Document:

EXHIBIT 4.1

                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   CERTIFICATE OF DESIGNATION OF PREFERENCES,
                             RIGHTS AND LIMITATIONS
                                       OF
                 SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

                   PURSUANT TO SECTION 78.1955 OF THE GENERAL
                     CORPORATION LAW OF THE STATE OF NEVADA

     The  undersigned,  Theodore S. Li and Hui "Cynthia"  Lee, do hereby certify
that:

          1. They are the  President  and  Secretary,  respectively,  of PACIFIC
MAGTRON INTERNATIONAL CORP., a Nevada corporation (the "CORPORATION").

          2.  The  Corporation  is  authorized  to  issue  5,000,000  shares  of
preferred stock, none of which have been issued.

          3.  The  following  resolutions  were  duly  adopted  by the  Board of
Directors:

     WHEREAS, the Certificate of Incorporation of the Corporation provides for a
class of its authorized stock known as preferred  stock,  comprised of 5,000,000
shares, $0.001 par value, issuable from time to time in one or more series;

     WHEREAS, the Board of Directors of the Corporation is authorized to fix the
dividend rights,  dividend rate, voting rights,  conversion  rights,  rights and
terms of redemption and liquidation preferences of any wholly unissued series of
preferred  stock and the  number  of  shares  constituting  any  series  and the
designation thereof, of any of them; and

     WHEREAS,  it is the desire of the Board of  Directors  of the  Corporation,
pursuant  to its  authority  as  aforesaid,  to  fix  the  rights,  preferences,
restrictions and other matters relating to an additional series of the preferred
stock,  which shall  consist of up to 1,000  shares of the  5,000,000  shares of
preferred stock which the corporation has the authority to issue, as follows:

     NOW,  THEREFORE,  BE IT RESOLVED,  that the Board of Directors  does hereby
provide for the issuance of an additional  series of preferred stock for cash or
exchange  of other  securities,  rights  or  property  and does  hereby  fix and
determine the rights,  references,  restrictions  and other matters  relating to
such additional series of preferred stock as follows:
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                            TERMS OF PREFERRED STOCK

     Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of preferred stock
shall  be  designated  as its 4%  Series  A  Convertible  Preferred  Stock  (the
"PREFERRED  STOCK") and the number of shares so designated shall be 1,000 (which
shall not be subject  to  increase  without  the  consent of the  holders of the
Preferred Stock (each, a "HOLDER" and collectively,  the "HOLDERS")). Each share
of Preferred Stock shall have a par value of $0.001 per share and a stated value
equal to the sum of $1,000 plus all accrued and unpaid  dividends to the date of
determination  to the extent not previously  paid in cash in accordance with the
terms hereof (the "STATED Value").

     Section 2. DIVIDENDS.

          (a)  Holders  shall be  entitled  to  receive,  out of  funds  legally
     available therefor,  and the Company shall pay, cumulative dividends at the
     rate per share (as a  percentage  of the Stated  Value per share) of 4% per
     annum,  payable on each Conversion Date (as defined herein) for such share,
     in cash or by  accretion  of the Stated  Value or, at the  election  of the
     Company,  from time to time if and as the  Company may  declare,  in Common
     Stock of the Company that is registered  under the  Securities Act of 1933,
     as  amended,  for  resale by the holder  thereof.  Subject to the terms and
     conditions herein,  the decision whether to accrete dividends  hereunder to
     the Stated Value or to pay for dividends in cash shall be at the discretion
     of the Company. The Company shall provide the Holders written notice of its
     intention  to  accrete  dividends  hereunder  to the  Stated  Value  or pay
     dividends in cash not less than ten days prior to each  Conversion Date for
     so long as shares of  Preferred  Stock are  outstanding  (the  Company  may
     indicate in such notice that the  election  contained  in such notice shall
     continue for later periods until  revised).  Failure to timely provide such
     written notice shall be deemed (if permitted  hereunder) an election by the
     Company to accrete  dividends  hereunder to the Stated Value.  Dividends on
     the  Preferred  Stock shall be  calculated  on the basis of a 360-day year,
     shall accrue  daily  commencing  on the Original  Issue Date (as defined in
     Section  8),  and shall be deemed to accrue  from such date  whether or not
     earned or declared and whether or not there are  profits,  surplus or other
     funds of the Company legally available for the payment of dividends. Except
     as otherwise provided herein, if at any time the Company pays less than the
     total amount of dividends  then accrued on account of the Preferred  Stock,
     such payment shall be distributed  ratably among the Holders based upon the
     number of shares of Preferred  Stock held by each Holder.  Any dividends to
     be paid in cash  hereunder  that are not paid within three Trading Days (as
     defined in Section 8) following a Conversion  Date shall continue to accrue
     and shall entail a late fee, which must be paid in cash, at the rate of 18%
     per annum or the lesser  rate  permitted  by  applicable  law (such fees to
     accrue  daily,  from the date such  dividend is due  hereunder  through and
     including the date of payment).

