Document:

EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

         SECURITIES  PURCHASE AGREEMENT (the "Agreement"),  dated as of December
7, 2001, by and among The 3DO Company, a Delaware corporation, with headquarters
located at 100 Cardinal Way,  Redwood City,  California,  94063 (the "Company"),
and the  undersigned  buyers  (individually,  a "Buyer," and  collectively,  the
"Buyers").

         WHEREAS:

         A. The  Company  and the  Buyers  are  executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");

         B. The Company has authorized the following new series of its preferred
stock, par value $0.01 per share:  the Company's Series A Convertible  Preferred
Stock (the  "Preferred  Stock"),  which shall be convertible  into shares of the
Company's  common  stock,  par value  $0.01 per share (the  "Common  Stock") (as
converted,  the  "Conversion  Shares"),  in  accordance  with  the  terms of the
Company's  Certificate of Designations,  Preferences and Rights of the Preferred
Stock,  substantially in the form attached hereto as Exhibit A (the "Certificate
of Designations");

         C. The  Buyers  set forth  under the  heading  "Initial  Buyers" on the
Schedule of Buyers (the "Initial  Buyers") wish to purchase,  upon the terms and
conditions  stated in this  Agreement,  (I) an aggregate of 15,720 shares of the
Preferred Stock (the "Initial  Preferred  Shares") in the respective amounts set
forth  opposite  such Initial  Buyer's name on the Schedule of Buyers,  and (II)
warrants,  substantially  in the form attached hereto as Exhibit B (the "Initial
Warrants"),  to  acquire a number of  shares  of Common  Stock for each  Initial
Preferred  Share  purchased equal to the quotient of (a) $300 divided by (b) the
arithmetic  average of the Weighted Average Price (as defined in the Warrant) of
the Common Stock on each of the ten (10)  consecutive  trading days  immediately
preceding  the  Initial   Closing  Date  (as  defined   below)  (as   exercised,
collectively, the "Initial Warrant Shares"); and

         D. The  Buyers  set forth  under the  heading  "Second  Buyers"  on the
Schedule of Buyers (the "Second  Buyers")  wish to purchase,  upon the terms and
conditions  stated in this  Agreement,  (I) an  aggregate  of 100  shares of the
Preferred  Stock (the  "Second  Preferred  Shares,"  and  collectively  with the
Initial Preferred Shares, the "Preferred  Shares") in the respective amounts set
forth  opposite  such Second  Buyer's name on the  Schedule of Buyers,  and (II)
warrants,  substantially  in the form attached  hereto as Exhibit B (the "Second
Warrants," and  collectively  with the Initial  Warrants,  the  "Warrants"),  to
acquire  a number of shares of  Common  Stock for each  Second  Preferred  Share
purchased  equal to the quotient of (a) $300 divided by (b) the Weighed  Average
Price  of the  Common  Stock on each of the ten (10)  consecutive  trading  days
immediately  preceding  the  Initial  Closing  Date (as  exercised,  the "Second
Warrant Shares," and collectively with the Initial Warrant Shares,  the "Warrant
Shares"); and

         E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration  Rights Agreement
substantially in the

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form attached hereto as Exhibit C (the "Registration Rights Agreement") pursuant
to which the Company has agreed to provide certain registration rights under the
1933 Act and the rules and regulations  promulgated  thereunder,  and applicable
state securities laws.

         NOW THEREFORE, the Company and the Buyers hereby agree as follows:

         1.       PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.

                  a. Purchase of Preferred  Shares and Warrants.  Subject to the
satisfaction  (or  waiver) of the  conditions  set forth in  Sections 6 and 7(a)
below,  the Company  shall issue and sell to each Initial Buyer and each Initial
Buyer  severally  agrees to purchase from the Company the  respective  number of
Initial  Preferred  Shares set forth  opposite such Initial  Buyer's name on the
Schedule of Buyers, along with Initial Warrants to acquire that number of shares
of Common Stock for each Initial Preferred Share purchased equal to the quotient
of (i) $300 divided by (ii) the arithmetic average of the Weighted Average Price
of the Common Stock on each of the ten (10) consecutive trading days immediately
preceding  the Initial  Closing  Date (the  "Initial  Closing").  Subject to the
satisfaction  (or  waiver) of the  conditions  set forth in  Sections 6 and 7(b)
below,  the Company  shall  issue and sell to each Second  Buyer and each Second
Buyer  severally  agrees to purchase from the Company the  respective  number of
Second  Preferred  Shares set forth  opposite  such Second  Buyer's  name on the
Schedule of Buyers,  along with Second Warrants to acquire that number of shares
of Common Stock for each Second  Preferred Share purchased equal to the quotient
of (x) $300 divided by (y) the arithmetic  average of the Weighted Average Price
of the Common Stock on each of the ten (10) consecutive trading days immediately
preceding the Initial Closing Date (the "Second  Closing," and collectively with
the Initial Closing, the "Closings").  The purchase price (the "Purchase Price")
of each Preferred  Share and the related  Warrants at each of the Closings shall
be an aggregate  of $1,000.  "Business  Day" means any day other than  Saturday,
Sunday  or  other  day on  which  commercial  banks  in the City of New York are
authorized or required by law to remain closed.

                  b. The Initial  Closing Date. The date and time of the Initial
Closing (the  "Initial  Closing  Date")  shall be 10:00 a.m.  Central  Time,  on
December 10, 2001,  subject to the satisfaction (or waiver) of the conditions to
the  Initial  Closing set forth in Sections 6 and 7(a) (or such later date as is
mutually agreed to by the Company and the Initial  Buyers).  The Initial Closing
shall occur on the Initial  Closing Date at the offices of Katten  Muchin Zavis,
525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.

                  c. The Second Closing Date. The date, time and location of the
Second  Closing (the "Second  Closing Date," and  collectively  with the Initial
Closing Date,  the "Closing  Dates") shall be mutually  agreed to by the Company
and the Second Buyers; provided, however, that the Second Closing Date shall not
occur after December 10, 2001, or, if later, the Initial Closing Date.

                  d. Form of  Payment.  On each of the Closing  Dates,  (i) each
Buyer  purchasing  Preferred Shares at such Closing shall pay the Purchase Price
to the Company for the  Preferred  Shares and the related  Warrants to be issued
and  sold to such  Buyer  at such  Closing,  by  wire  transfer  of  immediately
available funds in accordance with the Company's written wire instructions, less
any amount withheld for expenses  pursuant to Section 4(h), and (ii) the

                                      -2-

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Company shall deliver to each Buyer purchasing Preferred Shares at such Closing,
stock  certificates  (in the  denominations  as such Buyer shall  request)  (the
"Preferred Stock Certificates")  representing the number of the Preferred Shares
which  such  Buyer  is  then  purchasing   hereunder   along  with   instruments
representing  the related  Warrants,  duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.

         2.       BUYER'S REPRESENTATIONS AND WARRANTIES.

                  Each Buyer represents and warrants with respect to only itself
that, as of the date of this  Agreement and as of the Closing Date on which such
Buyer is purchasing Securities hereunder, except that HFTP Investment L.L.C. and
Gaia  Offshore  Master Fund,  Ltd. do not make the  representation  set forth in
Section 2(j):

                  a.  Investment  Purpose.  Such  Buyer  (i)  is  acquiring  the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable, and (iii) upon exercise of the
Warrants,  will acquire the Warrant Shares  issuable upon exercise  thereof (the
Preferred  Shares,  the Conversion  Shares,  the Warrants and the Warrant Shares
collectively  are referred to herein as the  "Securities"),  for its own account
and not with a view towards,  or for resale in connection  with, the public sale
or distribution  thereof,  except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein, such
Buyer  does not agree to hold any of the  Securities  for any  minimum  or other
specific term and reserves the right to dispose of the Securities at any time in
accordance  with or pursuant to a registration  statement or an exemption  under
the 1933 Act.

                  b. Accredited  Investor  Status.  Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.

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

                  d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials  relating to the business,  finances and operations
of the Company and  materials  relating to the offer and sale of the  Securities
which have been  requested by such Buyer.  Such Buyer and its advisors,  if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence  investigations conducted by such Buyer or
its advisors,  if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's  representations and warranties contained
in Sections 3 and 9(m) below.  Such Buyer understands that its investment in the
Securities  involves  a  high  degree  of  risk.  Such  Buyer  has  sought  such
accounting,  legal and tax  advice  as it has  considered  necessary  to make an
informed investment decision with respect to its acquisition of the Securities.

                                      -3-

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                  e. No  Governmental  Review.  Such Buyer  understands  that no
United States  federal or state agency or any other  government or  governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Securities.

                  f. Transfer or Resale.  Such Buyer  understands that except as
provided in the Registration Rights Agreement:  (i) the Securities have not been
and are not being  registered  under the 1933 Act or any state  securities laws,
and may not be  offered  for sale,  sold,  assigned  or  transferred  unless (A)
subsequently  registered thereunder,  (B) such Buyer shall have delivered to the
Company an opinion of counsel,  in a generally  acceptable  form,  to the effect
that such Securities to be sold,  assigned or transferred may be sold,  assigned
or  transferred  pursuant to an exemption  from such  registration,  or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold,  assigned or transferred  pursuant to Rule 144 promulgated  under the 1933
Act, as amended,  (or a successor rule thereto)  ("Rule 144");  (ii) any sale of
the Securities  made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable,  any resale of
the Securities  under  circumstances  in which the seller (or the person through
whom the sale is made)  may be  deemed  to be an  underwriter  (as that  term is
defined in the 1933 Act) may require  compliance with some other exemption under
the 1933 Act or the  rules  and  regulations  of the SEC  thereunder;  and (iii)
neither the Company nor any other person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.

                  g. Legends.  Such Buyer  understands  that the certificates or
other instruments  representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion  Shares and the Warrant Shares have been
registered  under  the  1933  Act as  contemplated  by the  Registration  Rights
Agreement,  the stock  certificates  representing the Conversion  Shares and the
Warrant Shares,  except as set forth below,  shall bear a restrictive  legend in
substantially  the  following  form  (and a  stop-transfer  order  may be placed
against transfer of such stock certificates):

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED,  OR  APPLICABLE  STATE
         SECURITIES  LAWS.  THE  SECURITIES  MAY NOT BE OFFERED FOR SALE,  SOLD,
         TRANSFERRED  OR  ASSIGNED  (I) IN  THE  ABSENCE  OF  (A)  AN  EFFECTIVE
         REGISTRATION  STATEMENT FOR THE SECURITIES  UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
         OF COUNSEL,  IN A GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT
         REQUIRED  UNDER SAID ACT OR APPLICABLE  STATE  SECURITIES  LAWS OR (II)
         UNLESS SOLD  PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING  THE
         FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
         MARGIN  ACCOUNT OR OTHER LOAN OR FINANCING  ARRANGEMENT  SECURED BY THE
         SECURITIES.

                                      -4-

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The legend  set forth  above  shall be removed  and the  Company  shall  issue a
certificate without such legend to the holder of the Securities upon which it is
stamped,  if,  unless  otherwise  required by state  securities  laws,  (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale,  assignment or
transfer of the Securities may be made without  registration under the 1933 Act,
or (iii) such holder  provides the Company with  reasonable  assurances that the
Securities  can be sold pursuant to Rule 144 without any  restriction  as to the
number  of  securities  acquired  as of a  particular  date  that  can  then  be
immediately  sold.  Such  Buyer  acknowledges,  covenants  and  agrees  to  sell
Securities  represented by a certificate  from which the legend has been removed
only pursuant to (i) a registration  statement  effective  under the 1933 Act or
(ii)  advice  of  counsel  that  such  sale  is  exempt  from  the  registration
requirements  of Section 5 of the 1993 Act,  including,  without  limitation,  a
transaction pursuant to Rule 144.

                  h. Authorization;  Enforcement;  Validity.  This Agreement and
the  Registration  Rights  Agreement  have  been  duly and  validly  authorized,
executed  and  delivered  on  behalf of such  Buyer  and are  valid and  binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms,  subject  as to  enforceability  to general  principles  of equity and to
applicable bankruptcy, insolvency,  reorganization,  moratorium, liquidation and
other  similar laws  relating to, or affecting  generally,  the  enforcement  of
applicable creditors' rights and remedies.

                  i.  Residency.  Such Buyer is a resident of that  jurisdiction
specified in its address on the Schedule of Buyers.

                  j.  Independent  Investigation.  Such  Buyer,  other than HFTP
Investment  L.L.C.  and Gaia Offshore Master Fund, Ltd., has made an independent
evaluation of the Company,  its current business and financial condition and the
risks associated with such Buyer's  investment in the Securities based solely on
(i) publicly  available  information  disclosed by or concerning the Company and
(ii) the information contained in the Transaction Documents.

         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                  The  Company  represents  and  warrants  to each of the Buyers
that, as of the date of this Agreement and as of the Initial Closing Date:

                  a.  Organization  and  Qualification.   The  Company  and  its
"Subsidiaries"  (which for purposes of this Agreement  means any entity in which
the Company,  directly or  indirectly,  owns capital stock or holds an equity or
similar  interest) are corporations  duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated,  and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being  conducted.  Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good  standing in every  jurisdiction  in which its ownership of property or the
nature of the  business  conducted  by it makes  such  qualification  necessary,
except to the extent that the failure to be so qualified or be in good  standing
would not have a Material Adverse Effect.  As used in this Agreement,  "Material
Adverse Effect" means any material  adverse effect on the business,  properties,
assets,

                                      -5-

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operations,  results of  operations,  financial  condition  or  prospects of the
Company and its  Subsidiaries,  if any, taken as a whole, or on the transactions
contemplated  hereby or by the agreements and  instruments to be entered into in
connection  herewith,  or on the  authority or ability of the Company to perform
its  obligations  under the  Transaction  Documents  (as  defined  below) or the
Certificate of Designations. The Company has no Subsidiaries except as set forth
on Schedule 3(a).

                  b. Authorization;  Enforcement;  Validity. The Company has the
requisite   corporate  power  and  authority  to  enter  into  and  perform  its
obligations  under  this  Agreement,  the  Registration  Rights  Agreement,  the
Irrevocable  Transfer Agent Instructions (as defined in Section 5), the Warrants
and  each  of the  other  agreements  entered  into  by the  parties  hereto  in
connection with the transactions  contemplated by this Agreement  (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms  hereof  and  thereof.  The  execution  and  delivery  of the  Transaction
Documents  by the Company and the  execution  and filing of the  Certificate  of
Designations  by the  Company  and the  consummation  by it of the  transactions
contemplated  hereby and thereby,  including without  limitation the issuance of
the Preferred  Shares and the Warrants and the  reservation for issuance and the
issuance  of  the  Conversion  Shares  and  the  Warrant  Shares  issuable  upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders  (except such stockholder approved as
may be required  pursuant to the rules of The Nasdaq Stock Market,  Inc. for the
issuance of a number of shares of Common  Stock which is greater  than 19.99% of
the  number  of  shares of Common  Stock  outstanding  immediately  prior to the
Initial Closing Date). This Agreement and the other Transaction  Documents dated
of even date herewith have been duly executed and delivered by the Company.  The
Transaction  Documents  constitute  the valid  and  binding  obligations  of the
Company  enforceable  against the Company in accordance with their terms, except
as such  enforceability  may be limited by  applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally,  the enforcement of creditors' rights and remedies.  As of
the applicable  Closing,  the Transaction  Documents dated after the date hereof
shall have been duly executed and delivered by the Company and shall  constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms,  except as such enforceability may be limited by
applicable bankruptcy,  insolvency,  reorganization,  moratorium, liquidation or
similar laws relating to, or affecting generally,  the enforcement of creditors'
rights and remedies. The Certificate of Designations has been filed prior to the
Initial Closing with the Secretary of State of the State of Delaware and will be
in full force and effect, enforceable against the Company in accordance with its
terms and shall not have been amended unless in compliance with its terms.

                  c.  Capitalization.  As of the  date  hereof,  the  authorized
capital stock of the Company consists of (i) 125,000,000 shares of Common Stock,
of which as of December 4, 2001,  53,072,399 shares were issued and outstanding,
8,728,883  shares were  reserved for issuance  pursuant to the  Company's  stock
option  and  purchase  plans  (excluding  shares of Common  Stock  reserved  for
issuance upon the exercise of options which already have been issued pursuant to
the  Company's  stock  option  plans) and  26,228,667  shares are  issuable  and
reserved for issuance  pursuant to securities  (other than the Preferred  Shares
and the  Warrants,  but  including  options  issued  and  outstanding  under the
Company's stock option plans)  exercisable or  exchangeable  for, or convertible
into,  shares of Common Stock and (ii) 5,000,000

                                      -6-

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shares of Preferred Stock, of which as of the date hereof,  no shares are issued
and  outstanding.  All of such outstanding or issuable shares have been, or upon
issuance in compliance  with the terms thereof will be,  validly  issued and are
fully paid and nonassessable. From December 4, 2001 through the date hereof, the
Company  has not issued or reserved  for  issuance  more than  25,000  shares of
Common Stock (other than the  reservation of shares of Common Stock for issuance
upon  conversion of the  Preferred  Shares and upon exercise of the Warrants and
the  reservation  of up to  312,424  shares of Common  Stock for  issuance  upon
exercise  of the  warrant  to be issued to Gerard  Klauer  Mattison).  Except as
disclosed in Schedule  3(c),  (A) no shares of the  Company's  capital stock are
subject  to  preemptive  rights  or any  other  similar  rights  or any liens or
encumbrances  granted or created by the  Company;  (B) there are no  outstanding
debt instruments  issued by the Company;  (C) there are no outstanding  options,
warrants,  scrip,  rights to subscribe to, calls or commitments of any character
whatsoever  relating to, or securities or rights convertible into, any shares of
capital  stock  of  the  Company  or  any of  its  Subsidiaries,  or  contracts,
commitments,  understandings  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 or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company or any of its Subsidiaries;  (D) there are no agreements or arrangements
under which the Company or any of its  Subsidiaries is obligated to register the
sale of any of their  securities  under the 1933 Act  (except  the  Registration
Rights Agreement); (E) there are no outstanding securities or instruments of the
Company or any of its  Subsidiaries  which  contain  any  redemption  or similar
provisions,  and  there  are  no  contracts,   commitments,   understandings  or
arrangements  by which the Company or any of its  Subsidiaries  is or may become
bound to redeem a security of the Company or any of its Subsidiaries;  (F) there
are no securities or instruments containing  anti-dilution or similar provisions
that will be triggered by the  issuance of the  Securities  as described in this
Agreement;  and (G) the Company does not have any stock  appreciation  rights or
"phantom  stock"  plans or  agreements  or any similar  plan or  agreement.  The
Company has  furnished  to each Buyer true and correct  copies of the  Company's
Certificate  of  Incorporation,  as amended  and as in effect on the date hereof
(the "Certificate of  Incorporation"),  and the Company's Bylaws, as amended and
as in effect on the date hereof (the "Bylaws"),  and the terms of all securities
convertible  into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.

                  d.  Issuance  of  Securities.  The  Preferred  Shares are duly
authorized and, upon issuance in accordance with the terms hereof,  shall be (i)
validly issued,  fully paid and non-assessable,  (ii) free from all taxes, liens
and charges  with  respect to the  issuance  thereof  and (iii)  entitled to the
rights and preferences set forth in the Certificate of Designations.  10,816,165
shares of Common Stock (subject to adjustment pursuant to the Company's covenant
set forth in Section  4(f) below) have been duly  authorized  and  reserved  for
issuance  upon  conversion  of the  Preferred  Shares and upon  exercise  of the
Warrants.  Upon  conversion or exercise in accordance  with the  Certificate  of
Designations or the Warrants,  as the case may be, the Conversion Shares and the
Warrant Shares will be validly  issued,  fully paid and  nonassessable  and free
from all taxes,  liens and charges with respect to the issue  thereof,  with the
holders being entitled to all rights  accorded to a holder of Common Stock.  The
issuance by the Company of the Securities is exempt from registration  under the
1933 Act.

