has been for the past 90 days) registered  pursuant to
     Section  12(g) of the  Securities  Exchange  Act of 1934,  as amended  (the
     "Exchange  Act").  The Company's  Common Stock is listed for trading on the
     NASD OTC Bulletin  Board.  Pursuant to the  provisions of the Exchange Act,
     the Company has timely filed all reports and other materials required to be
     filed  thereunder  with the Securities and Exchange  Commission  during the
     preceding twelve months.

          (j) No Market  Manipulation.  The Company has not taken,  and will not
     take,  directly  or  indirectly,  any  action  designed  to, or that  might
     reasonably be expected to, cause or result in stabilization or manipulation
     of the price of the common stock of the Company to  facilitate  the sale or
     resale of the Securities or affect the price at which the Securities may be
     issued.

          (k)  Information  Concerning  Company.  The Reports and Other  Written
     Information  contain all material  information  relating to the Company and
     its operations and financial  condition as of their  respective dates which
     information is required to be disclosed therein. Since the date of the most
     recent financial statements included in the Reports, and except as modified
     in the Other Written Information, there has been no material adverse change
     in the Company's business,  financial condition or affairs not disclosed in
     the Reports.  The Reports and Other Written  Information do not contain any
     untrue  statement  of a  material  fact or omit to  state a  material  fact
     required to be stated therein or necessary to make the  statements  therein
     not misleading.
<PAGE>
          (l) Dilution.  The number of Shares  issuable  upon  Conversion of the
     Preferred Stock (as defined in the Certificate of Designation) may increase
     substantially  in certain  circumstances,  including,  but not  necessarily
     limited to, the circumstance  wherein the trading price of the Common Stock
     declines  prior  to  conversion  of  the  Preferred  Stock.  The  Company's
     executive  officers and  directors  have studied and fully  understand  the
     nature of the  Securities  being sold hereby and recognize that they have a
     potential  dilutive  effect.  The board of  directors  of the  Company  has
     concluded,  in its good faith business  judgment,  that such issuance is in
     the best interests of the Company.  The Company  specifically  acknowledges
     that its  obligation  to issue the Shares upon  conversion of the Preferred
     Stock  and  exercise  of the  Warrants  is  binding  upon the  Company  and
     enforceable,  except as otherwise described in this Subscription Agreement,
     regardless  of the  dilution  such  issuance  may  have  on  the  ownership
     interests of other shareholders of the Company.

          (m)Stop Transfer.  The Securities are restricted  securities as of the
     date of this Agreement.  The Company will not issue any stop transfer order
     or other order  impeding  the sale and delivery of the  Securities  at such
     time as the  Securities are registered for public sale or an exemption from
     registration is available.

          (n) Defaults.  Neither the Company nor any of its  subsidiaries  is in
     violation of its Articles of Incorporation  or Bylaws.  Neither the Company
     nor any of its  subsidiaries is (i) in default under or in violation of any
     other  material  agreement or instrument to which it is a party or by which
     it or any of its  properties  are  bound  or  affected,  which  default  or
     violation  would have a material  adverse  effect on the  Company,  (ii) in
     default with respect to any order of any court,  arbitrator or governmental
     body or  subject  to or party to any  order  of any  court or  governmental
     authority  arising out of any action,  suit or proceeding under any statute
     or other law respecting  antitrust,  monopoly,  restraint of trade,  unfair
     competition or similar  matters,  or (iii) to its knowledge in violation of
     any statute,  rule or regulation of any governmental  authority material to
     its business.

          (o) No  Integrated  Offering.  Neither  the  Company,  nor  any of its
     affiliates,  nor any person acting on its or their behalf,  has directly or
     indirectly made any offers or sales of any security or solicited any offers
     to buy any security  under  circumstances  that would cause the offering of
     the  Securities  pursuant to this  Agreement  to be  integrated  with prior
     offerings  by the  Company for  purposes of the 1933 Act or any  applicable
     stockholder approval provisions,  including,  without limitation, under the
     rules and  regulations  of The NASDAQ  National  Market  ("NASDAQ  National
     Market"),  as applicable,  nor will the Company or any of its affiliates or
     subsidiaries  take any action or steps that would cause the offering of the
     Securities to be integrated with other offerings.

          (p) No  General  Solicitation.  Neither  the  Company,  nor any of its
     affiliates, nor to its knowledge, any person acting on its or their behalf,
     has  engaged in any form of  general  solicitation  or general  advertising
     (within the meaning of Regulation D under the Act) in  connection  with the
     offer or sale of the Securities.

          (q) Listing.  The Company's  common stock is quoted on, and listed for
     trading on NASD OTC Bulletin Board ("Bulletin Board").  The Company has not
     received  any oral or written  notice  from the NASD that its Common  Stock
     will be delisted from the Bulletin  Board or that the Common Stock does not
     meet all requirements for the continuation of such listing.
<PAGE>
          (r) Correctness of  Representations.  The Company  represents that the
     foregoing  representations  and  warranties  are true and correct as of the
     date hereof in all  material  respects  and,  unless the Company  otherwise
     notifies  the  Subscriber  prior  to the  Closing  Date,  shall be true and
     correct in all material  respects and must be true as of the Closing  Date,
     as of the Closing Date. The foregoing  representations and warranties shall
     survive the Closing Date.

     3.  Regulation  D Offering.  This  Offering  is being made  pursuant to the
exemption  from the  registration  provisions of the  Securities Act of 1933, as
amended,  afforded by Rule 506 of  Regulation D promulgated  thereunder.  On the
Closing Date, the Company will provide an opinion  acceptable to Subscriber from
the Company's  legal counsel  opining on the  availability  of the  Regulation D
exemption as it relates to the offer and issuance of the  Securities.  A form of
the legal opinion is annexed  hereto as Exhibit C. The Company will provide,  at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Preferred Stock and Warrants.

     4.  Reissuance of Securities.  The Company  agrees to reissue  certificates
representing  the Securities  without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder  thereof  is  permitted  to dispose of
such  Securities  pursuant  to Rule  144(k)  under the Act,  or (b) upon  resale
subject  to  an  effective  registration  statement  after  the  Securities  are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales  pursuant to Rule 144(d) and Rule 144(k) and provide
legal  opinions  necessary  to allow such  resales  provided the Company and its
counsel receive  reasonably  requested  representations  from the Subscriber and
selling broker, if any.

     5.  Redemption.  The  Company  may not redeem the  Securities  without  the
consent of the holder of the Securities,  except as described in the Certificate
of Designation.