          (b)  Notwithstanding  anything to the contrary  contained herein,  the
     Company must pay dividends in cash if:

               (i) the number of shares of Common  Stock (as  defined in Section
          8) at the time authorized, unissued and unreserved for all purposes is

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          insufficient  to accrete such dividends to the Stated Value and permit
          conversion in full of all outstanding Stated Value;

               (ii) after the Dividend Effectiveness Date (as defined in Section
          8),  the  Underlying  Shares  (as  defined  in  Section 8) (x) are not
          registered  for resale  pursuant  to an  effective  Underlying  Shares
          Registration  Statement  (as  defined in Section 8) and (y) may not be
          sold  without  volume  restrictions  pursuant to Rule 144  promulgated
          under the  Securities  Act (as defined in Section 8), as determined by
          counsel to the Company pursuant to a written opinion letter, addressed
          to the Company's  transfer agent in the form and substance  acceptable
          to the  applicable  Holder and such transfer  agent (if the Company is
          permitted  and elects to pay dividends in shares of Common Stock under
          this  clause  (ii)  prior  to  the  Dividend  Effectiveness  Date  and
          thereafter  an  Underlying  Shares  Registration  Statement  shall  be
          declared  effective by the  Commission  (as defined in Section 8), the
          Company  shall,  within  three  Trading  Days  after  the date of such
          declaration  of  effectiveness,  exchange such  Underlying  Shares for
          shares of Common  Stock  that are free of  restrictive  legends of any
          kind);

               (iii) the Common Stock is not then listed or quoted on the Nasdaq
          Small-Cap  Market ("NSM") or on the New York Stock Exchange,  American
          Stock  Exchange  or  Nasdaq   National  Market  (each,  a  "SUBSEQUENT
          MARKET"); or

               (iv) the  accretion  of such  dividends  to the Stated  Value and
          subsequent  conversions  of all then  outstanding  Stated  Value would
          result in a violation of Sections 5(a)(iv) or (v).

          (c) So long as any Preferred Stock shall remain  outstanding,  neither
     the Company nor any subsidiary thereof shall redeem,  purchase or otherwise
     acquire directly or indirectly any Junior Securities (as defined in Section
     8),  nor shall the  Company  directly  or  indirectly  pay or  declare  any
     dividend or make any  distribution  (other than a dividend or  distribution
     described in Section 5 or dividends due and paid in the ordinary  course on
     preferred  stock  of the  Company  at such  times  when the  Company  is in
     compliance  with its payment and other  obligations  hereunder)  upon,  nor
     shall any  distribution be made in respect of, any Junior  Securities,  nor
     shall any monies be set aside for or applied to the purchase or  redemption
     (through a sinking fund or  otherwise)  of any Junior  Securities or shares
     pari passu with the  Preferred  Stock,  unless (i) the  Company  shall have
     previously paid all cumulative  dividends accrued on the Preferred Stock as
     of such date and (ii) the Holders shall own less than 20% of the originally
     issued Preferred Stock.