                                      -7-

<PAGE>

                  e. No Conflicts.  The execution,  delivery and  performance of
the Transaction  Documents by the Company, the performance by the Company of its
obligations  under the Certificate of Designations  and the  consummation by the
Company of the transactions contemplated hereby and thereby (including,  without
limitation,  the reservation for issuance and issuance of the Conversion  Shares
and the Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation,  any Certificate of  Designations,  Preferences and Rights of any
outstanding  series  of  preferred  stock of the  Company  or the  Bylaws;  (ii)
conflict  with,  or constitute a default (or an event which with notice or lapse
of time or both would become a default)  under,  or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or  instrument  to which the Company or any of its  Subsidiaries  is a
party; (iii) result in a violation of any law, rule, regulation, order, judgment
or decree  (including  federal and state securities laws and regulations and the
rules and regulations of the Principal Market (as defined below))  applicable to
the Company or any of its  Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Neither the Company nor
its   Subsidiaries   is  in  violation  of  any  term  of  its   Certificate  of
Incorporation,  any Certificate of  Designations,  Preferences and Rights of any
outstanding  series  of  preferred  stock  of the  Company  or  Bylaws  or their
organizational charter or bylaws, respectively.  Except as disclosed in Schedule
3(e), neither the Company or any of its Subsidiaries is in violation of any term
of  or  in  default  under  any  contract,  agreement,  mortgage,  indebtedness,
indenture,  instrument,  judgment,  decree  or  order  or any  statute,  rule or
regulation  applicable  to the Company or its  Subsidiaries,  except  where such
violations  and  defaults  would  not  result,  either  individually  or in  the
aggregate,  in a Material  Adverse  Effect.  The business of the Company and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, ordinance or regulation of any governmental  entity,  except where such
violations  would not result,  either  individually  or in the  aggregate,  in a
Material Adverse Effect.  Except as specifically  contemplated by this Agreement
and as required  under the 1933 Act,  the Company is not  required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or  governmental  agency or any  regulatory or  self-regulatory  agency in
order for it to  execute,  deliver or perform  any of its  obligations  under or
contemplated  by the Transaction  Documents or to perform its obligations  under
the  Certificate  of  Designations,  in each case in  accordance  with the terms
hereof  or  thereof.  Except  as  disclosed  in  Schedule  3(e),  all  consents,
authorizations,  orders, filings and registrations which the Company is required
to obtain as described in the preceding  sentence have been obtained or effected
on or prior to the date hereof.  The Company and its Subsidiaries are unaware of
any facts or  circumstances  which might give rise to any of the foregoing.  The
Company is not in violation of the listing requirements of the Principal Market,
including,  without limitation, the requirements set forth in Rule 4350(i)(1)(D)
of the  Principal  Market and has no actual  knowledge  of any facts which would
reasonably  lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future.

                  f. SEC Documents;  Financial Statements. Since March 31, 2000,
the  Company  has filed all  reports,  schedules,  forms,  statements  and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the  foregoing  filed prior to the date hereof  (including  all exhibits
included  therein and financial  statements and schedules  thereto and documents
incorporated  by reference  therein) being  hereinafter  referred to as the "SEC
Documents").  A complete and accurate  list of the SEC Documents is set forth on
Schedule 3(f). Except as set forth on Schedule 3(f), neither the Company nor any
of its  Subsidiaries  is a party to or subject to any  agreement,  indenture  or
instrument  which  it is or  will be  required  to  file  as an  exhibit  to the

                                      -8-

<PAGE>

Company's  reports or filings under the 1934 Act and which has not been filed as
an  exhibit  to any of the  SEC  Documents.  Except  for the  amendments  to the
Company's  Quarterly Report on Form 10-Q for the quarter ended December 31, 2000
contained in the amendment to such Form 10-Q filed with the SEC on June 7, 2001,
as of  their  respective  dates,  the SEC  Documents  complied  in all  material
respects with the  requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents.  None of the SEC
Documents,  at the time they  were  filed  with the SEC,  contained  any  untrue
statement of a material  fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the  circumstances  under which they were made, not  misleading.  Except for the
amendments to the Company's  Quarterly Report on Form 10-Q for the quarter ended
December 31, 2000  contained  in the  amendment to such Form 10-Q filed with the
SEC on June 7, 2001, as of their respective  dates, the financial  statements of
the Company  included in the SEC  Documents  complied as to form in all material
respects with  applicable  accounting  requirements  and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared  in  accordance   with  generally   accepted   accounting   principles,
consistently  applied,  during  the  periods  involved  (except  (i)  as  may be
otherwise  indicated in such financial  statements or the notes thereto, or (ii)
in the case of  unaudited  interim  statements,  to the extent  they may 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  audit
adjustments).  No other  information  provided by or on behalf of the Company to
the  Buyers  which is not  included  in the SEC  Documents,  including,  without
limitation,  information  referred  to in  Section  2(d),  contains  any  untrue
statement of a material  fact or omits to state any material  fact  necessary in
order to make the statements  therein,  in the light of the circumstances  under
which they are or were made, not misleading.  Neither the Company nor any of its
Subsidiaries  or any of their  officers,  directors,  employees  or agents  have
provided the Buyers with any material,  nonpublic information. The Company meets
the  requirements  for  use of  Form  S-3  for  registration  of the  resale  of
Registrable Securities (as defined in the Registration Rights Agreement).  As of
the date of this Agreement,  there are no amounts outstanding under the Loan and
Security  Agreement,  dated as of April 6, 2000 by and among  the  Company,  its
subsidiaries,  and certain lenders including  Foothill Capital  Corporation,  as
amended.

                  g. Absence of Certain Changes;  Solvency.  Except as disclosed
in Schedule  3(g) or in the SEC  Documents  filed with the SEC through EDGAR and
available to the public  through  EDGAR at least five (5) Business Days prior to
the date of this  Agreement,  since March 31,  2001,  there has been no material
adverse change and no material adverse development in the business,  properties,
assets, operations, results of operations,  financial conditions or prospects of
the Company or its  Subsidiaries.  Except as disclosed in Schedule  3(g),  since
March 31,  2001,  the Company has not declared or paid any  dividends,  sold any
assets,  individually or in the aggregate,  in excess of $250,000 outside of the
ordinary course of business or had capital expenditures,  individually or in the
aggregate,  in excess of $250,000.  The  information and statements set forth in
Schedule 3(g) have been publicly  disclosed prior to the date of this Agreement.
The  Company  is not as of the date  hereof,  and  after  giving  effect  to the
transactions  contemplated hereby will not be, Insolvent (as defined below). The
Company  has not  taken any  steps,  and does not  currently  expect to take any
steps,  to seek  protection  pursuant to any bankruptcy law nor does the Company
have any  knowledge or reason to believe that its  creditors

                                      -9-

<PAGE>

intend to initiate  involuntary  bankruptcy  proceedings.  For  purposes of this
Section  3(g),  "Insolvent"  means (i) the present  fair  saleable  value of the
Company's  assets is less than the amount  required to pay the  Company's  total
indebtedness,  contingent  or  otherwise,  (ii) the Company is unable to pay its
debts and liabilities,  subordinated, contingent or otherwise, as such debts and
liabilities  become absolute and matured,  (iii) the Company intends to incur or
believes  that it will incur  debts  that would be beyond its  ability to pay as
such debts mature or (iv) the Company has unreasonably  small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

                  h.  Absence  of   Litigation.   There  is  no  action,   suit,
proceeding,  inquiry  or  investigation  before or by any court,  public  board,
government  agency,  self-regulatory  organization  or body  pending  or, to the
knowledge  of the  Company  or any of its  Subsidiaries,  threatened  against or
affecting the Company, the Common Stock or any of the Subsidiaries or any of the
Company's or the  Subsidiaries'  officers or directors  in their  capacities  as
such,  except as expressly  set forth in Schedule  3(h).  Except as set forth in
Schedule 3(h), to the knowledge of the Company none of the directors or officers
of the Company have been involved in securities  related  litigation  during the
past five years.

                  i.  Acknowledgment  Regarding  Buyer's  Purchase of  Preferred
Shares and Warrant.  The Company acknowledges and agrees that each of the Buyers
is acting  solely in the capacity of an arm's length  purchaser  with respect to
the Company in connection with the Transaction  Documents and the Certificate of
Designations and the transactions  contemplated hereby and thereby.  The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company  (or in any similar  capacity)  with  respect to the  Transaction
Documents and the Certificate of Designations and the transactions  contemplated
hereby and  thereby  and any  advice  given by any of the Buyers or any of their
respective   representatives  or  agents  in  connection  with  the  Transaction
Documents and the Certificate of Designations and the transactions  contemplated
hereby  and  thereby  is  merely  incidental  to such  Buyer's  purchase  of the
Securities.  The Company  further  represents  to each Buyer that the  Company's
decision to enter into the  Transaction  Documents  has been based solely on the
independent evaluation by the Company and its representatives.

                  j.  No  Undisclosed  Events,   Liabilities,   Developments  or
Circumstances.  Except for the  issuance  of the  Preferred  Shares and  Warrant
contemplated by this Agreement,  no material  event,  liability,  development or
circumstance has occurred or exists,  or is contemplated to occur,  with respect
to the Company or its  Subsidiaries or their  respective  business,  properties,
prospects,  operations  or  financial  condition,  that would be  required to be
disclosed by the Company  under  applicable  securities  laws on a  registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by the
Company of its Common Stock and which has not been publicly disclosed.

                  k. No General  Solicitation.  Neither the Company,  nor any of
its affiliates, nor 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 1933 Act) in  connection  with the offer or sale of the
Securities.

                                      -10-

<PAGE>

                  l. 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 require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities 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 any exchange or automated quotation system on
which any of the  securities of the Company are listed or  designated,  nor will
the  Company  or any of its  Subsidiaries  take any  action or steps  that would
require  registration  of any of the Securities  under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.

                  m. Dilutive Effect.  The Company  understands and acknowledges
that the number of Conversion  Shares  issuable upon conversion of the Preferred
Shares will increase in certain circumstances.  The Company further acknowledges
that its obligation to issue Conversion  Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations and
its  obligation  to issue the Warrant  Shares upon  exercise of the  Warrants in
accordance with this Agreement and the Warrants,  is, in each case, absolute and
unconditional  regardless of the dilutive  effect that such issuance may have on
the ownership interests of other stockholders of the Company.

                  n.  Employee  Relations.  Neither  the  Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries,  is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's  relationship  with the Company,  neither the Company nor any of
its  Subsidiaries  is a party  to a  collective  bargaining  agreement,  and the
Company and its  Subsidiaries  believe that their relations with their employees
are good.  No executive  officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's  employment with the Company.  No executive officer, to
the knowledge of the Company and its Subsidiaries, is, or is now expected to be,
in violation of any material term of any employment  contract,  confidentiality,
disclosure or proprietary information agreement,  non-competition  agreement, or
any other  contract  or  agreement  or any  restrictive  covenant,  and,  to the
knowledge  of the  Company,  the  continued  employment  of each such  executive
officer does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters.

                  o.   Intellectual   Property  Rights.   The  Company  and  its
Subsidiaries  own or possess  adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations,  service names, patents,
patent  rights,  copyrights,   inventions,  licenses,  approvals,   governmental
authorizations,  trade secrets and other intellectual  property rights necessary
to conduct their respective businesses as now conducted.  Except as set forth on
Schedule 3(o),  none of the Company's  trademarks,  trade names,  service marks,
service mark registrations,  service names, patents, patent rights,  copyrights,
inventions, licenses, approvals,  governmental authorizations,  trade secrets or
other  intellectual  property  rights  necessary  to  conduct  their  respective
businesses  as now  conducted  have  expired or  terminated,  or are expected to
expire or  terminate  within two years from the date of this  Agreement,  except
where such expirations or termination would not result,  either  individually or
in the aggregate, in a Material Adverse Effect. The Company and its Subsidiaries
do not have any knowledge of any

                                      -11-

<PAGE>

infringement  by the Company or its  Subsidiaries  of  trademarks,  trade names,
service  marks,  service mark  registrations,  service  names,  patents,  patent
rights,  copyrights,  inventions,  licenses, trade secrets or other intellectual
property  rights of others,  or of any development of similar or identical trade
secrets or technical  information by others and, except as set forth on Schedule
3(o), there is no claim,  action or proceeding being made or brought against, or
to the  Company's  knowledge,  being  threatened  against,  the  Company  or its
Subsidiaries regarding its trademarks,  trade names, service marks, service mark
registrations,  service names, patents, patent rights,  copyrights,  inventions,
licenses,  trade secrets, or infringement of other intellectual property rights;
and the Company and its  Subsidiaries  are unaware of any facts or circumstances
which might give rise to any of the foregoing.  The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy,  confidentiality
and value of all of their intellectual properties.

                  p.  Environmental  Laws. The Company and its  Subsidiaries (i)
are in material compliance with any and all applicable foreign,  federal,  state
and local laws and  regulations  relating to the  protection of human health and
safety,  the environment or hazardous or toxic substances or wastes,  pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other  approvals  required  of them under  applicable  Environmental  Laws to
conduct their respective businesses,  except for such permits, licenses or other
approvals,  the failure to receive would not result,  either  individually or in
the aggregate, in a Material Adverse Effect and (iii) are in material compliance
with all terms and conditions of any such permit, license or approval.

                  q.  Title.  The  Company  and its  Subsidiaries  have good and
marketable  title in fee  simple to all real  property  and good and  marketable
title to all personal  property  owned by them which is material to the business
of the Company and its  Subsidiaries,  in each case free and clear of all liens,
encumbrances  and defects  except such as are described in Schedule 3(q) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such  property by the Company and any of
its  Subsidiaries.  Any real  property  and  facilities  held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries.

                  r.  Insurance.  The Company and each of its  Subsidiaries  are
insured by insurers of recognized financial  responsibility  against such losses
and risks and in such  amounts  as  management  of the  Company  believes  to be
prudent  and  customary  in  the   businesses  in  which  the  Company  and  its
Subsidiaries  are engaged.  Neither the Company nor any such  Subsidiary has any
reason  to  believe  that it will not be able to renew  its  existing  insurance
coverage as and when such coverage  expires or to obtain  similar  coverage from
similar  insurers as may be  necessary  to continue  its business at a cost that
would not have a Material Adverse Effect, taken as a whole.

                  s.  Regulatory  Permits.  The  Company  and  its  Subsidiaries
possess all certificates,  authorizations  and permits issued by the appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  except  for  those  certificates,   authorizations  and
permits,  the failure to obtain would not result,  either individually

                                      -12-

<PAGE>

or in the aggregate in 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.

                  t. Internal Accounting  Controls.  The Company and each of its
Subsidiaries  maintain a system of internal  accounting  controls  sufficient to
provide  reasonable  assurance that (i)  transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted  accounting  principles and to maintain asset
and liability accountability,  (iii) access to assets or incurrence of liability
is  permitted  only  in  accordance  with   management's   general  or  specific
authorization and (iv) the recorded accountability for assets and liabilities is
compared with the existing  assets and  liabilities at reasonable  intervals and
appropriate action is taken with respect to any differences.

                  u. No Materially Adverse  Contracts,  Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter,  corporate or other legal
restriction,  or any judgment,  decree,  order,  rule or regulation which in the
judgment of the  Company's  officers  has or is expected in the future to have a
Material Adverse Effect.

                  v. Tax Status.  The Company and each of its  Subsidiaries  (i)
has made or filed all  federal  and  state  income  and all  other tax  returns,
reports and  declarations  required by any  jurisdiction  to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books  provisions  reasonably  adequate  for the payment of all
unpaid and  unreported  taxes),  (ii) has paid all taxes and other  governmental
assessments  and charges that are material in amount,  shown or determined to be
due on such returns,  reports and declarations,  except those being contested in
good faith and for which the Company has made  appropriate  reserves  for on its
books, and (iii) has set aside on its books provisions  reasonably  adequate for
the  payment of all taxes for  periods  subsequent  to the periods to which such
returns,  reports or declarations (referred to in clause (i) above) apply. There
are no unpaid  taxes in any  material  amount  claimed  to be due by the  taxing
authority of any jurisdiction,  and the officers of the Company know of no basis
for any such claim.

                  w.  Transactions  With  Affiliates.  Except  as set  forth  on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the date
hereof,  and other than the grant of stock options  disclosed on Schedule  3(c),
none of the  officers,  directors,  or  employees  of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as  employees,  officers and  directors),  including  any contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any such officer,  director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer,  director,  or employee has a substantial interest or is
an officer, director, trustee or partner.

                  x.  Application of Takeover  Protections.  The Company and its
board of directors have taken all necessary  action,  if any, in order to render
inapplicable any control share acquisition,  business  combination,  poison pill
(including  any  distribution   under  a  rights  agreement)  or  other  similar
anti-takeover  provision under the Certificate of  Incorporation  or the

                                      -13-

<PAGE>

laws of the state of its  incorporation  which is or could become  applicable to
the  Buyers  as a result of the  transactions  contemplated  by this  Agreement,
including,  without limitation, the Company's issuance of the Securities and the
Buyers' ownership of the Securities.

                  y. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar  arrangement  relating  to  accumulations  of  beneficial
ownership of Common Stock or a change in control of the Company.