     6. Commissions/Fees.  The Company will pay a cash commission of ten percent
(10%) of the Purchase  Price  designated on the signature page hereto to certain
Placement Agents  identified on Schedule B hereto.  The cash commissions will be
payable out of funds held  pursuant to a Funds  Escrow  Agreement  to be entered
into by the Company, Subscriber and an Escrow Agent. The Company will also issue
and deliver to the Warrant Recipients  Warrants designated on Schedule B hereto.
The  Commissions  and  Warrants  will  be  issued  only  when,  as,  and  if the
corresponding  subscription  amount is released from escrow to the Company.  All
the representations,  covenants, warranties and undertakings,  including but not
limited to  registration  rights  made or  granted to or for the  benefit of the
Subscriber and the terms  described in Sections 9.2, 9.3, 9.4 and 9.5 hereof are
hereby also made and granted to the Placement  Agents in respect of the Warrants
and Company Shares issuable upon exercise of the Warrants.  The Company will pay
a fee of  $22,500  to the  attorney  for  the  Subscribers  in  connection  with
$1,500,000 of subscriber funds to which this  Subscription  Agreement relates of
which $10,000 has been paid. The Company will  reimburse the parties  identified
on Schedule B hereto in the aggregate amount of $10,000 ("Reimbursement").

     7.  Covenants of the  Company.  The Company  covenants  and agrees with the
Subscriber as follows:

          (a) The Company will advise the Subscriber, promptly after it receives
     notice of issuance by the  Securities  and Exchange  Commission,  any state
     securities  commission or any other regulatory  authority of any stop order
     or of any order  preventing or suspending any offering of any securities of
     the Company,  or of the suspension of the qualification of the common stock
     of the Company for offering or sale in any jurisdiction,  or the initiation
     of any proceeding for any such purpose.
<PAGE>
          (b) The  Company  shall  promptly  secure the  listing of the  Company
     Shares,  and Common  Stock  issuable  upon the exercise of the Warrants and
     Placement  Warrants upon each national  securities  exchange,  or automated
     quotation system, if any, upon which shares of common stock are then listed
     (subject to official notice of issuance) and shall maintain such listing so
     long as any other shares of common stock of the Company shall be so listed.
     The Company  will use its best  efforts to maintain the listing and trading
     of its Common Stock on the Bulletin Board,  and will comply in all respects
     with the Company's reporting, filing and other obligations under the bylaws
     or rules of the National  Association  of Securities  Dealers  ("NASD") and
     such  exchanges,  as  applicable.  The Company will provide the  Subscriber
     copies of all  notices  it  receives  notifying  the  Company of the actual
     delisting of the Common Stock on any exchange or quotation  system on which
     the Common Stock is listed.

          (c) The  Company  shall  notify  the SEC,  NASD and  applicable  state
     authorities,  in accordance with their  requirements,  of the  transactions
     contemplated by this Agreement,  and shall take all other necessary  action
     and  proceedings  as may be required and permitted by applicable  law, rule
     and  regulation,  for the legal and valid issuance of the Securities to the
     Subscriber  and Placement  Agents and promptly  provide  copies  thereof to
     Subscriber.

          (d)  Until at least  two (2)  years  after  the  effectiveness  of the
     Registration  Statement on Form SB-2 or such other  Registration  Statement
     described in Section 10.1(iv) hereof, the Company will (i) cause its Common
     Stock to continue to be  registered  under  Sections  12(b) or 12(g) of the
     Exchange  Act,  (ii) comply in all respects  with its  reporting and filing
     obligations  under  the  Exchange  Act,  (iii)  comply  with all  reporting
     requirements  that  is  applicable  to an  issuer  with a class  of  Shares
     registered  pursuant to Section  12(g) of the Exchange Act, and (iv) comply
     with all requirements related to any registration  statement filed pursuant
     to this  Agreement.  The  Company  will  not take  any  action  or file any
     document  (whether or not  permitted  by the Act or the Exchange Act or the
     rules thereunder) to terminate or suspend such registration or to terminate
     or suspend its reporting and filing  obligations  under said Acts until the
     later of (y) two (2) years  after the  effective  date of the  Registration
     Statement on Form SB-2 or such other  Registration  Statement  described in
     Section  10.1(iv)  hereof,  or (z) the sale by the  Subscribers and Warrant
     Recipients of all the Company  Shares  issuable by the Company  pursuant to
     this  Agreement.  Until at least two (2) years after the Warrants have been
     exercised, the Company will use its commercial best efforts to continue the
     listing  or trading of its  Common  Stock on the  Bulletin  Board or NASDAQ
     SmallCap  Market  and  will  comply  in all  respects  with  the  Company's
     reporting,  filing and other  obligations  under the bylaws or rules of the
     NASD and NASDAQ.

          (e) The Company  undertakes  to use the  proceeds of the  Subscriber's
     funds for working capital and expenses of this offering.

     8. Covenants of the Company and Subscriber Regarding Idemnifications.

          (a) The Company  agrees to  indemnify,  hold  harmless,  reimburse and
     defend Subscriber against any claim, cost, expense, liability,  obligation,
     loss or damage (including reasonable legal fees) of any nature, incurred by
     or imposed upon  Subscriber  which results,  arises out of or is based upon
     (i) any  misrepresentation  by Company or breach of any warranty by Company
     in this  Agreement  or in any  Exhibits or Schedules  attached  hereto,  or
     Reports  or other  Written  Information;  or (ii) any  breach or default in
     performance  by Company of any covenant or  undertaking  to be performed by
     Company  hereunder,  or any other agreement entered into by the Company and
     Subscribers relating hereto.

<PAGE>
          (b)  Subscriber  agrees to  indemnify,  hold  harmless,  reimburse and
     defend  the  Company  at  all  times  against  any  claim,  cost,  expense,
     liability,  obligation, loss or damage (including reasonable legal fees) of
     any nature,  incurred by or imposed upon the Company which results,  arises
     out of or is based upon (a) any  misrepresentation  by  Subscriber  in this
     Agreement  or in any  Exhibits or  Schedules  attached  hereto;  or (b) any
     breach  or  default  in  performance  by  Subscriber  of  any  covenant  or
     undertaking to be performed by Subscriber hereunder, or any other agreement
     entered into by the Company and Subscribers relating hereto.

          (c) The  procedures  set  forth in  Section  10.6  shall  apply to the
     indemnifications set forth in Sections 8(a) and 8(b) above.

     9.1. Conversion/Liquidated Damages.

          (a) The  Preferred  Stock and accrued  dividends  will be  convertible
     according to the procedure set forth in the Certificate of Designation.

          (b) The  Company  understands  that a  delay  in the  delivery  of the
     Company  Shares  after   Conversion,   and  delivery  of  Preferred   Stock
     certificates  representing  the  unconverted  balance of a Preferred  Stock
     certificate  tendered for  conversion  beyond the date  described  for such
     delivery set forth in the Certificate of Designation, or late delivery of a
     Mandatory Redemption Payment (as defined herein), as the case may be, (each
     of the  foregoing a "Delivery  Date") could result in economic  loss to the
     Subscriber.  As  compensation  to the Subscriber for such loss, the Company
     agrees to pay late payments to the  Subscriber  for late delivery of Shares
     upon Conversion and late delivery of a Preferred Stock  certificate for the
     unconverted  portion of  Preferred  Stock or late  delivery  of a Mandatory
     Redemption  Payment,  in the  amount  of $75 per  business  day  after  the
     Delivery  Date for each $10,000 of Stated  Value of  Preferred  Stock being
     converted  and  Preferred  Stock  certificate   remaining   undelivered  or
     Mandatory  Redemption  Payment not paid. The Company shall pay any payments
     incurred  under this Section in  immediately  available  funds upon demand.
     Furthermore,  in addition to any other  remedies  which may be available to
     the  Subscriber,  in the event  that the  Company  fails for any  reason to
     effect delivery of the Shares within three business days after the Delivery
     Date,  the  Subscriber  will be entitled to revoke the  relevant  Notice of
     Conversion by delivery of a notice of  revocation to the Company  whereupon
     the Company and the Subscriber  shall each be restored to their  respective
     positions  immediately  prior to the delivery of such notice of revocation,
     except that late payment  charges  described above shall be payable through
     the date notice of revocation is given to the Company.