     Section  3.  VOTING  RIGHTS.  Except as  otherwise  provided  herein and as
otherwise  required by law,  the  Preferred  Stock shall have no voting  rights.
However,  so long as any shares of Preferred Stock are outstanding,  the Company
shall not,  without  the  affirmative  vote of the  Holders of a majority of the
shares of the Preferred Stock then  outstanding,  (a) alter or change  adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
this  Certificate  of  Designation,  (b)  authorize or create any class of stock

                                      -3-
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ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise  pari passu with the Preferred  Stock,  (c)
amend its certificate or articles of incorporation or other charter documents so
as to affect  adversely any rights of the Holders,  (d) increase the  authorized
number of shares of  Preferred  Stock,  or (e)  enter  into any  agreement  with
respect to the foregoing.

     Section 4. LIQUIDATION. Upon any liquidation,  dissolution or winding-up of
the Company,  whether  voluntary or involuntary (a  "LIQUIDATION"),  the Holders
shall be  entitled  to receive out of the assets of the  Company,  whether  such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the Stated Value per share before any  distribution  or payment shall be made
to the holders of any Junior Securities,  and if the assets of the Company shall
be  insufficient  to pay in full  such  amounts,  then the  entire  assets to be
distributed  to the Holders shall be  distributed  among the Holders  ratably in
accordance  with the respective  amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of 50% or more of the assets of the Company or the  effectuation  by the Company
of a transaction or series of related transactions in which more than 33% of the
voting power of the Company is disposed of, or a consolidation  or merger of the
Company with or into any other company or companies  into one or more  companies
not  wholly-owned  by the  Company  shall not be treated as a  Liquidation,  but
instead shall be subject to the  provisions of Section 5. The Company shall mail
written  notice  of any such  Liquidation,  not less  than 45 days  prior to the
payment date stated therein, to each record Holder.

     Section 5. CONVERSION.

          (a)  (i)  CONVERSIONS  AT OPTION OF HOLDER.  Each  share of  Preferred
          Stock shall be convertible into shares of Common Stock (subject to the
          limitations  set forth in Section  5(a)(iv) and (v)) at the Conversion
          Ratio (as defined in Section  8), at the option of the Holder,  at any
          time and from time to time from and after  the  Original  Issue  Date.
          Holders  shall effect  conversions  by providing  the Company with the
          form of conversion  notice  attached  hereto as ANNEX A (a "CONVERSION
          NOTICE"). Each Conversion Notice shall specify the number of shares of
          Preferred  Stock to be  converted,  the number of shares of  Preferred
          Stock  owned  prior to the  conversion  at issue,  number of shares of
          Preferred  Stock owned  subsequent to the  conversion at issue and the
          date on which such conversion is to be effected, which date may not be
          prior  to the date the  Holder  delivers  such  Conversion  Notice  by
          facsimile (the "CONVERSION  DATE"). If no Conversion Date is specified
          in a Conversion  Notice,  the  Conversion  Date shall be the date that
          such  Conversion  Notice  is  deemed  delivered  hereunder.  To effect
          conversions  of  shares  of  Preferred  Stock,  a Holder  shall not be
          required to surrender the  certificate(s)  representing such shares of
          Preferred  Stock to the Company  unless all of the shares of Preferred
          Stock represented  thereby are so converted,  in which case the Holder
          shall  deliver the  certificate  representing  such share of Preferred
          Stock   promptly   following  the  Conversion   Date  at  issue.   The
          calculations

                                      -4-
<PAGE>
          and entries set forth in the  Conversion  Notice shall  control in the
          absence of manifest or mathematical error.

               (ii) [RESERVED]

               (iii) [RESERVED]