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

                  aa. No Other  Agreements.  The  Company  has not,  directly or
indirectly,  made any  agreements  with any  Buyer(s)  relating  to the terms or
conditions of the transactions  contemplated by the Transaction Documents except
as set forth in the Transaction Documents.

         4.       COVENANTS.

                  a. Best  Efforts.  Each  party  shall use its best  efforts to
timely  satisfy  each of the  conditions  to be  satisfied  by it as provided in
Sections 6 and 7 of this Agreement.

                  b. Form D and Blue Sky.  The  Company  agrees to file a Form D
with respect to the Securities as required  under  Regulation D and to provide a
copy thereof to each Buyer promptly after such filing.  The Company shall, on or
before the  applicable  Closing  Date,  take such  action as the  Company  shall
reasonably  determine is  necessary  in order to obtain an  exemption  for or to
qualify the Securities  for sale to the Buyers at such Closing  pursuant to this
Agreement  under  applicable  securities or "Blue Sky" laws of the states of the
United  States,  and shall  provide  evidence of any such action so taken to the
Buyers on or prior to the  applicable  Closing Date.  The Company shall make all
filings and reports  relating to the offer and sale of the  Securities  required
under  applicable  securities  or "Blue  Sky" laws of the  states of the  United
States following the applicable Closing Date.

                  c. Reporting Status. Until the date on which the Investors (as
defined  in the  Registration  Rights  Agreement)  shall  have  sold  all of the
Conversion Shares and the Warrant Shares and none of the Preferred Shares or the
Warrant is  outstanding  (the  "Reporting  Period"),  the Company shall file all
reports  required  to be filed with the SEC  pursuant  to the 1934 Act,  and the
Company  shall not  terminate  its status as an issuer  required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations  thereunder
would otherwise permit such termination.

                                      -14-

<PAGE>

                  d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares and the Warrants for general corporate purposes and
working capital.

                  e.  Financial  Information.  The  Company  agrees  to send the
following to each Investor (as that term is defined in the  Registration  Rights
Agreement) during the Reporting Period:  (i) unless the following are filed with
the SEC through EDGAR and are available to the public through EDGAR,  within two
(2) days after the filing  thereof with the SEC, a copy of its Annual Reports on
Form 10-K, its Quarterly  Reports on Form 10-Q, any Current  Reports on Form 8-K
and any  registration  statements  (other than on Form S-8) or amendments  filed
pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile
copies of all press releases  issued by the Company or any of its  Subsidiaries;
and (iii) copies of any notices and other information made available or given to
the  stockholders of the Company  generally,  contemporaneously  with the making
available or giving thereof to the stockholders.

                  f.  Reservation  of Shares.  The Company shall take all action
necessary  to at all times have  authorized,  and  reserved  for the  purpose of
issuance,  no less than 150% of the number of shares of Common  Stock  needed to
provide for the  issuance of the shares of Common Stock upon  conversion  of all
outstanding  Preferred Shares (without regard to any limitations on conversions)
and 100% of the  number  of shares of Common  Stock  needed to  provide  for the
issuance of the shares of Common Stock upon exercise of all outstanding Warrants
(without regard to any limitations on exercises).

                  g. Listing.  The Company shall promptly  secure the listing of
all of the  Registrable  Securities  (as  defined  in  the  Registration  Rights
Agreement)  upon each  national  securities  exchange  and  automated  quotation
system,  if any,  upon which shares of Common Stock are then listed  (subject to
official notice of issuance) and shall maintain,  so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time  issuable  under the  terms of the  Transaction  Documents  and the
Certificate  of  Designations.  The Company  shall  maintain the Common  Stock's
authorization  for quotation on the Nasdaq National Market  ("Nasdaq") or listed
on The New York Stock  Exchange,  Inc.  ("NYSE") or The American Stock Exchange,
Inc. ("AMEX") (as applicable,  the "Principal Market").  Neither the Company nor
any of its Subsidiaries shall take any action which would be reasonably expected
to result in the  delisting or suspension of the Common Stock from the Principal
Market.  The  Company  shall  pay all  fees  and  expenses  in  connection  with
satisfying its obligations under this Section 4(g).

                  h. Expenses.  At the Closing, the Company shall pay an expense
allowance  of $30,000  (which  amount is in addition to any amounts  paid by the
Company prior to the date of this  Agreement) to HFTP Investment  L.L.C.,  which
amount shall be withheld by HFTP Investment L.L.C. from its Purchase Price to be
paid at the Initial Closing.

                  i. Filing of Form 8-K;  Press  Release.  After 6:00 p.m.,  New
York City Time,  on December  10,  2001,  but prior to 8:45 a.m.,  New York City
Time,  on December  11,  2001,  the  Company  shall file a Form 8-K with the SEC
describing  the  terms  of the  transactions  contemplated  by  the  Transaction
Documents and including as exhibits to such Form 8-K this  Agreement  (including
the  Schedule of  Exceptions  hereto),  the  Certificate  of  Designations,  the
Registration  Rights Agreement and the Form of Warrant,  in the form required by
the 1934 Act (the "Announcing Form 8-K"). The Company shall not, and shall cause
each of its  Subsidiaries

                                      -15-

<PAGE>

and each of their respective officers,  directors,  employees and agents not to,
provide the Buyer with any material nonpublic  information regarding the Company
or any of its Subsidiaries  from and after the filing of the Announcing Form 8-K
with the SEC without the express  written  consent of the Buyer.  The  Company's
first press release or other  announcement of this Agreement or the transactions
contemplated  by this Agreement  shall be made concurrent with the filing of the
Announcing Form 8-K with the SEC.

                  j.  Transactions  With  Affiliates.  So long as any  Preferred
Shares or Warrants are outstanding,  the Company shall not, and shall cause each
of its  Subsidiaries  not to,  enter  into,  amend,  modify  or  supplement  any
agreement,  transaction,  commitment  or  arrangement  with  any  of  its or any
Subsidiary's officers,  directors, persons who were officers or directors at any
time during the previous two years, stockholders who beneficially own 5% or more
of the Common Stock,  or affiliates of the Company or its  Subsidiaries  or with
any individual related by blood,  marriage or adoption to any such individual or
with  any  entity  in which  any such  entity  or  individual  owns a 5% or more
beneficial  interest  (each  a  "Related  Party"),   except  for  (a)  customary
employment  arrangements  and benefit  programs  on  reasonable  terms,  (b) any
agreement,  transaction,  commitment or arrangement  on an arms-length  basis on
terms no less  favorable  than terms  which  would have been  obtainable  from a
person  other  than  such  Related  Party,  or (c) any  agreement,  transaction,
commitment or arrangement  which is approved by a majority of the  disinterested
directors  of the  Company.  For  purposes  hereof,  any director who is also an
officer of the Company or any Subsidiary  shall not be a disinterested  director
with respect to any such  agreement,  transaction,  commitment  or  arrangement.
"Affiliate"  for purposes  hereof  means,  with respect to any person or entity,
another  person or entity  that,  directly or  indirectly,  (i) has a 5% or more
equity interest in that person or entity,  (ii) has 5% or more common  ownership
with that person or entity, (iii) controls that person or entity, or (iv) shares
common control with that person or entity.  "Control" or "controls" for purposes
hereof  means  that a person or entity  has the power,  direct or  indirect,  to
conduct or govern the policies of another person or entity.

                  k Capital and Surplus;  Special  Reserves.  The Company agrees
that the  capital of the  Company  (as such term is used in  Section  154 of the
General Corporation Law of Delaware) in respect of the Preferred Shares shall be
equal to the aggregate par value of such Preferred  Shares and that it shall not
increase the capital of the Company with respect to any shares of the  Company's
capital  stock at anytime on or after the date of this  Agreement.  The  Company
also agrees that it shall not create any special  reserves  under Section 171 of
the General  Corporation  Law of Delaware  without the prior written  consent of
each  holder  of  Preferred  Shares.  So long  as any  Preferred  Shares  remain
outstanding,  the  Company  shall not  account  for as surplus or transfer to or
otherwise allocate to the Company's surplus account for purposes of the Delaware
General  Corporation Law any of the capital represented by the Preferred Shares,
including,  without  limitation,  for the purpose of reducing any of its capital
stock as contemplated by Section 244 of the Delaware  General  Corporation  Law.
The amount to be represented in the capital  account for the Preferred  Stock at
all times for each  outstanding  Preferred Share shall be an amount equal to the
product of (i) the Stated Value (as defined in the Certificate of  Designations)
and (ii) 125%.

                  l. Corporate Existence. So long as any Buyer beneficially owns
any  Preferred  Shares or Warrants,  the Company  shall  maintain its  corporate
existence and shall not

                                      -16-

<PAGE>

sell all or substantially all of the Company's assets,  except in the event of a
merger or  consolidation  or sale of all or  substantially  all of the Company's
assets,  where the surviving or successor entity in such transaction (i) assumes
the Company's  obligations  hereunder and under the agreements  and  instruments
entered into in connection  herewith and (ii) is a publicly  traded  corporation
whose common stock is quoted on or listed for trading on Nasdaq, AMEX or NYSE.

                  m. Pledge of Securities.  The Company  acknowledges and agrees
that  the  Securities  may  be  pledged  by  an  Investor  (as  defined  in  the
Registration  Rights  Agreement) in connection with a bona fide margin agreement
or other loan secured by the Securities.  The pledge of Securities  shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder,  and no
Investor  effecting any such pledge of  Securities  shall be required to provide
the  Company  with any notice  thereof or  otherwise  make any  delivery  to the
Company  pursuant  to this  Agreement,  any other  Transaction  Document  or the
Certificate of Designations,  including without limitation, Section 2(f) of this
Agreement; provided that an Investor and its pledgee shall be required to comply
with the  provisions of Section 2(f) hereof in order to effect a sale,  transfer
or  assignment  of  Securities  to such  pledgee.  The Company  hereby agrees to
execute  and  deliver  such  documentation  as a pledgee of the  Securities  may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.

                  n. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
be not later  than 90 days  after the  Initial  Closing  Date (the  "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers  and a  counsel  of their  choice,  soliciting  each  such  stockholder's
affirmative  vote  at  such  annual  stockholder  meeting  for  approval  of the
Company's  issuance of all of the  Securities as described in this  Agreement in
accordance  with  applicable law and the rules and  regulations of the Principal
Market (such  affirmative  approval being referred to herein as the "Stockholder
Approval"),  and  the  Company  shall  use  its  best  efforts  to  solicit  its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the  stockholders  that they approve
such proposal. Such proxy statement shall not seek approval of any matters other
than the  approval  described  in the  preceding  sentence  and the  election of
directors.  The Company shall file such proxy  statement with the SEC as soon as
possible but in no event later than 60 days after the Initial  Closing Date (the
"Proxy  Statement  Filing Due  Date").  If the  Company  fails to file the proxy
statement  referred to above by the Proxy Statement  Filing Due Date or fails to
hold a meeting of its stockholders by the Stockholder Meeting Deadline, then, as
partial  relief  (which  remedy  shall not be  exclusive  of any other  remedies
available  at law or in  equity),  the  Company  shall  pay to  each  holder  of
Preferred  Shares an amount in cash per Preferred  Share equal to the product of
(i) the Purchase Price  multiplied by (ii) .015 multiplied by (iii) the quotient
of (x) the sum of (A) the  number of days after the Proxy  Statement  Filing Due
Date and prior to the date that the proxy  statement  referred to above is filed
with the SEC and (B) the number of days after the Stockholder  Meeting  Deadline
and prior to the date  that a meeting  of the  Company's  stockholders  is held,
divided  by (y) 30.  The  Company  shall make the  payments  referred  to in the
immediately preceding sentence within five days of the earlier of (I) the filing
of  the  proxy  statement  or  the  holding  of the  meeting  of  the  Company's
stockholders,  the  failure of which  resulted in the  requirement  to make such
payments,  and (II) the last day of each 30-day  period  beginning  on the Proxy
Statement Filing Due Date or the Stockholder  Meeting Deadline,  as the case may
be. In the event the Company  fails to make such  payments  in a timely  manner,
such

                                      -17-

<PAGE>

payments  shall  bear  interest  at the rate of 1.50% per month  (pro  rated for
partial months) until paid in full.

                  o.       Trading Restrictions.

         (i) Each Buyer agrees that, subject to the exceptions  described below,
         during the Alternative Conversion Period (as defined in the Certificate
         of  Designations),  such  Buyer and its  affiliates  shall not make Net
         Sales (as  defined  below) on any single  day  during  the  Alternative
         Conversion Period, a number of shares of Common Stock in excess of that
         percentage of the daily trading volume of the Common Stock (as reported
         by Bloomberg  Financial Markets (or any successor thereto)) on such day
         equal to the product of (I) the quotient of (x) the number of Preferred
         Shares  purchased  by such Buyer and its  affiliates  pursuant  to this
         Agreement   divided  by  (y)   15,820,   multiplied   by  (II)   15.82.
         Notwithstanding  the foregoing,  the net sales restriction set forth in
         this Section  4(o)(i)  shall not apply (A) at any time on and after the
         occurrence  of a  Triggering  Event (as defined in the  Certificate  of
         Designations)  or the  occurrence  of an event that with the passage of
         time,  and  assuming it were not cured,  would  constitute a Triggering
         Event,  (B) at any time on and  after the  consummation  of a Change of
         Control (as defined in the Certificate of  Designations)  or the public
         announcement of a pending,  proposed or intended Change of Control, (C)
         on and after the  Stockholder  Approval  Deadline if the Company  shall
         have  failed to receive  the  Stockholder  Approval  on or prior to the
         Stockholder Approval Deadline or (D) at any time on and after the first
         date on which  the  Company  shall  have  failed  to  comply  with,  or
         breached, any provision, covenant, representation or warranty in any of
         the  Transaction  Documents or the  Certificate of  Designations  which
         would result,  either  individually or in the aggregate,  in a Material
         Adverse  Effect and, in the case of a covenant  which is curable,  such
         breach  continues for a period of at least ten (10) days.  For purposes
         of this Section 4(o)(i), "Net Sales" means, with respect to any date of
         determination  and with respect to any Buyer, the difference of (A) the
         number of shares of Common Stock sold, including by way of short sales,
         or otherwise  transferred or disposed of,  directly or  indirectly,  on
         such date of determination by such Buyer and its affiliates,  minus (B)
         the number of shares of Common Stock purchased, directly or indirectly,
         on such date of determination by such Buyer and its affiliates.

         (ii)  Each  Buyer  agrees  that  during  the  period  beginning  on and
         including  the Initial  Closing  Date and ending on and  including  the
         earlier of (A) the first  date on which such Buyer no longer  holds any
         Preferred  Shares or Warrants and (B) the date which is three (3) years
         after the Initial Closing Date, such Buyer shall not effect,  nor shall
         such Buyer cause any of its affiliates to effect,  any "short sale" (as
         defined  in Rule  3b-3 of the 1934 Act) of the  Common  Stock (a "Short
         Sale") on any  trading day (a "Sale Day") at a price which is less than
         the  lowest  sale  price of the  Common  Stock on such  Sale Day by any
         seller other than such Buyer and its affiliates.

         (iii) Each Buyer  agrees  that,  subject  to the  exceptions  described
         below, during the period beginning on and including the Initial Closing
         Date and ending on and  including  the earlier of (A) the first date on
         which such Buyer no longer holds any  Preferred  Shares or Warrants and
         (B) the date which is three (3) years after the Initial  Closing  Date,
         such

                                      -18-

<PAGE>

         Buyer  shall not  engage  in,  nor shall  such  Buyer  cause any of its
         affiliates to engage in, any  transaction  constituting a Short Sale or
         establish an open "put equivalent position" (within the meaning of Rule
         16a-1(h)  under  the  1934  Act)  with  respect  to  the  Common  Stock
         (collectively  with a transaction  constituting  a Short Sale, a "Short
         Equivalent  Transaction");  provided,  however, that during such period
         each  Buyer and its  affiliates  shall be  entitled  to engage in Short
         Equivalent  Transactions  to  the  extent  that  following  such  Short
         Equivalent   Transaction  the  aggregate   short  position   (including
         aggregate  open  "put  equivalent  positions")  of such  Buyer  and its
         affiliates  does not  exceed  the sum of (A) the  number  of  shares of
         Common Stock issuable upon exercise (which shall be determined as if an
         Exercise Notice (as defined in the Warrants) had been delivered) of the
         Warrants held by such Buyer and its affiliates  (without  regard to any
         limitations on  exercises),  (B) (I) on any day other than a day during
         the  Adjustment  Period  (as  defined  below),  the number of shares of
         Common Stock issuable upon conversion  (which shall be determined as if
         a Conversion Notice (as defined in the Certificate of Designations) was
         delivered)  of  the  Preferred  Shares  held  by  such  Buyer  and  its
         affiliates  (without regard to any limitations on conversions) and (II)
         on any day during the Adjustment Period, the number of shares of Common
         Stock equal to the result of (w) the aggregate  Conversion  Amounts (as
         defined in the Certificate of Designations) of all the Preferred Shares
         held by such Buyer and its affiliates,  divided by (x) the lower of (i)
         the Conversion Price (as defined in the Certificate of Designations) in
         effect  on  such  date of  determination  and  (ii) as of such  date of
         determination, the arithmetic average of the Weighted Average Price (as
         defined in the Certificate of Designations) of the Common Stock on each
         trading day during the period  beginning on and including the first day
         of the  Adjustment  Period  and  ending on and  including  such date of
         determination,  plus (C) the number of  Dividend  Shares (as defined in
         the  Certificate  of  Designations)  issuable  to  such  Buyer  and its
         affiliates with respect to the Preferred  Shares held by such Buyer and
         its affiliates.  Notwithstanding  the foregoing,  the  restrictions set
         forth in this Section  4(o)(iii) shall not apply (I) at any time on and
         after  the  occurrence  of  a  Triggering  Event  (as  defined  in  the
         Certificate  of  Designations)  or the occurrence of an event that with
         the passage of time, and assuming it were not cured, would constitute a
         Triggering  Event,  (II) at any time on and after the consummation of a
         Change of Control (as defined in the  Certificate of  Designations)  or
         the public  announcement  of a pending,  proposed or intended Change of
         Control,  (III) at any time on and after  the  first  date on which the
         Company  shall  have  failed  to  delivered  the  required   number  of
         Conversion  Shares to any Buyer or its  affiliates  upon  conversion of
         Preferred Shares held by such Buyer or its affiliates on a timely basis
         in accordance with Section  2(d)(ii) of the Certificate of Designations
         or the  Company  shall have failed to deliver  the  required  number of
         Warrant  Shares to any Buyer or its  affiliates  upon  exercise  of the
         Warrants  held by such  Buyer or its  affiliates  on a timely  basis in
         accordance  with Section 2(a) of the  Warrants,  or (IV) at any time on
         and after the first  date on which the  Company  shall  have  failed to
         comply with, or breached,  any provision,  covenant,  representation or
         warranty in any of the  Transaction  Documents  or the  Certificate  of
         Designations  which  would  result,   either  individually  or  in  the
         aggregate,  in a Material Adverse Effect and, in the case of a covenant
         which is curable,  such breach  continues  for a period of at least ten
         (10) days. For purposes of this Section 4(o), "Adjustment Period" means
         the period (A)  beginning on and  including the earlier of (y) the date
         which is 20 trading days prior to the date  immediately  following  the
         date which is 120 days after the date the  Registration  Statement  (as
         defined in the Registration  Rights

                                      -19-

<PAGE>

         Agreement)  is declared  effective by the SEC and (z) the date which is
         20  trading  days  prior  to the  Adjustment  Date (as  defined  in the
         Certificate  of  Designations)  and (B)  ending  on and  including  the
         Adjustment Date.