          (c) Nothing  contained herein or in any document referred to herein or
     delivered in  connection  herewith  shall be deemed to establish or require
     the payment of a rate of interest or other charges in excess of the maximum
     permitted  by  applicable  law.  In the event that the rate of  interest or
     dividends required to be paid or other charges hereunder exceed the maximum
     permitted  by such law,  any  payments in excess of such  maximum  shall be
     credited  against  amounts owed by the Company to the  Subscriber  and thus
     refunded to the Company.
<PAGE>
     9.2. Mandatory Redemption. In the event the Company may not issue Shares on
a Delivery Date for any reason (except in relation to the Shares not deliverable
pursuant  to  Section  9.3  of  this  Subscription   Agreement),   then  at  the
Subscriber's  election,  the Company must pay to the  Subscriber on the Delivery
Date a sum of money  determined  by the  greater of (i)  multiplying  the Stated
Value of  Preferred  Stock not  convertible  by 130%  together  with accrued but
unpaid dividends  thereon;  or (ii) the closing bid price of the common stock as
reported by the Bulletin Board or the principal  exchange or market where traded
for the  Delivery  Date  multiplied  by the  amount of Shares  not  deliverable,
together  with  accrued but unpaid  dividends  thereon,  ("Mandatory  Redemption
Payment").  The Mandatory  Redemption Payment must be received by the Subscriber
on the same date as the Company Shares  otherwise  deliverable.  Upon receipt of
the Mandatory  Redemption  Payment,  the  corresponding  Preferred Stock will be
cancelled and no longer  outstanding,  and if the Holder is in possession of the
corresponding Preferred Stock, same will be returned to the Company.

     9.3. Maximum  Conversion.  The Company and Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Preferred Stock in connection
with that  number of shares of Common  Stock which would be in excess of the sum
of (i) the number of shares of Common Stock beneficially owned by the Subscriber
and its affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Preferred  Stock with respect to which
the  determination  of this  proviso is being made on a Conversion  Date,  which
would result in beneficial  ownership by the  Subscriber  and its  affiliates of
more than 9.99% of the  outstanding  shares of Common Stock of the Company.  For
the purposes of the proviso to the immediately  preceding  sentence,  beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended,  and Regulation  13d-3  thereunder,  except as
otherwise provided in clause (i) of such proviso.  The Subscriber may revoke the
restriction  described  in  this  paragraph  upon 75 days  prior  notice  to the
Company.  The  Subscriber may allocate which of the equity of the Company deemed
beneficially  owned by the  Subscriber  shall  be  included  in the 9.9%  amount
described above and which shall be allocated to the excess above 9.99%.

     9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect to
convert  Preferred  Stock and/or accrued  dividends,  the Company may not refuse
conversion  based on any claim that such  Subscriber  or any one  associated  or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason unless, an injunction from a court, on notice,  restraining and
or enjoining  conversion of all or part of said Preferred Stock and/or dividends
shall have been sought and obtained and the Company  posts a surety bond for the
benefit  of such  Subscriber  in the  amount of 150% of the amount of the stated
value of the  Preferred  Stock  which is subject to the  injunction,  which bond
shall remain in effect until the  completion  of  arbitration/litigation  of the
dispute and the  proceeds of which  shall be payable to such  Subscriber  to the
extent it obtains judgment.

     9.5.  Buy-In.  In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber  Company Shares  issuable upon
conversion of Preferred Stock and/or dividends by the Delivery Date and if after
the Delivery Date the  Subscriber  purchases (in an open market  transaction  or
otherwise)  shares of common stock to deliver in  satisfaction of a sale by such
Subscriber of the Company Shares which the Subscriber anticipated receiving upon
such  conversion  (a  "Buy-In"),  then  the  Company  shall  pay in  cash to the
Subscriber  (in  addition  to  any  remedies  available  to or  elected  by  the
Subscriber)  the  amount  by which (A) the  Subscriber's  total  purchase  price
(including  brokerage  commissions,  if any) for the  shares of common  stock so
purchased  exceeds (B) the  aggregate  stated value of the  Preferred  Stock for
which such conversion was not timely honored,  together with interest thereon at
a rate of 15% per annum,  accruing  until such amount and any  accrued  interest
thereon is paid in full (which  amount shall be paid as  liquidated  damages and
not as a penalty).  For example,  if the Subscriber  purchases  shares of common
stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted  conversion  of $10,000 of stated  value of Preferred  Stock and/or
dividends,  the Company  shall be required to pay the  Subscriber  $1,000,  plus
interest. The Subscriber shall provide the Company written notice indicating the
amounts payable to the Subscriber in respect of the Buy-In.

     10.1.   Registration  Rights.  The  Company  hereby  grants  the  following
registration rights to holders of the Securities.
<PAGE>
          (i) On one occasion, for a period commencing 91 days after the Closing
     Date,  but not later than three years after the Closing Date,  the Company,
     upon a written  request  therefor from any record holder or holders of more
     than 50% of the aggregate of the Company's  Shares issued and issuable upon
     Conversion of the Preferred Stock issued in the Company's offering of up to
     $1,500,000  of  stated  value of  Preferred  Stock on the  same  terms  and
     conditions as in this Subscription Agreement (the Securities and securities
     issued or issuable by virtue of ownership of the Securities,  including the
     Put Securities, are the "Registrable  Securities"),  shall prepare and file
     with  the  SEC  a  registration   statement  under  the  Act  covering  the
     Registrable  Securities which are the subject of such request,  unless such
     Registrable  Securities  are  the  subject  of  an  effective  registration
     statement. In addition, upon the receipt of such request, the Company shall
     promptly give written notice to all other record holders of the Registrable
     Securities  that  such  registration  statement  is to be filed  and  shall
     include in such registration  statement Registrable Securities for which it
     has received  written  requests within 10 days after the Company gives such
     written  notice.  Such other  requesting  record holders shall be deemed to
     have exercised their demand  registration right under this Section 10.1(i).
     As a condition  precedent to the inclusion of Registrable  Securities,  the
     holder  thereof  shall  provide the Company  with such  information  as the
     Company  reasonably  requests.  The  obligation  of the Company  under this
     Section 10.1(i) shall be limited to one registration statement.