               (iv) BENEFICIAL  OWNERSHIP CONVERSION  RESTRICTION.  A Holder may
          not  convert  shares of  Preferred  Stock or receive  shares of Common
          Stock as payment of dividends  hereunder to the extent such conversion
          or  receipt  of such  dividend  payment  would  result in the  Holder,
          together  with  any  affiliate   thereof,   beneficially   owning  (as
          determined  in  accordance  with Section 13(d) of the Exchange Act (as
          defined in Section 8) and the rules promulgated  thereunder) in excess
          of 4.999% of the then issued and  outstanding  shares of Common Stock,
          including shares issuable upon conversion of, and payment of dividends
          on,  the  shares  of  Preferred   Stock  held  by  such  Holder  after
          application of this Section. Since the Holder will not be obligated to
          report to the Company the number of shares of Common Stock it may hold
          at the time of a conversion hereunder,  unless the conversion at issue
          would  result in the  issuance of shares of Common  Stock in excess of
          4.999% of the then  outstanding  shares of Common Stock without regard
          to any other shares which may be  beneficially  owned by the Holder or
          an  affiliate  thereof,  the  Holder  shall  have  the  authority  and
          obligation  to  determine  whether the  restriction  contained in this
          Section  will limit any  particular  conversion  hereunder  and to the
          extent that the Holder  determines  that the  limitation  contained in
          this Section applies, the determination of which portion of the shares
          of Preferred Stock are  convertible  shall be the  responsibility  and
          obligation  of the Holder.  If the Holder has  delivered a  Conversion
          Notice for shares of Preferred Stock that, without regard to any other
          shares that the Holder or its affiliates may  beneficially  own, would
          result in the issuance in excess of the  permitted  amount  hereunder,
          the Company  shall  notify the Holder of this fact and shall honor the
          conversion  for the  maximum  number  of  shares  of  Preferred  Stock
          permitted to be converted on such  Conversion  Date in accordance with
          the  periods  described  in  Section  5(b) and,  at the  option of the
          Holder,   either  retain  shares  of  Preferred   Stock  tendered  for
          conversion  in excess of the  permitted  amount  hereunder  for future
          conversions or return such excess shares of Preferred  Stock permitted
          to the  Holder.  The  provisions  of this  Section  may be waived by a
          Holder  (but only as to itself and not to any other  Holder)  upon not
          less than 61 days prior notice to the Company.  Other Holders shall be
          unaffected by any such waiver.

               (v)  LIMITATION  ON NUMBER OF  SHARES  ISSUABLE.  Notwithstanding
          anything herein to the contrary,  the Company shall not be required to
          issue to the Holder  and any other  holders  of the  Preferred  Stock,
          Common Stock in excess of 19.999% of the Company's  outstanding Common

                                      -5-
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          Stock on the First  Closing  Date at a price below the market price of
          the Common Stock on the First Closing Date, or such greater  number of
          shares of Common Stock permitted  pursuant to Nasdaq Rule 4350(i),  or
          where such  issuance  would  otherwise  require  shareholder  approval
          pursuant to Nasdaq Rule 4350(i), as confirmed in writing by counsel to
          the Company,  upon  conversion  of the  Preferred  Stock (the "MAXIMUM
          AGGREGATE SHARE AMOUNT"), unless the Company first obtains shareholder
          approval permitting such issuances in accordance with Nasdaq rules. If
          the number of shares of Common Stock which would,  notwithstanding the
          limitation set forth herein, be issuable and sold to the Holder equals
          or exceeds the Maximum Aggregate Share Amount, then, at any time, from
          time to time  thereafter at the sole election of the Holder,  in whole
          or in part,  the  Company  shall:  (i)  honor  the  conversion  of the
          Preferred Stock by the Holder at the lowest possible  conversion price
          which  would  permit such  conversion  without  violating  Nasdaq Rule
          4350(i),  and (ii) redeem the portion of the Preferred Stock submitted
          to the  Company,  the  conversion  of which  would  exceed the Maximum
          Aggregate  Share Amount,  otherwise in  accordance  with Section 6(a).
          This  limitation  on  conversion  shall be applied  ratably  among the
          Holders  based  upon the number of shares of  Preferred  Stock held by
          each Holder.

               (vi)  Notwithstanding  anything to the contrary contained herein,
          if on any Conversion Date:

                    (A) the Common  Stock is not listed or quoted on a Principal
               Market;

                    (B) the Company has failed to timely  satisfy its conversion
               obligations   hereunder  with  respect  to  the  Preferred  Stock
               submitted for conversion on such conversion date; or

                    (C) the issuance of such shares of Common Stock would result
               in a violation of Section 5(a)(v).

               then,  at the  option  of the  Holder,  the  Company,  in lieu of
          delivering Conversion Shares, shall deliver,  within three (3) Trading
          Days of each  applicable  Conversion  Date, an amount in cash equal to
          the product of the number of Conversion  Shares otherwise  deliverable
          to the Holder in connection  with such Conversion Date and the highest
          VWAP during the period commencing on the Conversion Date and ending on
          the Trading Day prior to the date such payment is made.