         5.       TRANSFER AGENT INSTRUCTIONS.

                  The  Company  shall  issue  irrevocable  instructions  to  its
transfer  agent in the form  attached  hereto  as  Exhibit  F (the  "Irrevocable
Transfer Agent  Instructions"),  and any  subsequent  transfer  agent,  to issue
certificates, registered in the name of each Buyer or its respective nominee(s),
for the  Conversion  Shares and the Warrant  Shares in such amounts as specified
from time to time by each Buyer to the Company upon  conversion of the Preferred
Shares or exercise of the  Warrants.  Prior to  registration  of the  Conversion
Shares and the Warrant  Shares under the 1933 Act, all such  certificates  shall
bear the restrictive legend specified in Section 2(g). The Company warrants that
no instruction other than the Irrevocable  Transfer Agent Instructions  referred
to in this Section 5 and stop  transfer  instructions  to give effect to Section
2(f) (in the case of the  Conversion  Shares and the  Warrant  Shares,  prior to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely  transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration  Rights Agreement.
If a Buyer  provides  the  Company  with an opinion of  counsel,  in a generally
acceptable form, to the effect that a public sale, assignment or transfer of the
Securities  may be made  without  registration  under the 1933 Act or such Buyer
provides the Company with reasonable  assurances that the Securities can be sold
pursuant  to Rule 144  without any  restriction  as to the number of  securities
acquired as of a particular date that can then be immediately  sold, the Company
shall permit the  transfer,  and, in the case of the  Conversion  Shares and the
Warrant  Shares,  promptly  instruct  its  transfer  agent to issue  one or more
certificates in such name and in such  denominations  as specified by the Buyers
and without any restrictive legend. The Company acknowledges that a breach by it
of its  obligations  hereunder  will  cause  irreparable  harm to the  Buyer  by
vitiating  the  intent  and  purpose  of the  transaction  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations  under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened  breach by the Company of the  provisions of this Section
5, that the  Buyers  shall be  entitled,  in  addition  to all  other  available
remedies,  to an order and/or  injunction  restraining  any breach and requiring
immediate issuance and transfer,  without the necessity of showing economic loss
and without any bond or other security being required.

         6.  CONDITIONS TO THE COMPANY'S  OBLIGATION TO SELL.  The obligation of
the  Company to issue and sell the  Preferred  Shares and the  Warrants  to each
applicable Buyer at the applicable Closing is subject to the satisfaction, at or
before  the  applicable  Closing  Date,  of  each of the  following  conditions,
provided that these  conditions  are for the  Company's  sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
purchasing  Preferred  Shares and Warrants at such  Closing  with prior  written
notice thereof:

                  a. Such Buyer  shall  have  executed  each of the  Transaction
Documents to which it is a party and delivered the same to the Company.

                                      -20-

<PAGE>

                  b. Such Buyer shall have delivered to the Company the Purchase
Price (less the amounts  withheld  pursuant to Section  4(h)) for the  Preferred
Shares and the Warrants being purchased by such Buyer at the applicable  Closing
by  wire  transfer  of  immediately   available   funds  pursuant  to  the  wire
instructions provided by the Company.

                  c. The  representations  and warranties of such Buyer shall be
true and correct as of the date when made and as of the applicable  Closing Date
as though made at that time  (except for  representations  and  warranties  that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied  with  the  covenants,   agreements  and  conditions  required  by  the
Transaction Documents to be performed,  satisfied or complied with by such Buyer
at or prior to the applicable Closing Date.

         7.       CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

                  a. Initial  Closing Date. The obligation of each Initial Buyer
to purchase  the Initial  Preferred  Shares and the  Initial  Warrants  from the
Company at the Initial Closing is subject to the satisfaction,  at or before the
Initial Closing Date, of each of the following  conditions,  provided that these
conditions  are for each Initial  Buyer's sole benefit and may be waived by such
Initial  Buyer at any time in its sole  discretion by providing the Company with
prior written notice thereof:

         (i) The Company shall have executed each of the  Transaction  Documents
         and delivered the same to such Initial Buyer.

         (ii) The  Certificate of  Designations,  shall have been filed with the
         Secretary  of  State  of the  State  of  Delaware,  and a copy  thereof
         certified by such  Secretary of State shall have been delivered to such
         Initial Buyer.

         (iii) The Common Stock (x) shall be designated  for quotation or listed
         on the  Principal  Market and (y) shall not have been  suspended by the
         SEC or the Principal  Market from trading on the  Principal  Market nor
         shall  suspension  by the SEC or the  Principal  Market  be  threatened
         either  (A) in  writing  by the SEC or the  Principal  Market or (B) by
         falling  below the  minimum  listing  maintenance  requirements  of the
         Principal Market.

         (iv) The  representations  and  warranties of the Company shall be true
         and correct as of the date when made and as of the Initial Closing Date
         as though made at that time (except for  representations and warranties
         that speak as of a specific date) and the Company shall have performed,
         satisfied and complied with the  covenants,  agreements  and conditions
         required by the  Transaction  Documents to be  performed,  satisfied or
         complied  with by the Company at or prior to the Initial  Closing Date.
         Such Initial Buyer shall have received a  certificate,  executed by the
         Chief Executive Officer of the Company, dated as of the Initial Closing
         Date,  to the  foregoing  effect and as to such other matters as may be
         reasonably   requested  by  such  Initial  Buyer   including,   without
         limitation,  an update as of the Initial  Closing  Date  regarding  the
         representation contained in Section 3(c) above.

         (v) Such  Initial  Buyer  shall  have  received  the  opinion of Wilson
         Sonsini  Goodrich & Rosati  dated as of the Initial  Closing  Date,  in
         form, scope and substance reasonably

                                      -21-

<PAGE>

         satisfactory  to such Initial  Buyer and in  substantially  the form of
         Exhibit D attached hereto.

         (vi) Such Initial  Buyer shall have  received the opinion of James Alan
         Cook,  Esq.,  General  Counsel of the Company,  dated as of the Initial
         Closing Date, in form, scope and substance  reasonably  satisfactory to
         such Initial Buyer and in substantially  the form of Exhibit E attached
         hereto.

         (vii) The Company  shall have  executed  and  delivered to such Initial
         Buyer  the  Preferred  Stock  Certificates  and the  Warrants  (in such
         denominations  as the Initial  Buyer shall  request) for the  Preferred
         Shares and the Warrants  being  purchased by such Initial  Buyer at the
         Initial Closing.

         (viii)  The  Board of  Directors  of the  Company  shall  have  adopted
         resolutions consistent with Section 3(b) above and in a form reasonably
         acceptable to such Initial Buyer (the "Resolutions").

         (ix) As of the Initial  Closing  Date,  the Company shall have reserved
         out of its authorized and unissued Common Stock, solely for the purpose
         of effecting the conversion of the Preferred Shares and the exercise of
         the Warrants, at least 10,816,165 shares of Common Stock.

         (x) The Irrevocable Transfer Agent Instructions, in the form of Exhibit
         F attached  hereto,  shall have been delivered to and  acknowledged  in
         writing by the Company's transfer agent and the Company shall deliver a
         copy thereof to such Initial Buyer.

         (xi)  The  Company  shall  have  delivered  to  such  Initial  Buyer  a
         certificate  evidencing  the  incorporation  and good  standing  of the
         Company  and  each  U.S.   Subsidiary   in  such   entity's   state  of
         incorporation or organization  issued by the Secretary of State of such
         state of  incorporation  or  organization  as of a date within ten (10)
         days of the Initial Closing Date.

         (xii)  The  Company  shall  have  delivered  to  such  Initial  Buyer a
         certified copy of the Certificate of  Incorporation as certified by the
         Secretary  of State of the State of  Delaware  as of a date  within ten
         (10) days of the Initial Closing Date.

         (xiii)  The  Company  shall  have  delivered  to such  Initial  Buyer a
         secretary's certificate,  dated as the Initial Closing Date, certifying
         as to (A) the Resolutions, (B) the Certificate of Incorporation and (C)
         the Bylaws, each as in effect at the Initial Closing.

         (xiv) The  Company  shall have made all  filings  under all  applicable
         federal and state  securities laws necessary to consummate the issuance
         of the Securities  pursuant to this  Agreement in compliance  with such
         laws.

         (xv) The Company  shall have  delivered to such Initial  Buyer a letter
         from the Company's  transfer  agent  certifying the number of shares of
         Common  Stock  outstanding  as of a date  within  five  (5) days of the
         Initial Closing Date.

                                      -22-

<PAGE>

         (xvi) The  Company  shall  have  delivered  to such  Initial  Buyer the
         consent of  Foothill  Capital  Corporation  to this  Agreement  and the
         transactions   contemplated   hereby  in  form,   scope  and  substance
         reasonably satisfactory to such Initial Buyer.

         (xvii) The Company  shall have  delivered  to such  Initial  Buyer such
         other  documents  relating  to the  transactions  contemplated  by this
         Agreement as such Initial Buyer or its counsel may reasonably request.

                  b. Second  Closing Date.  The  obligation of each Second Buyer
hereunder to purchase the Second  Preferred  Shares and the Second Warrants from
the Company at the Second Closing is subject to the  satisfaction,  at or before
the Second  Closing  Date, of each of the  following  conditions,  provided that
these  conditions  are for each Second Buyer's sole benefit and may be waived by
such Second Buyer at any time in its sole  discretion  by providing  the Company
with prior written notice thereof:

         (i) The Company shall have executed each of the  Transaction  Documents
         and delivered the same to such Second Buyer.

         (ii) The Initial Closing shall have occurred.

         (iii) Such  Second  Buyer  shall have  received  the  opinion of Wilson
         Sonsini  Goodrich & Rosati  dated as of the Initial  Closing  Date,  in
         form, scope and substance reasonably  satisfactory to such Second Buyer
         and in substantially the form of Exhibit D attached hereto.

         (iv) Such Second  Buyer shall have  received  the opinion of James Alan
         Cook,  Esq.,  General  Counsel of the Company,  dated as of the Initial
         Closing Date, in form, scope and substance  reasonably  satisfactory to
         such Second Buyer and in  substantially  the form of Exhibit E attached
         hereto.

         (v) The Company  shall have executed and delivered to such Second Buyer
         the   Preferred   Stock   Certificates   and  the   Warrants  (in  such
         denominations  as such Second Buyer shall  request)  for the  Preferred
         Shares and the  Warrants  being  purchased  by such Second Buyer at the
         Second Closing.

         8.  INDEMNIFICATION.  In  consideration  of each Buyer's  execution and
delivery of the  Transaction  Documents and acquiring the Securities  thereunder
and in addition to all of the Company's other  obligations under the Transaction
Documents  and the  Certificate  of  Designations,  the  Company  shall  defend,
protect,  indemnify  and hold  harmless  each Buyer and each other holder of the
Securities and all of their  stockholders,  officers,  directors,  employees and
direct or indirect  investors and any of the foregoing  persons' agents or other
representatives  (including,  without  limitation,  those retained in connection
with  the  transactions  contemplated  by  this  Agreement)  (collectively,  the
"Indemnitees")  from and against any and all actions,  causes of action,  suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith  (irrespective of whether any such Indemnitee is a party to
the  action  for which  indemnification  hereunder  is  sought),  and  including
reasonable  attorneys' fees

                                      -23-

<PAGE>

and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as
a result of, or arising  out of, or  relating  to (a) any  misrepresentation  or
breach of any  representation or warranty made by the Company in the Transaction
Documents or any other certificate,  instrument or document  contemplated hereby
or thereby,  (b) any breach of any  covenant,  agreement  or  obligation  of the
Company  contained  in  the  Transaction  Documents  or any  other  certificate,
instrument  or  document  contemplated  hereby or  thereby,  or (c) any cause of
action,  suit or claim  brought or made  against such  Indemnitee  (other than a
cause of action,  suit or claim  which is (x) brought or made by the Company and
(y) is not a shareholder  derivative  suit) and arising out of or resulting from
any misrepresentation or breach, or alleged  misrepresentation or breach, of any
representation or warranty made by the Company in the Transaction Documents,  or
the breach or alleged  breach of any  covenant,  agreement or  obligation of the
Company contained in the Transaction Documents. To the extent that the foregoing
undertaking  by the Company  may be  unenforceable  for any reason,  the Company
shall make the maximum  contribution to the payment and  satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein,  the  mechanics and  procedures  with respect to the
rights and obligations under this Section 8 shall be the same as those set forth
in  Sections  6(a)  and (d) of the  Registration  Rights  Agreement,  including,
without  limitation,  those  procedures with respect to the settlement of claims
and the Company's rights to assume the defense of claims.

         9.       GOVERNING LAW; MISCELLANEOUS.

                  a.  Governing  Law;  Jurisdiction;  Jury Trial.  All questions
concerning the construction,  validity,  enforcement and  interpretation of this
Agreement  shall be  governed  by the  internal  laws of the  State of New York,
without  giving effect to any choice of law or conflict of law provision or rule
(whether  of the State of New York or any other  jurisdiction)  that would cause
the  application  of the laws of any  jurisdiction  other  than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the  state and  federal  courts  sitting  in the City of New  York,  borough  of
Manhattan,  for the  adjudication  of any  dispute  hereunder  or in  connection
herewith or with any transaction  contemplated  hereby or discussed herein,  and
hereby  irrevocably  waives,  and  agrees  not to assert in any suit,  action or
proceeding,  any claim that it is not personally  subject to the jurisdiction of
any  such  court,  that  such  suit,  action  or  proceeding  is  brought  in an
inconvenient  forum or that the  venue of such  suit,  action or  proceeding  is
improper.  Each party hereby  irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
mailing a copy thereof to such party at the address for such 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.
EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE,  AND AGREES NOT TO
REQUEST,  A JURY  TRIAL FOR THE  ADJUDICATION  OF ANY  DISPUTE  HEREUNDER  OR IN
CONNECTION  HEREWITH  OR  ARISING  OUT OF  THIS  AGREEMENT  OR  ANY  TRANSACTION
CONTEMPLATED HEREBY.

                  b. Counterparts. This Agreement may be executed in two or more
identical  counterparts,  all of  which  shall  be  considered  one and the same
agreement and shall become effective when  counterparts have been signed by each
party and  delivered to the other  party;

                                      -24-

<PAGE>

provided that a facsimile  signature shall be considered due execution and shall
be binding upon the  signatory  thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

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

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

                  e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written  agreements  between each Buyer, the Company,  their
affiliates  and  persons  acting on their  behalf  with  respect to the  matters
discussed  herein,  and this  Agreement and the  instruments  referenced  herein
contain  the entire  understanding  of the parties  with  respect to the matters
covered  herein and therein  and,  except as  specifically  set forth  herein or
therein,  neither the Company nor any Buyer makes any representation,  warranty,
covenant or  undertaking  with  respect to such  matters.  No  provision of this
Agreement may be amended  other than by an  instrument in writing  signed by the
Company and the holders of at least a majority of the  Preferred  Shares  issued
pursuant to this Agreement, or, if prior to the Initial Closing Date, the Buyers
listed on the  Schedule  of Buyers as being  obligated  to  purchase  at least a
majority of the Preferred  Shares,  and no provision  hereof may be waived other
than by an instrument in writing signed by the party against whom enforcement is
sought.

                  f.   Notices.   Any  notices,   consents,   waivers  or  other
communications  required  or  permitted  to be  given  under  the  terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt,  when delivered  personally;  (ii) upon receipt, when sent by facsimile
(provided   confirmation  of  transmission  is  mechanically  or  electronically
generated and kept on file by the sending party);  or (iii) one (1) Business Day
after deposit with a nationally  recognized  overnight delivery service, in each
case  properly  addressed to the party to receive the same.  The  addresses  and
facsimile numbers for such communications shall be:

         If to the Company:

                  The 3DO Company
                  100 Cardinal Way
                  Redwood City, California 94063
                  Telephone: 650-385-3000
                  Facsimile: 650-385-3184
                  Attention: Chief Executive Officer

         With a copy to:

                  Wilson Sonsini Goodrich & Rosati
                  650 Page Mill Road
                  Palo Alto, California 94304

                                      -25-

<PAGE>

                  Telephone: 650-493-9300
                  Facsimile: 650-493-6811
                  Attention: Neil Wolff, Esq.
                             Yoichiro Taku, Esq.