          (ii) If the  Company  at any  time  proposes  to  register  any of its
     securities  under  the Act  for  sale to the  public,  whether  for its own
     account or for the account of other security  holders or both,  except with
     respect to  registration  statements  on Forms S-4, S-8 or another form not
     available  for  registering  the  Registrable  Securities  for  sale to the
     public,  provided the Registrable  Securities are not otherwise  registered
     for  resale  by  the   Subscriber  or  Holder   pursuant  to  an  effective
     registration statement, each such time it will give at least 30 days' prior
     written  notice to the record holder of the  Registrable  Securities of its
     intention so to do. Upon the written request of the holder, received by the
     Company  within 30 days after the giving of any such notice by the Company,
     to register any of the Registrable Securities,  the Company will cause such
     Registrable  Securities  as  to  which  registration  shall  have  been  so
     requested  to be  included  with  the  securities  to  be  covered  by  the
     registration  statement  proposed  to be filed by the  Company,  all to the
     extent required to permit the sale or other  disposition of the Registrable
     Securities so registered by the holder of such Registrable  Securities (the
     "Seller").  In the event that any  registration  pursuant  to this  Section
     10.1(ii) shall be, in whole or in part, an underwritten  public offering of
     common stock of the Company,  (i) Seller shall enter into the  underwriting
     agreement  with  the  underwriter,   and  (ii)  the  number  of  shares  of
     Registrable  Securities  to be  included  in  such an  underwriting  may be
     reduced by the managing  underwriter  if and to the extent that the Company
     and the underwriter  shall reasonably be of the opinion that such inclusion
     would  adversely  affect the marketing of the  securities to be sold by the
     Company  therein;  provided,  however,  that the Company  shall  notify the
     Seller in  writing  of any such  reduction.  Notwithstanding  the  forgoing
     provisions, the Company may withdraw any registration statement referred to
     in this Section  10.1(ii)  without  thereby  incurring any liability to the
     Seller.

          (iii) If, at the time any written request for registration is received
     by the Company pursuant to Section  10.1(i),  the Company has determined to
     proceed with the actual preparation and filing of a registration  statement
     under the 1933 Act in connection  with the proposed offer and sale for cash
     of any of its  securities  for the  Company's  own  account,  such  written
     request  shall be deemed to have been given  pursuant  to Section  10.1(ii)
     rather than Section  10.1(i),  and the rights of the holders of Registrable
     Securities  covered by such  written  request  shall be governed by Section
     10.1(ii) except that the Company or  underwriter,  if any, may not withdraw
     such registration or limit the amount of Registrable Securities included in
     such registration.
<PAGE>
          (iv) The Company shall file with the Commission  within 60 days of the
     Closing Date (the "Filing Date"), and use its reasonable commercial efforts
     to cause to be declared  effective a Form SB-2  registration  statement (or
     such other form that it is  eligible  to use) within 90 days of the Closing
     Date in order  to  register  the  Registrable  Securities  for  resale  and
     distribution  under the Act. The registration  statement  described in this
     paragraph must be declared  effective by the  Commission  within 120days of
     the Closing Date (as defined herein)  ("Effective  Date"). The Company will
     register  not  less  than  a  number  of  shares  of  Common  Stock  in the
     aforedescribed  registration statement that is equal to 200% of the Company
     Shares  issuable  at the  Conversion  Price  that would be in effect on the
     Closing  Date  or the  date  of  filing  of  such  registration  statement,
     whichever is greater,  assuming the  conversion of all the Preferred  Stock
     and Put Stock  set forth in the  signature  page  hereto,  and one share of
     common stock for each common share  issuable upon exercise of the Warrants,
     and Put  Warrants.  The  Registrable  Securities  shall be reserved and set
     aside exclusively for the benefit of the Subscriber and Warrant Recipients,
     as the case may be, and not issued,  employed or reserved  for anyone other
     than the Subscriber and Warrant  Recipients.  Such  registration  statement
     will be promptly  amended or  additional  registration  statements  will be
     promptly filed by the Company as necessary to register  additional  Company
     Shares to allow the  public  resale of all  Common  Stock  included  in and
     issuable by virtue of the  Registrable  Securities.  No  securities  of the
     Company  other than the  Registrable  Securities  will be  included  in the
     registration statement described in this Section 10.1(iv).

     10.2. Registration  Procedures.  If and whenever the Company is required by
the provisions  hereof to effect the  registration  of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:

          (a) prepare and file with the Commission a registration statement with
     respect  to  such  securities  and use  its  best  efforts  to  cause  such
     registration statement to become and remain effective for the period of the
     distribution  contemplated  thereby  (determined as herein  provided),  and
     promptly  provide to the holders of  Registrable  Securities  copies of all
     filings and Commission letters of comment;

          (b)  prepare  and  file  with  the  Commission   such  amendments  and
     supplements  to such  registration  statement  and the  prospectus  used in
     connection  therewith  as  may  be  necessary  to  keep  such  registration
     statement  effective until the latest of: (i) six months after the exercise
     period of the Warrants and Placement Warrants;  or (ii) two years after the
     Closing Date, and comply with the provisions of the Act with respect to the
     disposition  of  all  of  the  Registrable   Securities   covered  by  such
     registration  statement in accordance with the Seller's  intended method of
     disposition set forth in such registration statement for such period;

          (c) furnish to the Seller, and to each underwriter if any, such number
     of copies of the registration statement and the prospectus included therein
     (including  each  preliminary  prospectus)  as such persons  reasonably may
     request in order to facilitate the public sale or their  disposition of the
     securities covered by such registration statement;

          (d)  use  its  best  efforts  to  register  or  qualify  the  Seller's
     Registrable  Securities  covered by such  registration  statement under the
     securities  or "blue sky" laws of such  jurisdictions  as the Seller and in
     the case of an underwritten public offering, the managing underwriter shall
     reasonably request,  provided,  however, that the Company shall not for any
     such  purpose be required to qualify  generally  to transact  business as a
     foreign  corporation in any jurisdiction where it is not so qualified or to
     consent to general service of process in any such jurisdiction;

          (e) list  the  Registrable  Securities  covered  by such  registration
     statement  with any  securities  exchange on which the Common  Stock of the
     Company is then listed;
<PAGE>
          (f)  immediately  notify the Seller  and each  underwriter  under such
     registration  statement at any time when a prospectus  relating  thereto is
     required to be  delivered  under the Act, of the  happening of any event of
     which  the  Company  has  knowledge  as a result  of which  the  prospectus
     contained in such registration  statement,  as then in effect,  includes an
     untrue  statement  of a  material  fact or omits to state a  material  fact
     required to be stated therein or necessary to make the  statements  therein
     not misleading in light of the circumstances then existing;

          (g) make  available  for  inspection  by the Seller,  any  underwriter
     participating in any distribution pursuant to such registration  statement,
     and any  attorney,  accountant  or other  agent  retained  by the Seller or
     underwriter,  all publicly available,  non-confidential financial and other
     records,  pertinent corporate documents and properties of the Company,  and
     cause the  Company's  officers,  directors  and  employees  to  supply  all
     publicly available,  non-confidential  information  reasonably requested by
     the seller, underwriter,  attorney,  accountant or agent in connection with
     such registration statement.