          (b)  (i) Not later than three Trading Days after each Conversion Date,
          the  Company  will  deliver  to  the  Holder  (A)  a  certificate   or
          certificates  which,  after  the  Effective  Date,  shall  be  free of
          restrictive  legends  and  trading   restrictions  (other  than  those
          required by Section 3.1(b) of the Purchase Agreement) representing the
          number of shares of Common Stock being acquired upon the conversion of

                                      -6-
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          shares  of  Preferred  Stock,  and (B) a bank  check in the  amount of
          accrued  and  unpaid  dividends  (if the  Company  has  elected  or is
          required to pay accrued  dividends in cash).  The Company shall,  upon
          request of the Holder,  if available,  use its best efforts to deliver
          any  certificate  or  certificates  required  to be  delivered  by the
          Company under this Section electronically through the Depository Trust
          Corporation or another  established  clearing  corporation  performing
          similar  functions.  If in the  case  of any  Conversion  Notice  such
          certificate or certificates are not delivered to or as directed by the
          applicable  Holder by the third Trading Day after the Conversion Date,
          the Holder shall be entitled to elect by written notice to the Company
          at  any  time  on  or  before  its  receipt  of  such  certificate  or
          certificates  thereafter,  to rescind such conversion,  in which event
          the Company shall immediately return the certificates representing the
          shares of Preferred Stock tendered for conversion.

               (ii)  If  the  Company  fails  to  deliver  to  the  Holder  such
          certificate or certificates  pursuant to Section 5(b)(i), by the third
          Trading Day after the  Conversion  Date, the Company shall pay to such
          Holder, in cash, as liquidated damages and not as a penalty,  for each
          $5,000 of Stated Value of  Preferred  Stock being  converted,  $50 per
          Trading Day  (increasing  to $100 per Trading Day after 3 Trading Days
          and  increasing  to $200 per  Trading  Day 6 Trading  Days  after such
          damages begin to accrue) for each Trading Day after such third Trading
          Day until such certificates are delivered.  Nothing herein shall limit
          a Holder's right to pursue actual damages for the Company's failure to
          deliver   certificates   representing  shares  of  Common  Stock  upon
          conversion  within the period  specified  herein and such Holder shall
          have the right to pursue all remedies  available to it  hereunder,  at
          law or in equity including,  without limitation,  a decree of specific
          performance and/or injunctive relief.

               (iii) In addition to any other rights available to the Holder, if
          the  Company  fails to  deliver  to the  Holder  such  certificate  or
          certificates  pursuant to Section  5(b)(i),  by the third  Trading Day
          after the  Conversion  Date,  and if after such third  Trading Day the
          Holder purchases (in an open market  transaction or otherwise)  Common
          Stock to  deliver  in  satisfaction  of a sale by such  Holder  of the
          Underlying  Shares  which the Holder was entitled to receive upon such
          conversion (a "BUY-IN"), then the Company shall (A) pay in cash to the
          Holder  the  amount by which (x) the  Holder's  total  purchase  price
          (including  brokerage  commissions,  if any) for the  Common  Stock so
          purchased  exceeds  (y) the  product  of (1) the  aggregate  number of
          shares of Common  Stock that such Holder was  entitled to receive from
          the  conversion  at issue  multiplied  by (2) the market  price of the
          Common  Stock  at the time of the sale  giving  rise to such  purchase
          obligation  and (B) at the  option of the  Holder,  either  return the
          shares of Preferred Stock for which such conversion was not honored or