         If to the Transfer Agent:

                  EquiServe
                  150 Royall Street
                  Canton, MA 02021
                  Telephone: 781-575-3766
                  Facsimile: 781-575-2420
                  Attention: Dawn Engelhardt

If to a Buyer,  to it at the  address  and  facsimile  number  set  forth on the
Schedule of Buyers, with copies to such Buyer's  representatives as set forth on
the Schedule of Buyers,  or at such other address and/or facsimile number and/or
to the  attention of such other person as the  recipient  party has specified by
written notice given to each other party five days prior to the effectiveness of
such change.  Written confirmation of receipt (A) given by the recipient of such
notice,   consent,   waiver  or  other   communication,   (B)   mechanically  or
electronically  generated by the sender's facsimile machine containing the time,
date,  recipient  facsimile  number  and an  image  of the  first  page  of such
transmission  or (C)  provided by a  nationally  recognized  overnight  delivery
service shall be rebuttable  evidence of personal service,  receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

                  g.  Successors and Assigns.  This  Agreement  shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations  hereunder  without the prior
written  consent of the holders of at least a majority of the  Preferred  Shares
then  outstanding,  including by merger or  consolidation,  except pursuant to a
Change  of  Control  (as  defined  in  Section  4(c)  of  the   Certificate   of
Designations)  with respect to which the Company is in  compliance  with Section
4(l) of the Agreement,  Section 4 of the Certificate of Designations and Section
9 of the  Warrants.  A Buyer  may  assign  some or all of its  rights  hereunder
without the consent of the Company, provided,  however, that any such assignment
shall  not  release  such  Buyer  from its  obligations  hereunder  unless  such
obligations  are  assumed  by such  assignee.  Notwithstanding  anything  to the
contrary contained in the Transaction Documents, the Buyers shall be entitled to
pledge the  Securities  in connection  with a bona fide margin  account or other
loan or financing arrangement secured by the Securities.

                  h. No Third Party  Beneficiaries.  This  Agreement is intended
for the benefit of the parties hereto and their respective  permitted successors
and  assigns,  and is not for the  benefit of, nor may any  provision  hereof be
enforced by, any other person.

                  i. Survival. The representations and warranties of the Company
and the Buyers  contained in Sections 2 and 3, the  agreements and covenants set
forth in Sections 4, 5 and 9, and the  indemnification  provisions  set forth in
Section 8, shall survive the Closings.  The

                                      -26-

<PAGE>

Buyer  shall  be  responsible  only  for  its own  representations,  warranties,
agreements and covenants hereunder.

                  j. Publicity.  The Company and each Buyer shall have the right
to approve  before  issuance any press  releases or any other public  statements
with respect to the transactions  contemplated hereby;  provided,  however, that
the Company shall be entitled,  without the prior approval of any Buyer, to make
any press release or other public  disclosure with respect to such  transactions
as is required by applicable law and  regulations  (although each Buyer shall be
consulted  by the  Company in  connection  with any such press  release or other
public  disclosure  prior  to its  release  and  shall be  provided  with a copy
thereof).

                  k. Further  Assurances.  Each party shall do and  perform,  or
cause to be done and  performed,  all such  further  acts and things,  and shall
execute and deliver all such other  agreements,  certificates,  instruments  and
documents,  as the other party may reasonably  request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                  l.  Termination.  In the event that the Initial  Closing shall
not have  occurred  with  respect  to an  Initial  Buyer on or  before  five (5)
Business Days from the date hereof due to the Company's or such Initial  Buyer's
failure to satisfy  the  conditions  set forth in Sections 6 and 7(a) above (and
the nonbreaching  party's failure to waive such unsatisfied  condition(s)),  the
nonbreaching  party  shall  have the option to  terminate  this  Agreement  with
respect to such  breaching  party at the close of business on such date  without
liability  of any  party to any other  party;  provided,  however,  that if this
Agreement is terminated  pursuant to this Section 9(l), the Company shall remain
obligated to reimburse  any  nonbreaching  Buyers for the expenses  described in
Section 4(h) above.

                  m.  Placement  Agent.  The  Company  acknowledges  that it has
engaged Gerard Klauer Mattison & Co., Inc. as placement agent in connection with
the sale of the Preferred Shares and the related Warrants, which placement agent
may have formally or informally  engaged other agents on its behalf. The Company
shall be responsible  for the payment of any placement  agent's fees or broker's
commissions relating to or arising out of the transactions  contemplated hereby.
The Company shall pay, and hold the Buyer harmless against, any liability,  loss
or expense  (including,  without  limitation,  attorneys' fees and out of pocket
expenses) arising in connection with any such claim.

                  n. No Strict Construction. The language used in this Agreement
will be deemed to be the language  chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

                  o.  Remedies.  Each  Buyer and each  holder of the  Securities
shall have all rights and remedies set forth in the  Transaction  Documents  and
the Certificate of  Designations  and all rights and remedies which such holders
have been  granted at any time under any other  agreement or contract and all of
the rights which such  holders have under any law. Any person  having any rights
under any provision of this  Agreement  shall be entitled to enforce such rights
specifically  (without posting a bond or other security),  to recover damages by
reason of any breach of any  provision  of this  Agreement  and to exercise  all
other rights granted by law.

                                      -27-

<PAGE>

                  p. Payment Set Aside.  To the extent that the Company  makes a
payment or payments  to the Buyers  hereunder  or  pursuant to the  Registration
Rights Agreement,  the Certificate of Designations or the Warrants or the Buyers
enforce or exercise their rights  hereunder or  thereunder,  and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated,  declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company by a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable  cause of action),  then to the extent of any such  restoration
the  obligation  or part thereof  originally  intended to be satisfied  shall be
revived and  continued  in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

                                   * * * * * *

                                      -28-

<PAGE>

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

COMPANY:                                         BUYERS:
--------                                         -------

THE 3DO COMPANY                         HFTP INVESTMENT L.L.C.
                                        By: Promethean Asset Management, L.L.C.
                                        Its: Investment Manager

By: /s/ James Alan Cook                 By: /s/ James F. O'Brien, Jr.
    -------------------                     -------------------------
    Name: James Alan Cook                   Name: James F. O'Brien, Jr.
    Title: Executive Vice President         Title: Managing Member

                                            /s/ Fari Amini
                                            --------------
                                            Fari Amini

                                            /s/ Augustus S. Hawkins
                                            -----------------------
                                            Augustus S. Hawkins

                                        WM. M. & HELEN S. HAWKINS Trust
                                        U/A Apr. 25, 1981

                                        By: /s/ William M. Hawkins, Jr.
                                            ---------------------------
                                            Name: William M. Hawkins, Jr.
                                            Title: Trustee

                                            /s/ Mark Lewis
                                            --------------
                                            Mark Lewis

                                            /s/ Michael Marks
                                            -----------------
                                            Michael Marks

                                        NAYLOR 1992 REVOCABLE TRUST
                                        u/t/a 2/4/92

                                        By: /s/ Duncan O. Naylor
                                            --------------------
                                            Name:  Duncan O. Naylor
                                            Title: Co-Trustee

                                        By: /s/ Barbara A. Naylor
                                            ---------------------
                                            Name:  Barbara A. Naylor
                                            Title: Co-Trustee

                                      -29

<PAGE>

                                        EUGENE & CORINNE O'KELLY, as
                                        joint tenants

                                        By: /s/ Eugene O'Kelly
                                            ------------------
                                            Name: Eugene O'Kelly

                                        By: /s/ Corinne O'Kelly
                                            -------------------
                                            Name: Corinne O'Kelly

                                        THE POSEHN FAMILY TRUST Dated
                                        10/5/94

                                        By: /s/ Michel R. Posehn
                                            --------------------
                                            Name: Michel R. Posehn
                                            Title: Trustee

                                            /s/ William R. Reid
                                            -------------------
                                            William R. Reid

                                            /s/ Gregory Walter Riker
                                            ------------------------
                                            /s/ Janis L Riker
                                            -----------------
                                            Gregory Walter Riker and
                                            Janis Lea Riker, Husband and Wife

                                            /s/ Charles W. Romberger
                                            ------------------------
                                            Charles W. Romberger

                                            /s/ Alfred Z. Spector
                                            ---------------------
                                            Alfred Z. Spector

                                            /s/ Bruce Zweig
                                            ---------------
                                            Bruce Zweig

<PAGE>

                                            GAIA OFFSHORE MASTER FUND, LTD.

                                            By:  Promethean Asset Management
                                                   L.L.C.
                                            Its: Investment Manager

                                            By: /s/ James F. O'Brien, Jr.
                                                -------------------------
                                                Name: /s/ James F. O'Brien, Jr.
                                                      -------------------------
                                                Title: Managing Member
                                                       ---------------

<PAGE>

<TABLE>
                                                     SCHEDULE OF BUYERS
<CAPTION>
                                                                            Number
                                                                              of
                                            Investor Address                Preferred       Investor's Legal Representatives'
       Investor's Name                    and Facsimile Number               Shares           Address and Facsimile Number
------------------------------    --------------------------------------    ----------     ------------------------------------

Initial Buyers:
---------------
<S>                               <C>                                       <C>            <C>
HFTP Investment L.L.C.            c/o Promethean Asset Management            9,000         Promethean Investment Group, L.L.C.
                                  L.L.C.                                                   750 Lexington Avenue, 22nd Floor
                                  750 Lexington Avenue, 22nd Floor                         New York, New York  10022
                                  New York, New York 10022                                 Attention: James F. O'Brien, Jr.
                                  Attention: James F. O'Brien, Jr.                                    John M. Floegel
                                             John M. Floegel                                          David M. Kittay
                                             David M. Kittay                               Telephone: (212) 702-5200
                                  Telephone: (212) 702-5200                                Facsimile: (212) 758-9334
                                  Facsimile: (212) 758-9334
                                                                                           Katten Muchin Zavis
                                  Residence: New York                                      525 W. Monroe Street
                                                                                           Chicago, Illinois 60661-3693
                                                                                           Attention: Robert J. Brantman, Esq.
                                                                                           Telephone: (312) 902-5200
                                                                                           Facsimile: (312) 902-1061

Gaia Offshore Master Fund,        c/o Promethean Asset Management            3,500         Promethean Investment Group, L.L.C.
Ltd.                              L.L.C.                                                   750 Lexington Avenue, 22nd Floor
                                  750 Lexington Avenue, 22nd Floor                         New York, New York  10022
                                  New York, New York 10022                                 Attention: James F. O'Brien, Jr.
                                  Attention: James F. O'Brien, Jr.                                    John M. Floegel
                                             John M. Floegel                                          David M. Kittay
                                             David M. Kittay                               Telephone: (212) 702-5200
                                  Telephone: (212) 702-5200                                Facsimile: (212) 758-9334
                                  Facsimile: (212) 758-9334
                                                                                           Katten Muchin Zavis
                                  Residence: New York                                      525 W. Monroe Street
                                                                                           Chicago, Illinois 60661-3693
                                                                                           Attention: Robert J. Brantman, Esq.
                                                                                           Telephone: (312) 902-5200
                                                                                           Facsimile: (312) 902-1061

Fari Amini                        202 Lagunitas Road                           100
                                  Ross, California 94957
                                  Telephone: (415) 453-2252
                                  Facsimile: ______________

                                  Residence: California

<PAGE>

Augustus S. Hawkins               5070 Tara Avenue, #108                       200
                                  Las Vegas, Nevada 89146
                                  Telephone: (702) 386-3439
                                  Facsimile: ________________

                                  Residence: Nevada

Wm. M. & Helen S. Hawkins         Wm. M. Hawkins, Jr., Trustee               2,000
Trust U/A Apr. 25, 1981           6949 Fairway Road
                                  La Jolla, California 92037
                                  Telephone: (858) 459-7550
                                  Facsimile:  (858) 459-8429

                                  Residence: California

Mark Lewis                        371 Greendale Way                            100
                                  Redwood, California 94062
                                  Telephone: (650) 363-0651
                                  Facsimile: _______________

                                  Residence: California

Michael Marks                     2090 Fortune Drive                           250
                                  San Jose, California 95131
                                  Telephone:  (408) 428-1320
                                  Facsimile: ___________________

                                  Residence: California

Naylor 1992 Revocable Trust       Duncan Naylor & Barbara Naylor,               50
u/t/a 2/4/92                      Trustees
                                  1268 Estates Drive
                                  Los Altos, California 94024
                                  Telephone: (650) 233-7011
                                  Facsimile: ____________________

                                  Residence: California

Eugene & Corinne O'Kelly,         Eugene O'Kelly                               125
as joint tenants                  504 E. 87th Street
                                  New York, New York 10128
                                  Telephone: (212) 734-5002
                                  Facsimile: ___________________

                                  Residence: New York

The Posehn Family Trust           Michael R. Posehn, Trustee                    50
Dated 10/5/94                     P.O. Box 309
                                  Penryn, California 95663
                                  Telephone: (916) 663-9358
                                  Facsimile: ____________________

                                  Residence: California

<PAGE>

William R. Reid                   1045 Fifth Avenue, Fifth Floor               100
                                  New York, New York 10028
                                  Telephone: (212) 521-5514
                                  Facsimile: __________________

                                  Residence: New York

Charles W. Romberger              235 Ridgeway Avenue                           95
                                  Fairfax, California 94930
                                  Telephone: (415) 457-7332
                                  Facsimile: _____________________

                                  Residence: California

Alfred Z. Spector                 45 Iden Avenue                               100
                                  Pelham Manor, New York 10803
                                  Telephone: (914) 738-7937
                                  Facsimile: _______________

                                  Residence: New York

Bruce Zweig                       1770 Green St., #604                          50
                                  San Francisco, CA 94123
                                  Telephone: (415) 922-0230
                                  Facsimile: _______________

                                  Residence: California

Second Buyers:
--------------

Gregory Walter Riker &            Gregory Walter Riker &                       100
Janis Lea Riker                   Janis Lea Riker
                                  2821 Second Avenue #2301
                                  Seattle, WA. 98121
                                  Telephone: (206) 399-2852
                                  Facsimile:

                                  Residence: Washington

Total                                                                       15,820
</TABLE>

<PAGE>

                                    SCHEDULES

Schedule 3(a)              Organization and Qualification
Schedule 3(c)              Capitalization
Schedule 3(e)              No Conflicts
Schedule 3(f)              SEC Documents
Schedule 3(g)              Material Changes
Schedule 3(h)              Absence of Litigation
Schedule 3(o)              Intellectual Property
Schedule 3(q)              Titles
Schedule 3(w)              Transactions with Affiliates
Schedule 4(d)              Use of Proceeds

                                    EXHIBITS

Exhibit A                  Form of Certificate of Designations, Preferences and
                           Rights of the Series A Preferred Stock
Exhibit B                  Form of Warrant
Exhibit C                  Form of Registration Rights Agreement
Exhibit D                  Form of Outside Company Counsel Opinion
Exhibit E                  Form of Inside Company Counsel Opinion
Exhibit F                  Form of Irrevocable Transfer Agent Instructions

<PAGE>

                             SCHEDULE OF EXCEPTIONS

         The following are exceptions to the  representations  and warranties of
The 3DO  Company  (the  "Company")  contained  in  Section  3 of the  Securities
Purchase Agreement by and among the Company and each of the Buyers named therein
(the  "Agreement")  and should be considered an integral part of the  Agreement.
Any terms defined in the Agreement shall have the same meaning when used in this
Schedule  of  Exceptions  as when  used in the  Agreement,  unless  the  context
otherwise requires.

         Schedule 3(a):  Organization and Qualification.

                  The Company has three  Subsidiaries,  (1) The 3DO  Company,  a
         California  corporation,  (2) 3DO Europe Limited,  a Limited  Liability
         Company  incorporated  under the laws of  England,  and (3)  Studio 3DO
         K.K., a corporation duly  incorporated  under the laws of Japan,  which
         was reincorporated as a Delaware LLC by name Studio 3DO LLC.

         Schedule 3(c):  Capitalization.

                  The  authorized  capital  stock  of the  Company  consists  of
         125,000,000  shares of Common Stock and  5,000,000  shares of Preferred
         Stock. As of December 4, 2001,  there were 53,072,399  shares of Common
         Stock issued and  outstanding  and no shares of Preferred  Stock issued
         and outstanding.  There were also 23,083,402 options to purchase Common
         Stock  issued and  outstanding;  6,787,513  options to purchase  Common
         Stock were  available for grant under the  Company's  1993 Option Plan;
         220,833 options to purchase Common Stock were available for grant under
         the Company's  1995 Director  Plan,  and 1,720,537  options to purchase
         Common Stock were available for grant under the Company's 1994 Employee
         Stock Purchase Plan. The Company has  outstanding  warrants to purchase
         3,145,265  shares of Common Stock. In addition,  the Company will issue
         warrants to the Buyers  pursuant to the  Agreement  and will also issue
         warrants to purchase  312,424 shares of Common Stock as part of its fee
         commitment to Gerard Klauer  Mattison.  The Company entered into a Loan
         and Security  Agreement  with Foothill  Capital  Corporation  and other
         lenders on April 6, 2000, as amended. See also Schedule 3(e).

         Schedule 3(e):  No Conflicts

         The Company entered into Registration Rights Agreements in October 2000
         and  October  2001   pursuant  to  which  certain   shareholders   have
         "piggy-back"  registration  rights.  These  rights  entitle  holders to
         include their shares in any  registration  initiated by the Company for
         its own account or for the account of a security holder.  Of the shares
         covered by the  registration  rights  agreements,

                                       1

<PAGE>

         2,416,162 shares of Common Stock were included in a resale registration
         statement  on form S-3 filed by the  Company on October 25,  2001.  Mr.
         Hawkins holds  registration  rights in connection with 3,933,010 shares
         of Common  Stock and  1,179,903  shares of Common Stock  issuable  upon
         exercise of  warrants.  An  additional  562,932  shares of Common Stock
         issuable upon exercise of outstanding  warrants also have  "piggy-back"
         registration rights.

         Schedule 3(f):  List of SEC Filings Since March 30, 2000

         10-Q          Quarterly Report                               10/30/2001
         ----
         10-Q          Quarterly Report                                8/14/2001
         ----
         DEF 14A       Definitive Proxy Statement                      7/31/2001
         -------
         10-K          Annual Report                                   6/29/2001
         ----
         10-Q/A        Amended Quarterly Report                         6/7/2001
         ------
         8-K           Current Report                                  3/20/2001
         ---
         10-Q          Quarterly Report                                2/14/2001
         ----
         10-Q          Quarterly Report                               11/14/2000
         ----
         DEF 14A       Definitive Proxy Statement                      9/13/2000
         -------
         10-Q          Quarterly Report                                8/14/2000
         ----
         10-K          Annual Report                                   6/29/2000
         ----

         Schedule 3(g):  Material Changes.

                  Since  March  31,  2001,  the  Company  has  taken a number of
         actions to reduce  operating  expenses in order to reduce the Company's
         breakeven point and conserve cash. Actions taken included reductions in
         force in excess of 150 people, the closure of the Austin TX development
         studio, a reduction in previously  planned levels of marketing expense,
         and the  cancellation  of several  outside  development  contracts  for
         "unproven"  products.  As a result of these  changes,  there  have been
         revisions to internal  expectations  for the fourth quarter of FY02, as
         well as  changes in the FY03  product  plan.  All of this  information,
         except  for  the  approximate  number  of  employees  affected  by  the
         reductions in force, has been previously publicly disclosed.

         Schedule 3(h):  Absence of Litigation.

                  In  March  2001,  the  Company  initiated  a  lawsuit  against
         LucasArts   Entertainment   Company,   LLA  and  Lucas  Licensing  Ltd.
         (collectively,   "Lucas")   as  a  result   of  Lucas   publishing   an
         entertainment  software  product  entitled  "STAR  WARS:  STARFIGHTER",
         compatible with the PlayStation 2 computer  entertainment  system.  The
         Company is the owner of the  trademark  "STAR  FIGHTER".  The trademark
         infringement case is currently in the discovery stages.