     10.3. Provision of Documents.

          (a) At the request of the Seller,  provided a demand for  registration
     has been made pursuant to Section 10.1(i) or a request for registration has
     been made pursuant to Section 10.1(ii),  the Registrable Securities will be
     included in a registration statement filed pursuant to this Section 10.

          (b) In connection with each  registration  hereunder,  the Seller will
     furnish to the  Company  in writing  such  information  and  representation
     letters  with  respect to itself  and the  proposed  distribution  by it as
     reasonably  shall be necessary in order to assure  compliance  with federal
     and applicable state securities laws. In connection with each  registration
     pursuant to Section  10.1(i) or 10.1(ii)  covering an  underwritten  public
     offering,  the  Company  and the  Seller  agree  to  enter  into a  written
     agreement with the managing  underwriter  in such form and containing  such
     provisions  as are  customary  in  the  securities  business  for  such  an
     arrangement  between such  underwriter  and companies of the Company's size
     and investment stature.

     10.4.  Non-Registration  Events.  The Company and the Subscriber agree that
the Seller will suffer  damages if any  registration  statement  required  under
Section  10.1(i) or 10.1(ii)  above is not filed within 60 days after request by
the Holder and not declared  effective by the  Commission  within  120days after
such request [or the Filing Date and Effective Date, respectively,  in reference
to the  Registration  Statement  on Form SB-2 or such  other form  described  in
Section  10.1(iv)],  and  maintained  in the manner and within the time  periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such  damages with  precision.  Accordingly,  if (i) the  Registration
Statement  described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days
of such request,  or is not declared  effective by the Commission on or prior to
the date that is 120days after such request, or (ii) the registration  statement
on Form SB-2 or such other form described in Section 10.1(iv) is not filed on or
before the Filing Date or not declared  effective on or before the sooner of the
Effective Date, or within five days of receipt by the Company of a communication
from the  Commission  that  the  registration  statement  described  in  Section
10.1(iv) will not be reviewed, or (iii) any registration  statement described in
Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
thereafter  cease to be effective  (without  being  succeeded  immediately by an
additional  registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the  aggregate  per year but not more than 20
consecutive  calendar  days  (defined as a period of 365 days  commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses (i),  (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration  Event"),  then, for so long as such Non-Registration  Event
shall  continue,  the Company  shall pay in cash as  Liquidated  Damages to each
holder of any Registrable Securities an amount equal to one percent (1%) for the
<PAGE>
first   month  or  part  thereof  and  two  (2%)  percent  per  month  or   part
thereof  after the first thirty days,  of the pendency of such  Non-Registration
Event, of the stated value of the Preferred Stock, whether or not converted, and
of the aggregate  amount of the exercise prices of the Warrants,  whether or not
exercised,  then  owned of record by such  holder as of the  occurrence  of such
Non-Registration  Event. Payments to be made pursuant to this Section 10.4 shall
be due and payable  immediately  upon demand in immediately  available funds. In
the event a Mandatory  Redemption  payment is  demanded  from the Company by the
Holder  of  Preferred  Stock,  pursuant  to  Section  9.2 of  this  Subscription
Agreement,  then the Liquidated  Damages described in this Section 10.4 shall no
longer  accrue on the portion of the Purchase  Price  underlying  the  Mandatory
Redemption  Payment,  from and after the date the Holder  receives the Mandatory
Redemption  Payment.  It shall be deemed a Non-Registration  Event to the extent
that any  Shares  into  which  Preferred  Stock and Put Stock  (if  issued)  are
convertible,  assuming complete conversion of all Preferred Stock, and Put Stock
(if issued) and dividends thereon, are not included in an effective registration
statement as of and after the Effective Date at the  Conversion  Price in effect
from and after the Effective Date.

     10.5.  Expenses.  All expenses  incurred by the Company in  complying  with
Section 10,  including,  without  limitation,  all registration and filing fees,
printing  expenses,  fees and  disbursements  of counsel and independent  public
accountants for the Company,  fees and expenses  (including  reasonable  counsel
fees) incurred in connection with complying with state  securities or "blue sky"
laws, fees of the National  Association of Securities  Dealers,  Inc.,  transfer
taxes, fees of transfer agents and registrars, and costs of insurance are called
"Registration  Expenses".  All  underwriting  discounts and selling  commissions
applicable  to the  sale of  Registrable  Securities,  including  any  fees  and
disbursements  of  any  special  counsel  to the  Seller,  are  called  "Selling
Expenses". The Seller shall pay the fees of its own additional counsel, if any.

     The  Company  will pay all  Registration  Expenses in  connection  with the
registration statement under Section 10. All Selling Expenses in connection with
each  registration  statement  under Section 10 shall be borne by the Seller and
may be apportioned  among the Sellers in proportion to the number of shares sold
by the  Seller  relative  to the number of shares  sold under such  registration
statement or as all Sellers thereunder may agree.

     10.6. Indemnification and Contribution.

          (a) In the event of a registration of any Registrable Securities under
     the Act  pursuant  to  Section  10, the  Company  will  indemnify  and hold
     harmless  the  Seller,  each  officer of the Seller,  each  director of the
     Seller, each underwriter of such Registrable Securities thereunder and each
     other person,  if any, who controls such Seller or  underwriter  within the
     meaning  of  the  1933  Act,  against  any  losses,   claims,   damages  or
     liabilities,  joint or several, to which the Seller, or such underwriter or
     controlling  person may become subject under the Act or otherwise,  insofar
     as such  losses,  claims,  damages or  liabilities  (or  actions in respect
     thereof)  arise out of or are based  upon any untrue  statement  or alleged
     untrue  statement  of any  material  fact  contained  in  any  registration
     statement under which such Registrable  Securities was registered under the
     Act pursuant to Section 10, any preliminary  prospectus or final prospectus
     contained therein,  or any amendment or supplement thereof, or arise out of
     or are based upon the  omission  or  alleged  omission  to state  therein a
     material  fact  required  to be stated  therein  or  necessary  to make the
     statements therein not misleading, and will reimburse the Seller, each such
     underwriter  and  each  such  controlling  person  for any  legal  or other
     expenses  reasonably  incurred by them in connection with  investigating or
     defending  any such loss,  claim,  damage,  liability or action;  provided,
     however, that the Company will not be liable in any such case if and to the
     extent that any such loss,  claim,  damage or liability arises out of or is
     based upon an untrue  statement or alleged untrue  statement or omission or
     alleged  omission so made in conformity with  information  furnished by any
     such Seller,  the  underwriter  or any such  controlling  person in writing
     specifically for use in such registration statement or prospectus.