                                      -7-
<PAGE>
          deliver to such Holder the number of shares of Common Stock that would
          have been issued had the Company  timely  complied with its conversion
          and delivery  obligations under Section 5(b)(i).  For example,  if the
          Holder purchases Common Stock having a total purchase price of $11,000
          to cover a Buy-In with respect to an attempted conversion of shares of
          Preferred  Stock  with  respect  to  which  the  market  price  of the
          Underlying  Shares on the date of conversion  totaled  $10,000,  under
          clause (A) of the immediately  preceding sentence the Company shall be
          required  to pay the Holder  $1,000.  The  Holder  shall  provide  the
          Company written notice indicating the amounts payable to the Holder in
          respect of the Buy-In.  Nothing herein shall limit a Holder's right to
          pursue any other  remedies  available  to it  hereunder,  at law or in
          equity including, without limitation, a decree of specific performance
          and/or  injunctive  relief with  respect to the  Company's  failure to
          timely deliver  certificates  representing shares of Common Stock upon
          conversion  of the shares of Preferred  Stock as required  pursuant to
          the terms hereof.

          (c)  (i) The conversion  price for each share of Preferred  Stock (the
          "CONVERSION  PRICE") shall equal the lesser of (A) 120% of the average
          of the 5 Closing Prices immediately prior to the Closing Date on which
          such  Preferred  Stock  was  issued  (the  "SET  PRICE"),  subject  to
          adjustment  herein,  and (B) 85% of the average of the 5 lowest  VWAPs
          during  the 30  Trading  Days  immediately  prior  to  the  applicable
          Conversion Date; PROVIDED,  HOWEVER, the Conversion Price shall not be
          less  than  $0.75  ("FLOOR  PRICE"),  subject  to  adjustment  herein.
          Notwithstanding  the Floor  Price,  if the  Conversion  price  then in
          effect is less than the Floor Price, the Conversion Price at such time
          shall equal the Floor Price.

               (ii) If the  Company,  at any time while any shares of  Preferred
          Stock are  outstanding,  shall (a) pay a stock  dividend or  otherwise
          make  a  distribution  or   distributions  on  shares  of  its  Junior
          Securities or pari passu securities payable in shares of Common Stock,
          (b) subdivide  outstanding shares of Common Stock into a larger number
          of shares,  (c)  combine  (including  by way of reverse  stock  split)
          outstanding shares of Common Stock into a smaller number of shares, or
          (d) issue by  reclassification  and  exchange of the Common  Stock any
          shares of capital  stock of the Company,  then the Set Price and Floor
          Price shall be multiplied  by a fraction of which the numerator  shall
          be the number of shares of Common Stock (excluding treasury shares, if
          any) outstanding  before such event and of which the denominator shall
          be the number of shares of Common Stock  outstanding after such event.
          Any  adjustment  made pursuant to this Section  5(c)(ii)  shall become
          effective  immediately  after the record date for the determination of
          stockholders  entitled to receive such  dividend or  distribution  and
          shall become  effective  immediately  after the effective  date in the
          case of a subdivision, combination or re-classification.

                                      -8-
<PAGE>
               (iii)  If at  any  time  while  shares  of  Preferred  Stock  are
          outstanding  the  Company or any  Subsidiary  (with  respect to Common
          Stock Equivalents) shall offer, sell, grant any option to purchase, or
          otherwise dispose of (or announce any offer, sale, grant or any option
          to purchase  or other  disposition)  any of shares of Common  Stock or
          Common Stock  Equivalents at a price that is, at the issuance thereof,
          or at any later time due to adjustment, reset, additional issuances or
          otherwise,  less than the Set Price, then, at the option of the Holder
          for such  conversions  as such Holder shall indicate in its Conversion
          Notices  (including  on  conversion  pursuant to section  5(a)(ii) and
          (iii)),  the Set Price and Floor Price shall be adjusted to mirror the
          conversion, exchange or purchase price for such Common Stock or Common
          Stock Equivalents  (including any reset provisions  thereof) at issue.
          Such  adjustment  shall be made  whenever  such Common Stock or Common
          Stock  Equivalents  are issued.  If the holder of the Common  Stock or
          Common  Stock  Equivalent  so  issued  shall at any time,  whether  by
          operation of purchase price  adjustments,  reset provisions,  floating
          conversion,  exercise  or  exchange  prices  or  otherwise,  or due to
          warrants,  options or rights issued in connection  with such issuance,
          be entitled to receive shares of Common Stock at a price less than the
          Set Price,  such  issuance  shall be deemed to have  occurred for less
          than the Set Price.  A "COMMON STOCK  EQUIVALENT"  means any equity or
          equity equivalent  securities  (including debt or any other instrument
          that  is at any  time  over  the  life  thereof  convertible  into  or
          exchangeable  for Common  Stock) issued by the Company or a subsidiary
          thereof  that provide the holder  thereof to receive  shares of Common
          Stock.  The Company shall notify the Holder in writing,  no later than
          the Trading Day  following  the issuance of any Common Stock or Common
          Stock  Equivalent  subject to this  section,  indicating  therein  the
          applicable  issuance  price,  or of applicable  reset price,  exchange
          price, conversion price and other pricing terms.