                                       2

<PAGE>

         Schedule 3(o):  Intellectual Property.

                  None.

         Schedule 3(q):  Titles.

                  The Loan Agreement with Foothill Capital  Corporation on April
         6, 2000  provides  Foothill with  collateral  interest in the Company's
         assets  for the  purpose of  securing  the line of credit  provided  by
         Foothill.

         Schedule 3(w):  Transactions with Affiliates.

                  On August 16, 2000, the Company entered a Convertible Note and
         Warrant  Purchase  Agreement with the Company's CEO and Chairman of the
         Board, Trip Hawkins III, and sold a $2 million  convertible  promissory
         note to Mr.  Hawkins.  On  August  23,  2000,  the  Company  entered  a
         Convertible  Note and Warrant  Purchase  Agreement with Mr. Hawkins and
         sold an $18 million  convertible  promissory  note to Mr.  Hawkins.  On
         September  13,  2000,  the full  amount of the two  notes,  along  with
         accrued interest,  were converted to Common Stock at $6.9375 per share,
         resulting  in the  Company  issuing  Mr.  Hawkins a total of  2,899,641
         shares.  Associated  with the  issuance of the  promissory  notes,  the
         Company issued 432,432  warrants to Mr. Hawkins.  These warrants have a
         $20 exercise price and a five-year term.

                  On October 31, 2000, the Company entered into a Stock Purchase
         Agreement  with Mr.  Hawkins for the  purchase of  4,848,485  shares of
         Common Stock for $15 million.  The Company also issued 969,997 warrants
         with a five-year term and an exercise price of $3.7125 per share to Mr.
         Hawkins.

                  On October 9, 2001, the Company  entered into a Stock Purchase
         Agreement  with Mr.  Hawkins for the  purchase of  3,933,010  of Common
         Stock for $8.1 million. The Company also issued 1,179,903 warrants with
         a five-year term and a $2.27 per share exercise price to Mr. Hawkins.

                  Chuck Romberger,  an employee of 3DO is purchasing  $95,000 of
         Series A Preferred Stock as part of the  transactions  set forth in the
         Agreement.

                                       3EXHIBIT 10.2

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "Agreement"),  dated as of December
7, 2001, by and among The 3DO Company, a Delaware corporation, with headquarters
located at 100 Cardinal Way Redwood City, California 94063 (the "Company"),  and
the undersigned buyers (each, a "Buyer" and collectively, the "Buyers").

         WHEREAS:

         A. In connection  with the Securities  Purchase  Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase  Agreement"),
the  Company has agreed,  upon the terms and  subject to the  conditions  of the
Securities Purchase Agreement, to issue and sell to the Buyers (i) shares of the
Company's Series A Convertible  Preferred Stock (the "Preferred Shares"),  which
will be convertible  into shares of the Company's  common stock, par value $0.01
per share (the  "Common  Stock")  (as  converted,  the  "Conversion  Shares") in
accordance  with  the  terms  of  the  Company's  Certificate  of  Designations,
Preferences  and  Rights  of the  Series  A  Convertible  Preferred  Stock  (the
"Certificate of  Designations"),  and (ii) warrants to purchase shares of Common
Stock (the "Warrants;" and as exercised, the "Warrant Shares");

         B. To induce the Buyers to execute and deliver the Securities  Purchase
Agreement,  the Company has agreed to provide certain  registration rights under
the  Securities  Act  of  1933,  as  amended,  and  the  rules  and  regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.

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

         1.       DEFINITIONS.

                  As used in this Agreement,  the following terms shall have the
following meanings:

                  a.  "Investor"  means a  Buyer,  any  transferee  or  assignee
thereof to whom a Buyer  assigns its rights under this  Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee  thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.

                  b. "Person" means an individual,  a limited liability company,
a  partnership,  a joint  venture,  a corporation,  a trust,  an  unincorporated
organization and a governmental or any department or agency thereof.

                  c. "Register,"  "registered,"  and  "registration"  refer to a
registration   effected  by  preparing  and  filing  one  or  more  Registration
Statements  (as defined  below) in compliance  with the 1933 Act and pursuant to
Rule 415  under  the 1933  Act or any  successor  rule  providing  for  offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

<PAGE>

                  d.  "Registrable  Securities"  means (i) the Conversion Shares
issued or issuable upon  conversion of the  Preferred  Shares,  (ii) the Warrant
Shares  issued or issuable  upon  exercise of the  Warrants,  (iii) the Dividend
Shares (as defined in the Certificate of Designations) issued in relation to the
Preferred  Shares and (iv) any shares of capital  stock issued or issuable  with
respect to the Conversion  Shares, the Preferred Shares, the Warrant Shares, the
Warrants or the Dividend Shares issued in relation to the Preferred  Shares as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event  or  otherwise,  without  regard  to any  limitations  on  conversions  of
Preferred Shares or exercises of Warrants.

                  e. "Registration  Statement" means a registration statement or
registration  statements  of the Company  filed under the 1933 Act  covering the
Registrable Securities.

Capitalized  terms used herein and not otherwise  defined  herein shall have the
respective meanings set forth in the Securities Purchase Agreement.

         2.       REGISTRATION.

                  a. Mandatory Registration.  The Company shall prepare, and, as
soon as practicable but in no event later than 20 days after the Initial Closing
Date (the "Filing  Deadline"),  file with the SEC the Registration  Statement on
Form S-3 covering the resale of all of the Registrable Securities.  In the event
that Form S-3 is unavailable for such a registration, the Company shall use such
other form as is available for such a registration, subject to the provisions of
Section 2(d). The Registration Statement prepared pursuant hereto shall register
for resale at least that  number of shares of Common  Stock equal to the product
of (x) 1.5 and (y) the number of  Registrable  Securities  as of the trading day
immediately  preceding the date the  Registration  Statement is initially  filed
with the SEC (without  regard to any  limitations  on conversions or exercises),
subject to  adjustment  as provided in Section  2(e).  The Company shall use its
best efforts to have the Registration Statement declared effective by the SEC as
soon as practicable,  but in no event later than the date which is 60 days after
the Initial Closing Date (the "Effectiveness Deadline").

                  b. Allocation of Registrable Securities. The initial number of
Registrable  Securities included in any Registration Statement and each increase
in the number of Registrable  Securities included therein shall be allocated pro
rata among the Investors  based on the number of Registrable  Securities held by
each  Investor at the time the  Registration  Statement  covering  such  initial
number of Registrable  Securities or increase  thereof is declared  effective by
the SEC. In the event that an Investor sells or otherwise  transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable  Securities included in such
Registration Statement for such transferor.  Any shares of Common Stock included
in a  Registration  Statement  and which  remain  allocated  to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining  Investors,  pro rata based on the number of
Registrable  Securities  then held by such  Investors  which are covered by such
Registration Statement.

                  c. Legal  Counsel.  Subject  to  Section 5 hereof,  the Buyers
holding a majority of the Registrable  Securities shall have the right to select
one legal counsel to review and oversee any offering  pursuant to this Section 2
("Legal  Counsel"),  which shall be Katten Muchin Zavis or such other counsel as
thereafter   designated  by  the  holders  of  a  majority  of  the  Registrable
Securities.  The  Company  shall  reasonably  cooperate  with  Legal  Counsel in
performing the Company's obligations under this Agreement.

                                      -2-

<PAGE>

                  d.  Ineligibility  for Form S-3. In the event that Form S-3 is
not  available  for the  registration  of the resale of  Registrable  Securities
hereunder,  the  Company  shall  (i)  register  the  resale  of the  Registrable
Securities on another appropriate form reasonably acceptable to the holder of at
least a majority of the  Registrable  Securities  and (ii) undertake to register
the  Registrable  Securities  on Form  S-3 as soon  as such  form is  available,
provided that the Company shall maintain the  effectiveness  of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.

                  e. Sufficient  Number of Shares  Registered.  In the event the
number of shares  available  under a  Registration  Statement  filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities required
to be covered by such Registration  Statement or an Investor's allocated portion
of the Registrable  Securities pursuant to Section 2(b), the Company shall amend
the Registration  Statement,  or file a new Registration Statement (on the short
form available therefor,  if applicable),  or both, so as to cover at least 150%
of the number of such  Registrable  Securities as of the trading day immediately
preceding the date of the filing of such amendment or new Registration Statement
(calculated   assuming  conversion  of  the  Preferred  Shares  at  the  Company
Conversion  Price),  in each case as soon as  practicable,  but in any event not
later than fifteen (15) days after the necessity  therefor  arises.  The Company
shall use it best  efforts  to cause  such  amendment  and/or  new  Registration
Statement  to become  effective  as soon as  practicable  following  the  filing
thereof. For purposes of the foregoing provision, the number of shares available
under a Registration Statement shall be deemed "insufficient to cover all of the
Registrable  Securities"  if at any time the  number of  Registrable  Securities
issued or issuable upon  conversion of the Preferred  Shares and exercise of the
Warrants  covered by such  Registration  Statement  is greater than the quotient
determined  by dividing (i) the number of shares of Common Stock  available  for
resale under such Registration Statement by (ii) 1.25. The calculation set forth
in the foregoing sentence shall be made without regard to any limitations on the
conversion  of the  Preferred  Shares  or  exercise  of the  Warrants  and  such
calculation  shall  assume that the  Preferred  Shares and the Warrants are then
convertible and  exercisable,  respectively,  into shares of Common Stock at the
then  prevailing   Company   Conversion  Price  (as  defined  in  the  Company's
Certificate  of  Designations)  and  Warrant  Exercise  Price (as defined in the
Warrant), respectively, if applicable.

                  f.  Effect  of  Failure  to  File  and  Obtain  and   Maintain
Effectiveness  of  Registration  Statement.  If  (i)  a  Registration  Statement
covering all the Registrable  Securities and required to be filed by the Company
pursuant  to this  Agreement  is not (A)  filed  with the SEC on or  before  the
applicable Filing Deadline or (B) declared effective by the SEC on or before the
applicable  Effectiveness  Deadline  or (ii) on any day after  the  Registration
Statement  has been declared  effective by the SEC sales of all the  Registrable
Securities required to be included on such Registration Statement cannot be made
pursuant to the Registration Statement (including,  without limitation,  because
of a failure to keep the  Registration  Statement  effective,  to disclose  such
information  as is necessary for sales to be made  pursuant to the  Registration
Statement or to register  sufficient  shares of Common Stock),  then, as partial
relief for the damages to any holder by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be  exclusive  of any other  remedies  available  at law or in equity),  the
Company  shall  pay to each  holder  of  Preferred  Shares an amount in cash per
Preferred  Share held equal to the product of (i) $1,000  multiplied by (ii) the
sum of (A) 0.02, if the  Registration

                                      -3-

<PAGE>

Statement is not filed by the applicable Filing Deadline,  plus (B) 0.02, if the
Registration Statement is not declared effective by the applicable Effectiveness
Deadline,  plus,  (C) the product of (I) 0.000667  multiplied by (II) the sum of
(x)  the  number  of  days  after  the  applicable  Filing  Deadline  that  such
Registration  Statement  is not filed with the SEC,  plus (y) the number of days
after the applicable  Effectiveness  Deadline that the Registration Statement is
not  declared  effective  by the SEC,  plus (z) the  number  of days  after  the
Registration  Statement  has  been  declared  effective  by the  SEC  that  such
Registration  Statement  is not  available  for  the  sale of at  least  all the
Registrable  Securities  required to be included on such Registration  Statement
pursuant  to section  2(e).  The  payments  to which a holder  shall be entitled
pursuant to this  Section  2(f) are  referred to herein as  "Registration  Delay
Payments."  Registration  Delay Payments shall be paid on the earlier of (I) the
last day of the calendar month during which such Registration Delay Payments are
incurred and (II) the third  business day after the event or failure giving rise
to the Registration Delayed Payments is cured. In the event the Company fails to
make Registration  Delay Payments in a timely manner,  such  Registration  Delay
Payments shall bear interest at the rate of 1.5% per month (prorated for partial
months) until paid in full.

         3.       RELATED OBLIGATIONS.

         At such  time  as the  Company  is  obligated  to  file a  Registration
Statement  with the SEC pursuant to Section  2(a) or 2(e),  the Company will use
its best efforts to effect the  registration  of the  Registrable  Securities in
accordance  with the  intended  method  of  disposition  thereof  and,  pursuant
thereto, the Company shall have the following obligations:

                  a. The Company shall promptly  prepare and file with the SEC a
Registration  Statement  with respect to the applicable  Registrable  Securities
(but in no event later than the  applicable  Filing  Deadline)  and use its best
efforts  to  cause  such  Registration  Statement  relating  to the  Registrable
Securities to become effective as soon as practicable  after such filing (but in
no event later than the applicable  Effectiveness  Deadline).  The Company shall
keep each  Registration  Statement  effective  pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the  Investors may sell all of the
Registrable   Securities   covered  by  such   Registration   Statement  without
restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the
1933 Act or (ii)  the  date on  which  the  Investors  shall  have  sold all the
Registrable Securities covered by such Registration Statement (the "Registration
Period"),  which Registration Statement (including any amendments or supplements
thereto  and  prospectuses  contained  therein)  shall 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,  in light of the
circumstances  in which they were made, not misleading.  The term "best efforts"
shall mean, among other things, that the Company shall submit to the SEC, within
two (2)  business  days after the Company  learns that no review of a particular
Registration  Statement  will be made by the  staff of the SEC or that the staff
has no further  comments on the  Registration  Statement,  as the case may be, a
request for acceleration of effectiveness  of such  Registration  Statement to a
time and date not later than 48 hours after the submission of such request.

                  b.  The  Company  shall  prepare  and  file  with the SEC such
amendments   (including   post-effective   amendments)   and  supplements  to  a
Registration   Statement  and  the  prospectus  used  in  connection  with  such
Registration  Statement,  which  prospectus is to be filed  pursuant to Rule 424
promulgated  under the 1933 Act, as may be necessary  to keep such  Registration
Statement  effective at all times during the  Registration  Period,  and, during
such  period,  comply with the  provisions  of the 1933 Act with  respect to the
disposition  of all  Registrable  Securities  of the  Company  covered  by  such
Registration  Statement  until such time as

                                      -4-

<PAGE>

all of such  Registrable  Securities  shall have been  disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in such Registration  Statement. In the case of amendments and supplements
to a  Registration  Statement  which are  required to be filed  pursuant to this
Agreement  (including  pursuant to this  Section  3(b)) by reason of the Company
filing a report  on Form  10-K,  Form 10-Q or Form 8-K or any  analogous  report
under the  Securities  Exchange Act of 1934,  as amended  (the "1934 Act"),  the
Company shall have  incorporated  such report by reference into the Registration
Statement, if applicable,  or shall file such amendments or supplements with the
SEC on the same day on which the 1934 Act  report  is filed  which  created  the
requirement for the Company to amend or supplement the Registration Statement.

                  c. The Company  shall (A) permit  Legal  Counsel to review and
comment upon (i) the  Registration  Statement  at least three (3) business  days
prior to its filing with the SEC and (ii) all other Registration  Statements and
all amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K and any similar or successor  reports)  within a  reasonable  number of days
prior to their  filing with the SEC,  and (B) not file any document in a form to
which Legal Counsel reasonably  objects.  The Company shall not submit a request
for  acceleration  of  the  effectiveness  of a  Registration  Statement  or any
amendment or supplement  thereto  without the prior  approval of Legal  Counsel,
which consent shall not be unreasonably  withheld.  The Company shall furnish to
Legal Counsel,  without charge, (i) any correspondence from the SEC or the staff
of the SEC to the Company or its  representatives  relating to any  Registration
Statement,  (ii) promptly after the same is prepared and filed with the SEC, one
copy of any  Registration  Statement  and any  amendment(s)  thereto,  including
financial  statements  and  schedules,  all  documents  incorporated  therein by
reference and all exhibits and (iii) upon the  effectiveness of any Registration
Statement,  one copy of the prospectus  included in such Registration  Statement
and all  amendments  and  supplements  thereto.  The  Company  shall  reasonably
cooperate with Legal Counsel in performing the Company's obligations pursuant to
this Section 3.

                  d.  The  Company  shall   furnish  to  each   Investor   whose
Registrable  Securities  are  included in any  Registration  Statement,  without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto,  including
financial  statements  and  schedules,  all  documents  incorporated  therein by
reference,  all  exhibits  and  each  preliminary  prospectus,   (ii)  upon  the
effectiveness of any Registration  Statement,  ten (10) copies of the prospectus
included in such  Registration  Statement  and all  amendments  and  supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other  documents,  including  copies of any  preliminary or final
prospectus,  as such Investor may reasonably  request from time to time in order
to  facilitate  the  disposition  of the  Registrable  Securities  owned by such
Investor.

                  e. The Company  shall use its best efforts to (i) register and
qualify,  unless an exemption from registration and qualification  applies,  the
resale by the Investors of the Registrable  Securities covered by a Registration
Statement  under such other  securities  or "blue sky" laws of all the states of
the United States, (ii) prepare and file in those jurisdictions, such amendments
(including post-effective  amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness  thereof during
the  Registration  Period,  (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration  Period,  and (iv) take all other actions  reasonably  necessary or
advisable to qualify the Registrable  Securities for sale in such

                                      -5-

<PAGE>

jurisdictions;  provided,  however,  that the  Company  shall not be required in
connection  therewith or as a condition thereto to (x) qualify to do business in
any  jurisdiction  where it would not  otherwise  be required to qualify but for
this  Section  3(e),  (y)  subject  itself  to  general  taxation  in  any  such
jurisdiction,  or (z) file a general  consent  to service of process in any such
jurisdiction.  The Company shall promptly notify Legal Counsel and each Investor
who  holds  Registrable  Securities  of  the  receipt  by  the  Company  of  any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.

                  f. The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware  of such  event,  as a  result  of  which  the  prospectus  included  in a
Registration  Statement,  as then in effect,  includes an untrue  statement of a
material fact or omission 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  (provided  that in no event  shall such
notice  contain any material,  nonpublic  information),  and promptly  prepare a
supplement  or amendment to such  Registration  Statement to correct such untrue
statement  or  omission,  and  deliver  ten (10)  copies of such  supplement  or
amendment to Legal  Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably  request).  The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus  supplement or  post-effective  amendment has been filed,  and
when  a  Registration  Statement  or any  post-effective  amendment  has  become
effective  (notification  of such  effectiveness  shall  be  delivered  to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or supplements
to a Registration  Statement or related prospectus or related  information,  and
(iii) of the Company's reasonable  determination that a post-effective amendment
to a Registration Statement would be appropriate.