          (b)  In  the  event  of a  registration  of  any  of  the  Registrable
     Securities  under the Act pursuant to Section 10, the Seller will indemnify
     and hold  harmless the Company,  and each person,  if any, who controls the
     Company  within the  meaning of the Act,  each  officer of the  Company who
     signs the  registration  statement,  each  director  of the  Company,  each
     underwriter and each person who controls any underwriter within the meaning
     of the Act, against all losses,  claims,  damages or liabilities,  joint or
     several,  to which the Company or such officer,  director,  underwriter  or
     controlling  person may become subject under the Act or otherwise,  insofar
     as such  losses,  claims,  damages or  liabilities  (or  actions in respect
     thereof)  arise out of or are based  upon any untrue  statement  or alleged
     untrue  statement  of any  material  fact  contained  in  the  registration
     statement under which such Registrable Securities were registered under the
     Act pursuant to Section 10, any preliminary  prospectus or final prospectus
     contained therein,  or any amendment or supplement thereof, or arise out of
     or are based upon the  omission  or  alleged  omission  to state  therein a
     material  fact  required  to be stated  therein  or  necessary  to make the
     statements  therein not misleading,  or the Seller's failure to comply with
     prospectus delivery  requirements,  and will reimburse the Company and each
     such officer, director, underwriter and controlling person for any legal or
     other expenses reasonably incurred by them in connection with investigating
     or defending any such loss, claim, damage,  liability or action,  provided,
     however,  that the Seller will be liable  hereunder in any such case if and
     only to the extent that any such loss,  claim,  damage or liability  arises
     out of or is based upon an untrue  statement or alleged untrue statement or
     omission or alleged  omission made in reliance upon and in conformity  with
     information pertaining to such Seller, as such, furnished in writing to the
     Company by such Seller specifically for use in such registration  statement
     or prospectus,  and provided,  further,  however, that the liability of the
     Seller  hereunder  shall be  limited  to the  proportion  of any such loss,
     claim,  damage,  liability or expense which is equal to the proportion that
     the public offering price of the Registrable  Securities sold by the Seller
     under such registration  statement bears to the total public offering price
     of all securities sold thereunder, but not in any event to exceed the gross
     proceeds  received  by the Seller from the sale of  Registrable  Securities
     covered by such registration statement.

          (c) Promptly after receipt by an indemnified party hereunder of notice
     of the commencement of any action, such indemnified party shall, if a claim
     in respect thereof is to be made against the indemnifying  party hereunder,
     notify the indemnifying  party in writing  thereof,  but the omission so to
     notify the indemnifying party shall not relieve it from any liability which
     it may have to such indemnified party other than under this Section 10.6(c)
     and shall  only  relieve  it from any  liability  which it may have to such
     indemnified  party  under  this  Section  10.6(c)  if and to the extent the
     indemnifying party is prejudiced by such omission.  In case any such action
     shall be brought  against  any  indemnified  party and it shall  notify the
     indemnifying  party of the commencement  thereof,  the  indemnifying  party
     shall be entitled to  participate  in and, to the extent it shall wish,  to
     assume and undertake the defense thereof with counsel  satisfactory to such
     indemnified  party,  and, after notice from the indemnifying  party to such
     indemnified  party of its election so to assume and  undertake  the defense
     thereof,  the  indemnifying  party shall not be liable to such  indemnified
     party  under  this  Section  10.6(c)  for any legal  expenses  subsequently
     incurred by such  indemnified  party in connection with the defense thereof
     other than reasonable costs of investigation and of liaison with counsel so
     selected,  provided,  however,  that, if the  defendants in any such action
     include  both the  indemnified  party  and the  indemnifying  party and the
     indemnified  party  shall  have  reasonably  concluded  that  there  may be
     reasonable  defenses available to it which are different from or additional
     to those  available to the  indemnifying  party or if the  interests of the
     indemnified  party  reasonably may be deemed to conflict with the interests
     of the indemnifying  party, the indemnified parties shall have the right to
     select one separate counsel and to assume such legal defenses and otherwise
     to participate in the defense of such action,  with the reasonable expenses
     and fees of such  separate  counsel  and  other  expenses  related  to such
     participation to be reimbursed by the indemnifying  party as incurred.  The
     indemnifying  party shall not be liable for amounts paid in  settlement  by
     the indemnified  party unless the  indemnifying  party has consented to the
     settlement, which consent shall not be unreasonably withheld.
<PAGE>
          (d) In order to provide  for just and  equitable  contribution  in the
     event of joint  liability under the Act in any case in which either (i) the
     Seller,  or any  controlling  person  of the  Seller,  makes  a  claim  for
     indemnification  pursuant  to  this  Section  10.6  but  it  is  judicially
     determined  (by the  entry  of a final  judgment  or  decree  by a court of
     competent  jurisdiction  and the expiration of time to appeal or the denial
     of the last right of appeal) that such  indemnification may not be enforced
     in such case  notwithstanding  the fact that this Section 10.6 provides for
     indemnification  in such case,  or (ii)  contribution  under the Act may be
     required on the part of the Seller or  controlling  person of the Seller in
     circumstances  for which  indemnification  is provided  under this  Section
     10.6;  then,  and in each  such  case,  the  Company  and the  Seller  will
     contribute to the aggregate losses, claims, damages or liabilities to which
     they may be subject (after  contribution from others) in such proportion so
     that the Seller is  responsible  only for the  portion  represented  by the
     percentage that the public offering price of its securities  offered by the
     registration statement bears to the public offering price of all securities
     offered by such registration  statement,  provided,  however,  that, in any
     such case,  (A) the Seller will not be required to contribute any amount in
     excess of the public  offering price of all such  securities  offered by it
     pursuant to such registration statement; and (B) no person or entity guilty
     of fraudulent misrepresentation (within the meaning of Section 10(f) of the
     Act) will be entitled to contribution from any person or entity who was not
     guilty of such fraudulent misrepresentation.

     11.1. Obligation To Purchase.

          (a) The Subscriber agrees to purchase from the Company Preferred Stock
     ("Put Stock") in the amounts set forth on the signature  page hereof for up
     to the aggregate  amount of Put Purchase Price  designated on the signature
     page hereof (the "Put").  Collectively  the Put Stock, and Put Warrants and
     Common Stock  issuable upon  conversion of the Put Stock,  and Put Warrants
     are referred to as the "Put Securities".) The Holders of the Put Securities
     are granted all the rights, undertakings,  remedies, liquidated damages and
     indemnification  granted  to  the  Subscriber  and  Warrant  Recipients  in
     connection  with the  Securities,  including but not limited to, the rights
     and  procedures  set forth in Sections  9.1,  9.2,  9.3,  9.4, 9.5, and the
     registration rights described in Section 10 hereof.

          (b) The agreement to purchase the Put  Securities is contingent on the
     following,  as of the Put Date and Put Closing  Date,  any,  some or all of
     which may be waived by the Subscriber:

               (i) The non-occurrence of a Non-Registration Event.

               (ii) The  non-occurrence  (whether or not continuing) of an Event
          of Default as described in the Certificate of Designation.