               (iv) If the Company,  at any time while shares of Preferred Stock
          are outstanding,  shall distribute to all holders of Common Stock (and
          not to Holders)  evidences of its  indebtedness or assets or rights or
          warrants to subscribe  for or purchase any security  (excluding  those
          referred to in Sections  5(c)(ii)-(iii) above), then in each such case
          the Set Price and Floor Price at which each share of  Preferred  Stock
          shall thereafter be convertible shall be determined by multiplying the
          Set Price and Floor  Price in effect  immediately  prior to the record
          date fixed for determination of stockholders  entitled to receive such
          distribution by a fraction of which the  denominator  shall be the Per
          Share Market Value  determined as of the record date mentioned  above,
          and of which the  numerator  shall be such Per Share  Market  Value on
          such record  date less the then fair market  value at such record date
          of  the  portion  of  such  assets  or  evidence  of  indebtedness  so
          distributed  applicable  to one  outstanding  share of Common Stock as
          determined by the Board of Directors in good faith. In either case the

                                      -9-
<PAGE>
          adjustments shall be described in a statement  provided to the Holders
          of the portion of assets or evidences of  indebtedness  so distributed
          or such  subscription  rights applicable to one share of Common Stock.
          Such adjustment  shall be made whenever any such  distribution is made
          and shall become effective immediately after the record date mentioned
          above.

               (v) All  calculations  under this  Section 5 shall be made to the
          nearest  cent or the nearest  1/100th of a share,  as the case may be.
          The  number of shares of Common  Stock  outstanding  at any given time
          shall not  include  shares  owned or held by or for the account of the
          Company, and the disposition of any such shares shall be considered an
          issue or sale of Common Stock.

               (vi) Whenever the Set Price and Floor Price is adjusted  pursuant
          to Section 5(c)(ii),(iii),  or (iv) the Company shall promptly mail to
          each  Holder,  a notice  setting  forth the Set Price and Floor  Price
          after such adjustment and setting forth a brief statement of the facts
          requiring such adjustment.

               (vii) In case of any reclassification of the Common Stock, or any
          compulsory  share  exchange  pursuant  to which  the  Common  Stock is
          converted  into  other  securities,   cash  or  property  (other  than
          compulsory  share  exchanges  which   constitute   Change  of  Control
          Transactions),  the Holders of the  Preferred  Stock then  outstanding
          shall have the right  thereafter  to convert such shares only into the
          shares of stock and other  securities,  cash and  property  receivable
          upon or deemed to be held by holders of Common  Stock  following  such
          reclassification  or share exchange,  and the Holders of the Preferred
          Stock  shall be  entitled  upon such event to receive  such  amount of
          securities,  cash or  property  as a holder of the number of shares of
          Common Stock of the Company into which such shares of Preferred  Stock
          could have been converted  immediately prior to such  reclassification
          or share  exchange  would have been  entitled.  This  provision  shall
          similarly apply to successive reclassifications or share exchanges.