                  g. The  Company  shall use its best  efforts  to  prevent  the
issuance  of  any  stop  order  or  other   suspension  of  effectiveness  of  a
Registration  Statement,  or the suspension of the  qualification  of any of the
Registrable  Securities  for sale in any  jurisdiction  and, if such an order or
suspension  is issued,  to obtain the  withdrawal of such order or suspension at
the earliest  possible  moment and to notify Legal Counsel and each Investor who
holds  Registrable  Securities  being sold of the issuance of such order and the
resolution  thereof or its receipt of actual notice of the  initiation or threat
of any proceeding for such purpose.

                  h. At the  reasonable  request of any  Investor,  the  Company
shall  furnish  to  such  Investor,  on the  date  of the  effectiveness  of the
Registration  Statement  and  thereafter  from time to time on such  dates as an
Investor  may  reasonably  request  (i) a  letter,  dated  such  date,  from the
Company's  independent  certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an  underwritten  public  offering,  addressed  to the  Investors,  and  (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration  Statement,  in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Investors.

                  i. The Company shall make  available for inspection by (i) any
Investor,  (ii) Legal Counsel and (iii) one firm of  accountants or other agents
retained  by the  Investors  (collectively,  the  "Inspectors"),  all  pertinent
financial and other records, and pertinent corporate documents and properties of
the  Company  (collectively,  the  "Records"),  as  shall be  reasonably  deemed
necessary by each  Inspector,  and cause the Company's  officers,  directors and
employees

                                      -6-

<PAGE>

to supply all information which any Inspector may reasonably request;  provided,
however,  that each Inspector shall agree to hold in strict confidence and shall
not make any  disclosure  (except to an  Investor) or use of any Record or other
information which the Company  determines in good faith to be confidential,  and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a  misstatement  or omission in
any Registration  Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final,  non-appealable subpoena
or order from a court or government body of competent  jurisdiction,  or (c) the
information  in such  Records has been made  generally  available  to the public
other than by  disclosure  in violation of this or any other  agreement of which
the Inspector has knowledge.  Each Investor agrees that it shall,  upon learning
that disclosure of such Records is sought in or by a court or governmental  body
of competent  jurisdiction  or through  other means,  give prompt  notice to the
Company and allow the Company, at its expense,  to undertake  appropriate action
to prevent  disclosure  of, or to obtain a  protective  order for,  the  Records
deemed confidential.

                  j.  The  Company  shall  hold in  confidence  and not make any
disclosure of information  concerning an Investor provided to the Company unless
(i) disclosure of such  information is necessary to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant to a subpoena or other final,
non-appealable   order  from  a  court  or   governmental   body  of   competent
jurisdiction,  or (iv) such information has been made generally available to the
public other than by  disclosure  in  violation  of this  Agreement or any other
agreement.  The Company agrees that it shall,  upon learning that  disclosure of
such  information  concerning  an  Investor  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
written  notice to such  Investor  and allow such  Investor,  at the  Investor's
expense, to undertake  appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

                  k. The Company shall use its best efforts  either to (i) cause
all the Registrable  Securities covered by a Registration Statement to be listed
on each  securities  exchange  on which  securities  of the same class or series
issued  by the  Company  are  then  listed,  if  any,  if the  listing  of  such
Registrable  Securities is then permitted  under the rules of such exchange,  or
(ii) secure designation and quotation of all the Registrable  Securities covered
by the  Registration  Statement  on the  Nasdaq  National  Market,  or (iii) if,
despite the Company's best efforts to satisfy the preceding  clause (i) or (ii),
the Company is unsuccessful  in satisfying the preceding  clause (i) or (ii), to
secure  the  inclusion  for  quotation  on The Nasdaq  SmallCap  Market for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities  Dealers,  Inc.  ("NASD") as such with respect to such Registrable
Securities.  The  Company  shall pay all fees and  expenses in  connection  with
satisfying its obligation under this Section 3(k).

                  l. The Company  shall  cooperate  with the  Investors who hold
Registrable  Securities being offered and, to the extent applicable,  facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend)  representing  the  Registrable  Securities to be offered  pursuant to a
Registration  Statement and enable such certificates to be in such denominations
or amounts,  as the case may be, as the  Investors  may  reasonably  request and
registered in such names as the Investors may request.

                                      -7-

<PAGE>

                  m. The Company shall provide a transfer agent and registrar of
all  such  Registrable  Securities  not  later  than the  effective  date of the
applicable Registration Statement.

                  n. If requested by an Investor,  the Company shall (i) as soon
as  practicable   incorporate  in  a  prospectus  supplement  or  post-effective
amendment  such  information  as an Investor  requests  to be  included  therein
relating to the sale and  distribution  of  Registrable  Securities,  including,
without  limitation,  information  with  respect  to the  number of  Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the  offering of the  Registrable  Securities  to be sold in such
offering;  (ii)  as  soon as  practicable  make  all  required  filings  of such
prospectus  supplement or  post-effective  amendment after being notified of the
matters to be  incorporated  in such  prospectus  supplement  or  post-effective
amendment;  and (iii) as soon as  practicable,  supplement or make amendments to
any  Registration  Statement  if  reasonably  requested  by an  Investor of such
Registrable Securities.

                  o. The  Company  shall  use its  best  efforts  to  cause  the
Registrable  Securities covered by the applicable  Registration  Statement to be
registered with or approved by such other  governmental  agencies or authorities
as  may  be  necessary  to  consummate  the  disposition  of  such   Registrable
Securities.

                  p. The Company shall make generally  available to its security
holders as soon as practical,  but not later than 90 days after the close of the
period  covered  thereby,  an earnings  statement  (in form  complying  with the
provisions  of Rule 158 under  the 1933  Act)  covering  a  twelve-month  period
beginning on the first day of the Company's  fiscal  quarter next  following the
effective date of the Registration Statement.

                  q. The Company shall  otherwise use its best efforts to comply
with all  applicable  rules and  regulations  of the SEC in connection  with any
registration hereunder.

                  r. Within two (2) business days after a Registration Statement
which covers applicable  Registrable Securities is ordered effective by the SEC,
the Company  shall  deliver,  and shall  cause legal  counsel for the Company to
deliver,  to the transfer agent for such Registrable  Securities (with copies to
the Investors  whose  Registrable  Securities are included in such  Registration
Statement)  confirmation  that such  Registration  Statement  has been  declared
effective by the SEC in the form attached hereto as Exhibit A.

                  s.  The  Company  shall  take  all  other  reasonable  actions
necessary to expedite and  facilitate  disposition  by Investors of  Registrable
Securities pursuant to a Registration Statement.

                  t.  Notwithstanding  anything to the contrary in Section 3(f),
at any time  after  the  applicable  Registration  Statement  has been  declared
effective  by the  SEC,  the  Company  may  delay  the  disclosure  of  material
non-public  information  concerning  the Company the  disclosure of which at the
time is not, in the good faith  opinion of the Board of Directors of the Company
and its  counsel,  in the best  interest of the  Company  and, in the opinion of
counsel to the Company,  otherwise required (a "Grace Period");  provided,  that
the Company shall  promptly (i) notify the Investors in writing of the existence
of material non-public  information giving rise to a Grace Period (provided that
in each  notice the  Company  will not  disclose  the  content of such  material
non-public  information to the Investors) and the date on which the Grace Period
will begin,  and (ii) notify the  Investors  in writing of the date on which the
Grace Period ends; and, provided  further,  that no Grace Period shall exceed 15
consecutive  days and  during any 365 day period  such Grace  Periods  shall not
exceed an  aggregate of 30 days and the first day of any

                                      -8-

<PAGE>

Grace  Period must be at least two trading  days after the last day of any prior
Grace Period (an "Allowable  Grace  Period").  For purposes of  determining  the
length of a Grace Period above,  the Grace Period shall begin on and include the
date the holders  receive the notice  referred to in clause (i) and shall end on
and include the later of the date the holders  receive the notice referred to in
clause (ii) and the date  referred to in such  notice.  The  provisions  of 3(g)
hereof shall not be applicable  during the period of any Allowable Grace Period.
Upon  expiration  of the Grace  Period,  the Company shall again be bound by the
first  sentence of Section 3(f) with respect to the  information  giving rise to
such Grace  Period  unless such  material  non-public  information  is no longer
applicable.

         4.       OBLIGATIONS OF THE INVESTORS.

                  a. At  least  seven  (7)  business  days  prior  to the  first
anticipated  filing date of a Registration  Statement,  the Company shall notify
each Investor in writing of the information the Company  requires from each such
Investor  if such  Investor  elects to have any of such  Investor's  Registrable
Securities  included  in such  Registration  Statement.  It shall be a condition
precedent  to the  obligations  of the  Company  to  complete  the  registration
pursuant to this  Agreement  with  respect to the  Registrable  Securities  of a
particular  Investor  that such  Investor  shall  furnish  to the  Company  such
information  regarding  itself,  the  Registrable  Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such  documents in connection  with such  registration  as the
Company may reasonably request.

                  b.  Each  Investor,  by  such  Investor's  acceptance  of  the
Registrable  Securities,  agrees to  cooperate  with the  Company as  reasonably
requested by the Company in connection  with the  preparation  and filing of any
Registration Statement hereunder,  unless such Investor has notified the Company
in  writing  of such  Investor's  election  to  exclude  all of such  Investor's
Registrable Securities from such Registration Statement.

                  c. Each Investor  agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind  described in Section 3(g)
or the first  sentence  of 3(f),  such  Investor  will  immediately  discontinue
disposition of Registrable Securities pursuant to any Registration  Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the  supplemented or amended  prospectus  contemplated by Section 3(g) or the
first  sentence of 3(f) or receipt of notice that no  supplement or amendment is
required.  Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver  unlegended  shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection  with any sale of  Registrable  Securities  with  respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section  3(g) or the first  sentence of 3(f) and for which the  Investor has not
yet settled.

         5.       EXPENSES OF REGISTRATION.

                  All reasonable expenses, other than underwriting discounts and
commissions,   incurred   in   connection   with   registrations,   filings   or
qualifications pursuant to Sections 2 and 3, including,  without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and  disbursements of counsel for the Company shall be paid by the Company.
The Company  shall also  reimburse the  Investors  for the  reasonable  fees and
disbursements  of Legal  Counsel  in  connection  with  registration  filing  or
qualification pursuant to Sections 2 and 3 of this Agreement up to $10,000.

                                      -9-

<PAGE>

         6.       INDEMNIFICATION.

                  In the event any  Registrable  Securities  are  included  in a
Registration Statement under this Agreement:

                  a. To the fullest  extent  permitted by law, the Company will,
and hereby  does,  indemnify,  hold  harmless  and  defend  each  Investor,  the
directors,  officers, partners, employees, agents,  representatives of, and each
Person,  if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each,  an  "Indemnified  Person"),  against  any  losses,  claims,
damages,  liabilities,  judgments, fines, penalties,  charges, costs, reasonable
attorneys'  fees,  amounts paid in  settlement  or  expenses,  joint or several,
(collectively,  "Claims") incurred in investigating,  preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing  by or  before  any  court or  governmental,  administrative  or other
regulatory  agency,  body or the SEC, whether pending or threatened,  whether or
not an indemnified party is or may be a party thereto  ("Indemnified  Damages"),
to which any of them may become  subject  insofar as such  Claims (or actions or
proceedings,  whether commenced or threatened,  in respect thereof) arise out of
or are based upon:  (i) any untrue  statement or alleged  untrue  statement of a
material  fact  in a  Registration  Statement  or any  post-effective  amendment
thereto  or in any  filing  made in  connection  with the  qualification  of the
offering  under the securities or other "blue sky" laws of any  jurisdiction  in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged  omission  to state a material  fact  required  to be stated  therein or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements  therein were made,  not  misleading,  (iii) any violation or alleged
violation  by the  Company  of the  1933  Act,  the 1934  Act,  any  other  law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  pursuant to a Registration  Statement or (iv) any material violation
of this Agreement (the matters in the foregoing  clauses (i) through (iv) being,
collectively,   "Violations").  Subject  to  Section  6(c),  the  Company  shall
reimburse the  Indemnified  Persons,  promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them  in   connection   with   investigating   or  defending   any  such  Claim.
Notwithstanding  anything to the contrary contained herein, the  indemnification
agreement  contained in this Section 6(a):  (i) shall not apply to a Claim by an
Indemnified  Person  arising  out of or based upon a Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for use
in connection  with the  preparation of the  Registration  Statement or any such
amendment  thereof or supplement  thereto,  if such  prospectus  was timely made
available  by the Company  pursuant to Section  3(d);  (ii) with  respect to any
preliminary  prospectus,  shall not inure to the benefit of any such person from
whom the person  asserting any such Claim purchased the  Registrable  Securities
that are the subject thereof (or to the benefit of any person  controlling  such
person) if the untrue  statement or omission of material  fact  contained in the
preliminary  prospectus  was  corrected  in the  prospectus,  as then amended or
supplemented,  if such  prospectus  was timely  made  available  by the  Company
pursuant to Section 3(d),  and the  Indemnified  Person was promptly  advised in
writing not to use the  incorrect  prospectus  prior to

                                      -10-

<PAGE>

the use giving rise to a violation and such Indemnified Person,  notwithstanding
such  advice,  used it; (iii) shall not be available to the extent such Claim is
based on a failure of the  Investor to deliver or to cause to be  delivered  the
prospectus  made  available by the Company,  if such  prospectus was timely made
available by the Company  pursuant to Section 3(d);  and (iv) shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  the  Company,   which  consent  shall  not  be
unreasonably  withheld.  Such  indemnity  shall  remain in full force and effect
regardless of any investigation  made by or on behalf of the Indemnified  Person
and shall  survive the transfer of the  Registrable  Securities by the Investors
pursuant to Section 9.

                  b. In connection with any  Registration  Statement in which an
Investor  is  participating,  each such  Investor  agrees to  severally  and not
jointly indemnify,  hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the  Registration  Statement each Person,  if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act (each an
"Indemnified  Party"),  against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise,  insofar
as such  Claim  or  Indemnified  Damages  arise  out of or are  based  upon  any
Violation,  in each  case to the  extent,  and  only to the  extent,  that  such
Violation  occurs in reliance  upon and in conformity  with written  information
furnished to the Company by such Investor  expressly for use in connection  with
such  Registration  Statement;  and, subject to Section 6(c), such Investor will
reimburse  any legal or other  expenses  reasonably  incurred by an  Indemnified
Party in connection with  investigating  or defending any such Claim;  provided,
however,  that the  indemnity  agreement  contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  such  Investor,  which  consent  shall  not be
unreasonably withheld;  provided,  further,  however, that the Investor shall be
liable under this  Section  6(b) for only that amount of a Claim or  Indemnified
Damages as does not exceed the net proceeds to such  Investor as a result of the
sale of Registrable  Securities  pursuant to such Registration  Statement.  Such
indemnity shall remain in full force and effect  regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the   Registrable   Securities   by  the   Investors   pursuant  to  Section  9.
Notwithstanding  anything to the contrary contained herein, the  indemnification
agreement  contained  in this  Section  6(b)  with  respect  to any  preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the  preliminary  prospectus
was  corrected  on a  timely  basis  in  the  prospectus,  as  then  amended  or
supplemented.

                  c.  Promptly  after  receipt  by  an  Indemnified   Person  or
Indemnified  Party  under this  Section 6 of notice of the  commencement  of any
action or proceeding (including any governmental action or proceeding) involving
a Claim,  such  Indemnified  Person or  Indemnified  Party shall,  if a Claim in
respect thereof is to be made against any indemnifying  party under this Section
6,  deliver  to the  indemnifying  party a written  notice  of the  commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the  extent  the  indemnifying  party so  desires,  jointly  with  any  other
indemnifying party similarly  noticed,  to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided,  however, that an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel  with the fees  and  expenses  of not  more  than one  counsel  for such
Indemnified  Person or Indemnified  Party to be paid by the indemnifying  party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation  by such counsel of the Indemnified  Person or

                                      -11-

<PAGE>

Indemnified  Party and the  indemnifying  party  would be  inappropriate  due to
actual or  potential  differing  interests  between such  Indemnified  Person or
Indemnified  Party and any  other  party  represented  by such  counsel  in such
proceeding.  In the case of an Indemnified Person,  legal counsel referred to in
the immediately  preceding sentence shall be selected by the Investors holding a
majority in interest of the Registrable  Securities included in the Registration
Statement  to which the Claim  relates.  The  Indemnified  Party or  Indemnified
Person shall cooperate fully with the indemnifying  party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information  reasonably available to
the  Indemnified  Party or  Indemnified  Person which  relates to such action or
Claim.  The indemnifying  party shall keep the Indemnified  Party or Indemnified
Person  fully  apprized  as to the  status  of  the  defense  or any  settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its prior written
consent,  provided,  however, that the indemnifying party shall not unreasonably
withhold,  delay or condition its consent. No indemnifying party shall,  without
the prior  written  consent  of the  Indemnified  Party or  Indemnified  Person,
consent  to  entry  of any  judgment  or  enter  into  any  settlement  or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified  Party or Indemnified  Person of a
release  from all  liability in respect to such Claim or  litigation.  Following
indemnification  as provided  for  hereunder,  the  indemnifying  party shall be
subrogated to all rights of the  Indemnified  Party or  Indemnified  Person with
respect to all third parties,  firms or corporations  relating to the matter for
which  indemnification  has been made. The failure to deliver  written notice to
the indemnifying  party within a reasonable time of the commencement of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
Indemnified  Person or  Indemnified  Party  under this  Section 6, except to the
extent that the  indemnifying  party is prejudiced in its ability to defend such
action.

                  d. The  indemnification  required  by this  Section 6 shall be
made by  periodic  payments  of the  amount  thereof  during  the  course of the
investigation or defense,  as and when bills are received or Indemnified Damages
are incurred.

                  e.  The  indemnity  agreements  contained  herein  shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified  Person  against  the  indemnifying  party or  others,  and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

         7.       CONTRIBUTION.

                  To the extent any  indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying  party agrees to make the maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no person  involved in the sale of Registrable  Securities,  which person is
guilty of fraudulent  misrepresentation  (within the meaning of Section 11(f) of
the 1933 Act) in connection  with such sale,  shall be entitled to  contribution
from any person  involved  in such sale of  Registrable  Securities  who was not
guilty of fraudulent  misrepresentation;  and (ii) contribution by any seller of
Registrable  Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.