               (iii) As of a Put Date and Put Closing Date,  the Company will be
          a full reporting company with the class of Shares registered  pursuant
          to Section 12(g) of the Exchange Act of 1934,  and the Company will be
          in compliance  with all such  reporting  obligations  applicable to an
          issuer with a class of Shares registered  pursuant to Section 12(g) of
          the Exchange Act.

               (iv) No  material  adverse  change in the  Company's  business or
          business  prospects  shall  have  occurred  after the date of the most
          recent financial statements included in the Reports.  Material adverse
          change  is  defined  as  any  effect  on  the  business,   operations,
          properties,  prospects,  or financial condition of the Company that is
          material  and  adverse  to  the  Company  and  its   subsidiaries  and
          affiliates, taken as a whole, and/or any condition,  circumstance,  or
          situation that would prohibit or otherwise  interfere with the ability
          of the Company to enter into and perform any of its obligations  under
          this Agreement,  or any other agreement  entered into or to be entered
          into in connection herewith, in any material respect.
<PAGE>
               (v) The execution and delivery to the Subscriber of a certificate
          signed by the Company's chief executive officer representing the truth
          and  accuracy  of all the  Company's  representations  and  warranties
          contained in this  Subscription  Agreement as of the Put Date, and Put
          Closing Date and confirming the covenants and  undertakings  contained
          herein,  and representing the  satisfaction of all  contingencies  and
          conditions required for the exercise of the Put.

               (vi) The  Company's  continued  listing on and  compliance at all
          times  after the date  hereof  with the  listing  requirements  of the
          Bulletin Board.

               (vii) The Company's not having  received notice from the Bulletin
          Board (or any principal  market on which the Company's common stock is
          listed for  trading)  that the Company is not in  compliance  with the
          requirements for continued listing.

               (viii)  The   execution  by  the  Company  and  delivery  to  the
          Subscriber of all documents  reasonably  necessary to memorialize  the
          rights and obligations of each of the parties in relation to the Put.

               (ix) The  average  closing  bid price of the Common  Stock on the
          Bulletin  Board for the three trading days preceding a Put Date is not
          less than 150% of the average closing bid price of the Common Stock as
          reported by the Bulletin  Board for the three  trading days  preceding
          the Closing Date, provided that this condition shall apply only to the
          portion  of the Put  Purchase  Price  payable  up to 90 days after the
          Actual Effective Date.

     11.2. Exercise of Put.

          (a) The  Company's  right to exercise the Put  commences on the actual
     effective date of the  registration  statement  described  Section 10.1(iv)
     hereof  in  relation  to all the  Securities  and Put  Securities  ("Actual
     Effective  Date") and expires fifteen (15) business days  thereafter  ("Put
     Exercise Period").

          (b) The Put may be  exercised  by the  Company  by the  giving  to the
     Subscriber of a written notice of exercise  ("Put  Notice")  during the Put
     Exercise Period in relation to the subject Put  Securities.  The date a Put
     Notice is given is a Put Date.  Each Put Notice must be  accompanied by the
     (i) officer's  certificate  described in Section 11.1(b)(v) above; (ii) the
     original legal opinion  described in Section 7.1(e);  (iii) a legal opinion
     relating to the Put Securities in form reasonably acceptable to Subscriber;
     and (iv) proof of effectiveness of the registration  statement in which the
     Securities and Put  Securities are registered  together with five copies of
     the prospectus relating to the Securities and Put Securities.

          (c) Unless otherwise agreed to by the Subscribers, Put Notices must be
     given  to all  Subscribers  in  proportion  to  the  amounts  agreed  to be
     purchased  by all  Subscribers  undertaking  to purchase  Put Shares in the
     initial  $1,500,000  installment  of the aggregate  $4,500,000  offering to
     which  this  and  other  identical  Subscription   Agreements  relate.  The
     aggregate amount of all Put Notices may not exceed $1,500,000. In the event
     the Company does not  exercise  the Put during the Put Exercise  Period for
     the entire Put amount,  then the  Subscriber may exercise the Put on behalf
     of the Company in relation only to such Subscriber, by giving notice to the
     Company of such exercise  during the seven (7) business days  following the
     Put Exercise Period.
<PAGE>
          (d) After  receipt  by  Subscriber  of a Put  Notice and the items set
     forth in Section  11.2(b) above the Subscriber  must pay an amount equal to
     50% of the Purchase Price set forth on the signature page hereto within ten
     (10)  business  days after the Actual  Effective  Date  ("First Put Payment
     Date"), and an amount equal to 50% of the Purchase Price within one hundred
     and twenty (120) days after the Actual  Effective Date ("Second Put Payment
     Date").  Payment  will be made  against  delivery to the  Subscriber  or an
     escrow  agent to be agreed upon by the Company and  Subscriber,  of the Put
     Securities,  and delivery to the Warrant Recipients of the Put Warrants and
     Put Commissions set forth on Schedule B hereto.

          (e) An additional  precondition to the exercise of the Put and payment
     of the initial 50% of the Put Purchase  Price in that the average  reported
     trading  volume of the Common  Stock on the  Bulletin  Board for the thirty
     trading  days prior to the Actual  Effective  Date is not less than 100,000
     Shares per day. Additional preconditions to the payment of the final 50% of
     Put  Purchase  Price are that the average  reported  trading  volume of the
     Common Stock on the Bulletin Board for the thirty trading days prior to the
     Second Put Payment Date is not less than 150,000  Common  Shares per day at
     an average  reported closing bid price during such thirty day period of not
     less than 150% of the Conversion  Price set forth in Paragraph  4(b)(ii)(x)
     of the Certificate of Designation.

          (f) Maximum Put  Exercise.  The Company may not give the  Subscriber a
     Put Notice in connection with that amount of Put Securities  which could be
     converted  as of the Put Date into a number of shares of Common Stock which
     would be in excess of the sum of (i) the  number of shares of Common  Stock
     beneficially  owned by the  Subscriber and its affiliates on such Put Date,
     and (ii) the number of shares of Common Stock  issuable upon the conversion
     of the Put Stock and exercise of the Put Warrants with respect to which the
     determination  of this  proviso  is being made on a Put Date,  which  would
     result in beneficial ownership by the Subscriber and its affiliates of more
     than 9.99% of the outstanding shares of Common Stock of the Company on such
     Put Date.  For the  purposes  of the proviso to the  immediately  preceding
     sentence,  beneficial  ownership  shall be determined  in  accordance  with
     Section  13(d) of the  Securities  Exchange  Act of 1934,  as amended,  and
     Regulation 13d-3 thereunder.

     11.3. Put  Commissions/Fees.  The Placement Agents identified on Schedule B
hereto shall receive  aggregate  finder's fees in connection with the closing of
the Put of cash  equal to ten (10%)  percent of the Put  Purchase  Price and the
recipients of Put Warrants as set forth on Schedule B hereto. Collectively,  the
foregoing are referred to as Put Commissions.  Put Commissions  shall be payable
only in connection with the Put Purchase Price actually paid by a Subscriber.

     11.4.  Assignment  of  Put.  Anything  to  the  contrary  herein  or in the
Certificate  of Designation  notwithstanding  either before or after exercise of
the Put by the Company or the  Subscriber,  the Subscriber may assign to another
party the  Subscriber's  right to pay all or some of the Put Purchase  Price and
receive the corresponding Put Securities. Such assignment must be in writing and
will not be  binding on the  Company  until the  Company  receives a copy of the
assignment.  The assignment  will be effective only if the assignee  consents in
writing to be bound by all of the  Subscriber's  obligations  to the Company set
forth herein, in connection with such assignment.  Upon an effective assignment,
the  assignee  will  succeed  to all  of  the  Subscriber's  rights  under  this
Subscription Agreement,  the Certificate of Designation and all other agreements
relating to the assigned portion of the Put.
<PAGE>
     12. Offering Restrictions.  Until 120 days after the Actual Effective Date,
the Company agrees not to issue any equity, convertible debt or other securities
at a per common  share  equivalent  price less than the Closing Ask price of the
Company's  common stock in effect as of the date of such issuance as reported by
the  Bulletin  Board or such  other  principal  market  or  exchange  where  the
Company's common stock is listed for trading. The restriction  described in this
Section 12 shall not apply if the Subscriber  fails to timely pay to the Company
funds payable in connection with a Put exercise.

     14. Miscellaneous.

          (a)  Notices.  All  notices  or  other  communications  given  or made
     hereunder  shall be in writing and shall be personally  delivered or deemed
     delivered the first  business day after being  telecopied  (provided that a
     copy is  delivered by first class mail) to the party to receive the same at
     its address set forth below or to such other  address as either party shall
     hereafter give to the other by notice duly made under this Section:  (i) if
     to the Company, to Endovasc Ltd., 15001 Walden Road, Suite 108, Montgomery,
     TX 77356,  Attn: Dr. David P. Summers,  telecopier  number:  (936) 5828250,
     with a copy by telecopier only to Sichenzia,  Ross & Friedman LLP, 135 West
     50th Street, 20th Floor, New York, NY 10020, Attn: Gregory Sichenzia, Esq.,
     telecopier number:  (212) 664-7329,  and (ii) if to the Subscriber,  to the
     name,  address and telecopy  number set forth on the signature page hereto,
     with a copy by  telecopier  only to  Grushko  &  Mittman,  P.C.,  551 Fifth
     Avenue,  Suite 1601, New York, NY 10176,  telecopier number:  212-697-3575.
     Any notice that may be given  pursuant to this  Agreement,  or any document
     delivered in connection  with the foregoing may be given by the  Subscriber
     on the first business day after the  observance  dates in the United States
     of America by Orthodox  Jewry of Rosh Hashanah,  Yom Kippur,  the first two
     days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the first
     two and final two days of Passover  and  Pentecost,  with such notice to be
     deemed given and effective,  at the election of the Subscriber on a holiday
     date that precedes such notice.  Any notice  received by the  Subscriber on
     any of the  aforedescribed  holidays may be deemed by the  Subscriber to be
     received  and  effective  as if such notice had been  received on the first
     business day after the holiday.

          (b) Closing. The consummation of the transactions  contemplated herein
     shall take place at the  offices  of  Grushko &  Mittman,  P.C.,  551 Fifth
     Avenue,  Suite  1601,  New York,  NY 10176,  upon the  satisfaction  of all
     conditions to Closing set forth in this  Agreement.  The closing date shall
     be the date that  subscriber  funds  representing  the net  amount  due the
     Company from the Purchase  Price are  transmitted  by wire  transfer to the
     Company  (the  "Closing  Date").  The closing date for the Put shall be the
     date on which Subscriber funds  representing the net amount due the Company
     from the Put Purchase  Price is  transmitted to or on behalf of the Company
     ("Put Closing Date").

          (c) Entire Agreement; Assignment. This Agreement represents the entire
     agreement  between the parties  hereto with  respect to the subject  matter
     hereof and may be amended only by a writing  executed by both  parties.  No
     right or obligation of either party shall be assigned by that party without
     prior notice to and the written consent of the other party.

          (d)   Execution.   This   Agreement   may  be  executed  by  facsimile
     transmission,  and in  counterparts,  each  of  which  will  be  deemed  an
     original.

<PAGE>
          (e) Law Governing this Agreement.  This Agreement shall be governed by
     and construed in accordance  with the laws of the State of New York without
     regard to  principles  of conflicts of laws.  Any action  brought by either
     party against the other  concerning the  transactions  contemplated by this
     Agreement  shall be brought  only in the state courts of New York or in the
     federal  courts  located  in the state of New York.  Both  parties  and the
     individuals  executing this Agreement and other agreements on behalf of the
     Company agree to submit to the  jurisdiction of such courts and waive trial
     by jury. The  prevailing  party shall be entitled to recover from the other
     party its  reasonable  attorney's  fees and  costs.  In the event  that any
     provision of this Agreement or any other agreement  delivered in connection
     herewith is invalid or unenforceable  under any applicable  statute or rule
     of law, then such provision shall be deemed  inoperative to the extent that
     it may conflict therewith and shall be deemed modified to conform with such
     statute  or rule of law.  Any such  provision  which may prove  invalid  or
     unenforceable under any law shall not affect the validity or enforceability
     of any other provision of any agreement.

          (f)Specific  Enforcement,  Consent to  Jurisdiction.  The  Company and
     Subscriber acknowledge and agree that irreparable damage would occur in the
     event that any of the  provisions of this  Agreement  were not performed in
     accordance  with their  specific terms or were  otherwise  breached.  It is
     accordingly  agreed that the parties  shall be entitled to an  injuction or
     injunctions to prevent or cure breaches of the provisions of this Agreement
     and to enforce  specifically  the terms and  provisions  hereof or thereof,
     this  being in  addition  to any  other  remedy to which any of them may be
     entitled by law or equity.  Subject to Section  12(e)  hereof,  each of the
     Company and Subscriber hereby waives,  and agrees not to assert in any such
     suit, action or proceeding,  any claim that it is not personally subject to
     the  jurisdiction  of such court,  that the suit,  action or  proceeding is
     brought in an inconvenient  forum or that the venue of the suit,  action or
     proceeding  is improper.  Nothing in this Section shall affect or limit any
     right to serve process in any other manner permitted by law.

          (g)Automatic Termination. This Agreement shall automatically terminate
     without any further  action of either party hereto if the Closing shall not
     have  occurred by the tenth  (10th)  business day  following  the date this
     Agreement is accepted by the Subscriber.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
        Please  acknowledge  your  acceptance  of  the  foregoing   Subscription
Agreement by signing and returning a copy to the undersigned  whereupon it shall
become a binding agreement between us.

                                    ENDOVASC LTD. INC.

                                    By:____________________________________
                                            Name:
                                            Title:

                                    Dated: May _____, 2000

Purchase Price: $
                -----------

Preferred Shares Purchased:       (at $100 per share)
                            -----

ACCEPTED: Dated as of May _____, 2000

PUT

Put Stock:

Put Purchase Price: $
                    -----------

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