                                      -12-

<PAGE>

         8.       REPORTS UNDER THE 1934 ACT.

                  With a view to making  available to the Investors the benefits
of Rule  144  promulgated  under  the  1933  Act or any  other  similar  rule or
regulation  of the  SEC  that  may at any  time  permit  the  Investors  to sell
securities of the Company to the public without  registration  ("Rule 144"), the
Company agrees to:

                  a. make and keep public information available,  as those terms
are understood and defined in Rule 144;

                  b. file with the SEC in a timely  manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company  remains  subject to such  requirements  (it being  understood  that
nothing herein shall limit the Company's  obligations  under Section 4(c) of the
Securities  Purchase  Agreement)  and the  filing  of  such  reports  and  other
documents is required for the applicable provisions of Rule 144; and

                  c.  furnish to each  Investor  so long as such  Investor  owns
Registrable  Securities,  promptly upon request,  (i) a written statement by the
Company that it has complied  with the reporting  requirements  of Rule 144, the
1933 Act and the 1934 Act,  (ii) a copy of the most recent  annual or  quarterly
report of the  Company  and such other  reports  and  documents  so filed by the
Company,  and (iii) such other  information  as may be  reasonably  requested to
permit  the  investors  to sell such  securities  pursuant  to Rule 144  without
registration.

         9.       ASSIGNMENT OF REGISTRATION RIGHTS.

                  The  rights  under  this  Agreement  shall  be   automatically
assignable  by the  Investors  to any  transferee  of  all  or  any  portion  of
Registrable  Securities  if:  (i)  the  Investor  agrees  in  writing  with  the
transferee  or assignee to assign such rights,  and a copy of such  agreement is
furnished  to the  Company  within a  reasonable  time  after such  transfer  or
assignment; (ii) the Company is, within a reasonable time after such transfer or
assignment,  furnished  with written  notice of (a) the name and address of such
transferee  or  assignee,  and (b) the  securities  with  respect  to which such
registration  rights  are  being  transferred  or  assigned;  (iii)  immediately
following such transfer or assignment the further disposition of such securities
by the  transferee or assignee is restricted  under the 1933 Act and  applicable
state  securities  laws;  (iv) at or before the time the  Company  receives  the
written  notice  contemplated  by clause (ii) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein;  and (v) such transfer shall have been made in accordance with
the applicable requirements of the Securities Purchase Agreement.

         10.      AMENDMENT OF REGISTRATION RIGHTS.

                  Provisions of this Agreement may be amended and the observance
thereof may be waived (either  generally or in a particular  instance and either
retroactively  or  prospectively),  only with the written consent of the Company
and  Investors  who then hold a  majority  of the  Registrable  Securities.  Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.  No such amendment shall be effective to the
extent  that it  applies  to less  than all of the  holders  of the  Registrable
Securities.  No consideration shall be offered or paid to any Person to amend or
consent to a waiver or  modification  of any provision of any of this  Agreement
unless the same  consideration  also is  offered  to all of the  parties to this
Agreement.

                                      -13-

<PAGE>

         11.      MISCELLANEOUS.

                  a. A Person is deemed to be a holder of Registrable Securities
whenever  such  Person  owns or is  deemed  to own of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or  more  Persons  with  respect  to the  same  Registrable
Securities,  the  Company  shall act upon the basis of  instructions,  notice or
election received from the registered owner of such Registrable Securities.

                  b. Any  notices,  consents,  waivers  or other  communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be deemed  to have  been  delivered:  (i) upon  receipt,  when
delivered  personally;  (ii)  upon  receipt,  when sent by  facsimile  (provided
confirmation of transmission  is  mechanically or  electronically  generated and
kept on file by the sending party); or (iii) one business day after deposit with
a  nationally  recognized  overnight  delivery  service,  in each case  properly
addressed to the party to receive the same. The addresses and facsimile  numbers
for such communications shall be:

                  If to the Company:

                           The 3DO Company
                           100 Cardinal Way
                           Redwood City, California 94063
                           Telephone: (650) 385-3000
                           Facsimile: (650) 385-3184
                           Attention: Chief Executive Officer

                           With a copy to:

                           Wilson Sonsini Goodrich & Rosati
                           650 Page Mill Road
                           Palo Alto, CA 94304
                           Telephone: (650) 493-9300
                           Facsimile: (650) 493-6811
                           Attention: Neil Wolff, Esq.
                                      Yoichiro Taku, Esq.

                  If to Legal Counsel:

                           Katten Muchin Zavis
                           525 West Monroe Street, Suite 1600
                           Chicago, Illinois 60661-3693
                           Telephone: 312-902-5200
                           Facsimile: 312-902-1061
                           Attention: Robert J. Brantman, Esq.

                                      -14-

<PAGE>

If to the Buyer,  to its address and facsimile  number set forth on the Schedule
of Buyers attached hereto,  with copies to such Buyer's  representatives  as set
forth on the  Schedule  of Buyers,  or to such other  address  and/or  facsimile
number and/or to the  attention of such other person as the recipient  party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written  confirmation of receipt (A) given by the
recipient  of  such  notice,  consent,   waiver  or  other  communication,   (B)
mechanically  or  electronically  generated  by the sender's  facsimile  machine
containing the time, date,  recipient facsimile number and an image of the first
page of such  transmission  or (C)  provided by a courier or  overnight  courier
service shall be rebuttable  evidence of personal service,  receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

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

                  d.  All  questions  concerning  the  construction,   validity,
enforcement  and  interpretation  of this  Agreement  shall be  governed  by the
internal laws of the State of New York,  without  giving effect to any choice of
law or conflict of law  provision  or rule  (whether of the State of New York or
any other  jurisdiction)  that would  cause the  application  of the laws of any
jurisdictions  other than the State of New York.  Each party hereby  irrevocably
submits  to the  non-exclusive  jurisdiction  of the  state and  federal  courts
sitting the City of New York, borough of Manhattan,  for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein,  and hereby  irrevocably  waives,  and agrees not to
assert in any suit,  action or  proceeding,  any claim that it is not personally
subject  to the  jurisdiction  of any such  court,  that  such  suit,  action or
proceeding is brought in an  inconvenient  forum or that the venue of such suit,
action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or  proceeding  by mailing a copy  thereof to such party at the address for such
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. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction  or the  validity  or  enforceability  of  any  provision  of  this
Agreement in any other  jurisdiction.  EACH PARTY HEREBY  IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,  A JURY TRIAL FOR THE ADJUDICATION
OF ANY  DISPUTE  HEREUNDER  OR IN  CONNECTION  HEREWITH  OR ARISING  OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

                  e. This  Agreement,  the Securities  Purchase  Agreement,  the
Warrants and the  Certificate of  Designations  constitute the entire  agreement
among the parties  hereto with respect to the subject matter hereof and thereof.
There are no  restrictions,  promises,  warranties or  undertakings,  other than
those  set  forth or  referred  to  herein  and  therein.  This  Agreement,  the
Securities Purchase Agreement,  the Warrants and the Certificate of Designations
supersede all prior agreements and understandings  among the parties hereto with
respect to the subject matter hereof and thereof.

                                      -15-

<PAGE>

                  f. Subject to the  requirements  of Section 9, this  Agreement
shall inure to the benefit of and be binding upon the permitted  successors  and
assigns of each of the parties hereto.

                  g. The  headings  in this  Agreement  are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.

                  h. This  Agreement may be executed in identical  counterparts,
each of which shall be deemed an original but all of which shall  constitute one
and the same  agreement.  This  Agreement,  once  executed  by a  party,  may be
delivered to the other party hereto by facsimile  transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                  i. Each party  shall do and  perform,  or cause to be done and
performed,  all such further acts and things,  and shall execute and deliver all
such other  agreements,  certificates,  instruments and documents,  as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

                  j. All consents and other  determinations  required to be made
by the Investors  pursuant to this  Agreement  shall be made,  unless  otherwise
specified in this  Agreement,  by  Investors  holding at least a majority of the
Registrable  Securities,  determined as if all of the  Preferred  Shares and the
Warrants then  outstanding have been converted into or exercised for Registrable
Securities  without  regard to any  limitations  on  conversion of the Preferred
Shares or the exercise of the Warrants.

                  k. The language  used in this  Agreement  will be deemed to be
the language  chosen by the parties to express  their mutual intent and no rules
of strict construction will be applied against any party.

                  l. This  Agreement  is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

                                   * * * * * *

                                      -16-

<PAGE>

         IN WITNESS WHEREOF,  the parties have caused this  Registration  Rights
Agreement to be duly executed as of day and year first above written.

COMPANY:                                BUYERS:

THE 3DO COMPANY                         HFTP INVESTMENT L.L.C.

By:/s/ James Alan Cook                  By:  Promethean Asset Management L.L.C
   -------------------                  Its: Investment Manager
   Name: James Alan Cook
   Its: Executive Vice President

                                        By: /s/ James F. O'Brien, Jr
                                            ------------------------
                                            Name: James F. O'Brien, Jr
                                            Title: Managing Member

                                        /s/  Fari Amini
                                            ------------------------
                                        Fari Amini

                                        /s/  Augustus S. Hawkins
                                            ------------------------
                                        Augustus S. Hawkins

                                        WM. M. & HELEN S. HAWKINS Trust U/A
                                        Apr. 25, 1981

                                        By: William M. Hawkins, Jr.
                                            ------------------------
                                            Name: William M. Hawkins, Jr
                                            Title: Trustee

                                        /s/  Mark Lewis
                                            ------------------------
                                        Mark Lewis

                                        /s/  Michael Marks
                                            ------------------------
                                        Michael Marks

<PAGE>

                                   NAYLOR 1992 REVOCABLE TRUST u/t/a
                                   2/4/92

                                   By: /s/ Duncan O. Naylor
                                       ------------------------
                                            Name: Duncan O. Naylor
                                            Title: Co-Trustee

                                   By: /s/ Barbara A. Naylor
                                       ------------------------
                                            Name:  Barbara A. Naylor
                                            Title: Co-Trustee

                                   EUGENE & CORINNE O'KELLY, as joint
                                   tenants

                                   By: /s/ Eugene O'Kelly
                                       ------------------------
                                            Name: Eugene O'Kelly

                                   By: /s/ Corinne O'Kelly
                                       ------------------------
                                            Name: Corinne O'Kelly

                                   THE POSEHN FAMILY TRUST Dated 10/5/94

                                   By: /s/ Michel R. Posehn
                                       ------------------------
                                       Name:  Michel R. Posehn
                                       Title: Trustee

                                    /s/ William R. Reid
                                       ------------------------
                                       William R. Reid

                                    /s/ Gregory Walter Riker & Janis Lea. Riker
                                       ------------------------
                                       Gregory Walter Riker &
                                       Janis Lea. Riker

                                    /s/ Charles W. Romberger
                                       ------------------------
                                       Charles W. Romberger

                                    /s/ Alfred Z. Spector
                                       ------------------------
                                       Alfred Z. Spector

                                    /s/ Bruce Zweig
                                       ------------------------
                                       Bruce Zweig

<PAGE>

                                        GAIA OFFSHORE MASTER FUND, LTD.

                                        By:  Promethean Asset Management L.L.C.
                                        Its:   Investment Manager

                                        By: /s/ James F. O'Brien, Jr.
                                            -------------------------
                                            Name: James F. O'Brien, Jr.
                                            Title: Managing Member

<PAGE>

<TABLE>
                                                  SCHEDULE OF BUYERS
<CAPTION>

                                                                              Number
                                                                               of
                                             Investor Address                Preferred      Investor's Legal Representatives'
       Investor's Name                     and Facsimile Number               Shares          Address and Facsimile Number
------------------------------    ---------------------------------------    ---------     ------------------------------------

Initial Buyers:
---------------
<S>                               <C>                                         <C>          <C>
HFTP Investment L.L.C.            c/o Promethean Asset Management L.L.C.      9,000        Promethean Investment Group, L.L.C.
                                  750 Lexington Avenue, 22nd Floor                         750 Lexington Avenue, 22nd Floor
                                  New York, New York 10022                                 New York, New York  10022
                                  Attention: James F. O'Brien, Jr.                         Attention: James F. O'Brien, Jr.
                                             John M. Floegel                                          John M. Floegel
                                             David M. Kittay                                          David M. Kittay
                                  Telephone: (212) 702-5200                                Telephone: (212) 702-5200
                                  Facsimile: (212) 758-9334                                Facsimile: (212) 758-9334

                                  Residence: New York                                      Katten Muchin Zavis
                                                                                           525 W. Monroe Street
                                                                                           Chicago, Illinois 60661-3693
                                                                                           Attention: Robert J. Brantman, Esq.
                                                                                           Telephone: (312) 902-5200
                                                                                           Facsimile:  (312) 902-1061

Gaia Offshore Master Fund,        c/o Promethean Asset Management L.L.C.      3,500        Promethean Investment Group, L.L.C.
Ltd.                              750 Lexington Avenue, 22nd Floor                         750 Lexington Avenue, 22nd Floor
                                  New York, New York 10022                                 New York, New York  10022
                                  Attention: James F. O'Brien, Jr.                         Attention: James F. O'Brien, Jr.
                                             John M. Floegel                                          John M. Floegel
                                             David M. Kittay                                          David M. Kittay
                                  Telephone: (212) 702-5200                                Telephone: (212) 702-5200
                                  Facsimile: (212) 758-9334                                Facsimile: (212) 758-9334

                                  Residence: New York                                      Katten Muchin Zavis
                                                                                           525 W. Monroe Street
                                                                                           Chicago, Illinois 60661-3693
                                                                                           Attention: Robert J. Brantman, Esq.
                                                                                           Telephone: (312) 902-5200
                                                                                           Facsimile: (312) 902-1061

Fari Amini                        202 Lagunitas Road                           100
                                  Ross, California 94957
                                  Telephone: (415) 453-2252
                                  Facsimile: ______________

                                  Residence: California

Augustus S. Hawkins               5070 Tara Avenue, #108                       200
                                  Las Vegas, Nevada 89146
                                  Telephone: (702) 386-3439
                                  Facsimile: ________________

                                  Residence: Nevada

Wm. M. & Helen S. Hawkins         Wm. M. Hawkins, Jr., Trustee               2,000
Trust U/A Apr. 25, 1981           6949 Fairway Road
                                  La Jolla, California 92037
                                  Telephone: (858) 459-7550
                                  Facsimile:  (858) 459-8429

                                  Residence: California

<PAGE>

CHI02 60016163v6

Mark Lewis                        371 Greendale Way                            100
                                  Redwood, California 94062
                                  Telephone: (650) 363-0651
                                  Facsimile: _______________

                                  Residence: California

Michael Marks                     2090 Fortune Drive                           250
                                  San Jose, California 95131
                                  Telephone:  (408) 428-1320
                                  Facsimile: ___________________

                                  Residence: California

Naylor 1992 Revocable Trust       Duncan Naylor & Barbara Naylor,               50
u/t/a 2/4/92                      Trustees
                                  1268 Estates Drive
                                  Los Altos, California 94024
                                  Telephone: (650) 233-7011
                                  Facsimile: ____________________

                                  Residence: California

Eugene & Corinne O'Kelly,         Eugene O'Kelly                               125
as joint tenants                  504 E. 87th Street
                                  New York, New York 10128
                                  Telephone: (212) 734-5002
                                  Facsimile: ___________________

                                  Residence: New York

The Posehn Family Trust           Michael R. Posehn, Trustee                    50
Dated 10/5/94                     P.O. Box 309
                                  Penryn, California 95663
                                  Telephone: (916) 663-9358
                                  Facsimile: ____________________

                                  Residence: California

William R. Reid                   1045 Fifth Avenue, Fifth Floor               100
                                  New York, New York 10028
                                  Telephone: (212) 521-5514
                                  Facsimile: __________________

                                  Residence: New York

Charles W. Romberger              235 Ridgeway Avenue                           95
                                  Fairfax, California 94930
                                  Telephone: (415) 457-7332
                                  Facsimile: _____________________

                                  Residence: California

Alfred Z. Spector                 45 Iden Avenue                               100
                                  Pelham Manor, New York 10803
                                  Telephone: (914) 738-7937
                                  Facsimile: _______________

                                  Residence: New York

Bruce Zweig                       1770 Green St., #604                          50
                                  San Francisco, CA 94123
                                  Telephone: (415) 922-0230
                                  Facsimile: _______________

                                  Residence: California

<PAGE>

Second Buyers:
--------------

Gregory Walter Riker &            Gregory Walter Riker &                       100
Janis Lea Riker                   Janis Lea Riker
                                  2821 Second Avenue #2301
                                  Seattle, WA. 98121
                                  Telephone: (206) 399-2852
                                  Facsimile:

                                  Residence: Washington

Total                                                                       15,820

</TABLE>

<PAGE>

                                                                       EXHIBIT A
                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[TRANSFER AGENT]
Attn:_____________________

                  Re:      The 3DO Company

Ladies and Gentlemen:

         We  are  counsel  to The  3DO  Company,  a  Delaware  corporation  (the
"Company"),  and have  represented  the Company in connection  with that certain
Securities  Purchase  Agreement (the "Purchase  Agreement")  entered into by and
among the Company and the buyers named  therein  (collectively,  the  "Holders")
pursuant  to which the  Company  issued to the  Holders  shares of its  Series A
Convertible Preferred Stock, par value $0.01 per share, (the "Preferred Shares")
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common  Stock"),  and warrants to purchase shares of the Common Stock (the
"Warrants").  Pursuant to the Purchase  Agreement,  the Company also has entered
into a Registration Rights Agreement with the Holders (the "Registration  Rights
Agreement")  pursuant  to which the  Company  agreed,  among  other  things,  to
register  the  Registrable  Securities  (as defined in the  Registration  Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrants, under the Securities Act of 1933,
as amended (the "1933 Act"). In connection with the Company's  obligations under
the Registration Rights Agreement,  on ____________ ___, 200_, the Company filed
a  Registration  Statement  on  Form  S-3  (File  No.   333-_____________)  (the
"Registration  Statement")  with the  Securities  and Exchange  Commission  (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.

         In connection  with the  foregoing,  we advise you that a member of the
SEC's  staff has  advised  us by  telephone  that the SEC has  entered  an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF  EFFECTIVENESS]  on [ENTER DATE OF  EFFECTIVENESS]  and we have no knowledge,
after  telephonic  inquiry of a member of the SEC's  staff,  that any stop order
suspending its  effectiveness  has been issued or that any  proceedings for that
purpose  are  pending  before,  or  threatened  by, the SEC and the  Registrable
Securities  are  available  for  resale  under  the  1933  Act  pursuant  to the
Registration Statement.

                                                     Very truly yours,

                                                     [ISSUER'S COUNSEL]

                                                     By:________________________

cc:      [LIST NAME OF HOLDERS]

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