               (viii) In case of any merger or consolidation of the Company with
          or into another  Person,  or sale by the Company of more than one-half
          of the  assets  of the  Company  (on an as  valued  basis) in one or a
          series  of  related  transactions,  a  Holder  shall  have  the  right
          thereafter  to (A)  convert  its  shares of  Preferred  Stock into the
          shares of stock and other  securities,  cash and  property  receivable
          upon or deemed to be held by holders of Common  Stock  following  such
          merger,  consolidation or sale, and such Holder shall be entitled upon
          such  event or series of  related  events to  receive  such  amount of
          securities, cash and property as the shares of Common Stock into which
          such shares of Preferred  Stock could have been converted  immediately

                                      -10-
<PAGE>
          prior to such merger,  consolidation or sales would have been entitled
          or (B) in the case of a  merger  or  consolidation,  (x)  require  the
          surviving  entity to issue shares of  convertible  preferred  stock or
          convertible  debentures  with such  aggregate  stated value or in such
          face  amount,  as the case may be,  equal to the  Stated  Value of the
          shares of Preferred  Stock then held by such Holder,  plus all accrued
          and unpaid  dividends  and other amounts  owing  thereon,  which newly
          issued  shares of  preferred  stock or  debentures  shall  have  terms
          identical  (including  with respect to conversion) to the terms of the
          Preferred Stock (except, in the case of debentures, as may be required
          to reflect  the  differences  between  debt and  equity)  and shall be
          entitled to all of the rights and  privileges of a Holder of Preferred
          Stock  set  forth  herein  and the  agreements  pursuant  to which the
          Preferred Stock was issued  (including,  without  limitation,  as such
          rights relate to the  acquisition,  transferability,  registration and
          listing  of such  shares  of  stock  other  securities  issuable  upon
          conversion thereof),  and (y) simultaneously with the issuance of such
          convertible preferred stock or convertible debentures,  shall have the
          right to convert such  instrument  only into shares of stock and other
          securities,  cash and property receivable upon or deemed to be held by
          holders of Common Stock following such merger,  consolidation or sale.
          In the case of clause (B), the  conversion  price  applicable  for the
          newly issued  shares of  convertible  preferred  stock or  convertible
          debentures  shall be based  upon the  amount of  securities,  cash and
          property  that  each  share of  Common  Stock  would  receive  in such
          transaction,   the   Conversion   Ratio   immediately   prior  to  the
          effectiveness  or closing date for such  transaction and the Set Price
          and Floor Price stated herein.  The terms of any such merger,  sale or
          consolidation  shall  include  such terms so as  continue  to give the
          Holders the right to receive the  securities,  cash and  property  set
          forth in this Section upon any conversion or redemption following such
          event. This provision shall similarly apply to successive such events.
          The rights set forth in this  Section  5(c)(viii)  shall not alter the
          rights of a Holder set forth in Section 7,  provided,  that,  a Holder
          may only  exercise the rights set forth in this Section  5(c)(viii) or
          the  rights  set forth in  Section 7 with  respect  to a single  event
          giving rise to such rights.

               (ix) If (a) the Company  shall  declare a dividend  (or any other
          distribution)  on the Common  Stock,  (b) the Company  shall declare a
          special  nonrecurring  cash  dividend on or a redemption of the Common
          Stock,  (c) the Company shall authorize the granting to all holders of
          Common  Stock  rights or warrants  to  subscribe  for or purchase  any
          shares  of  capital  stock  of any  class  or of any  rights,  (d) the
          approval  of any  stockholders  of the  Company  shall be  required in
          connection  with  any   reclassification  of  the  Common  Stock,  any
          consolidation  or merger to which the Company is a party,  any sale or
          transfer of all or substantially all of the assets of the Company,  or
          any compulsory share of exchange whereby the Common Stock is converted
          into other  securities,  cash or  property,  or (e) the Company  shall

                                      -11-
<PAGE>
          authorize the voluntary or  involuntary  dissolution,  liquidation  or
          winding  up of the  affairs of the  Company;  then the  Company  shall
          notify the Holders at their last  addresses  as they shall appear upon
          the stock books of the Company, at least 20 calendar days prior to the
          applicable  record or effective date hereinafter  specified,  a notice
          stating  (x) the date on which a record is to be taken for the purpose
          of such dividend, distribution,  redemption, rights or warrants, or if
          a record  is not to be  taken,  the date as of which  the  holders  of
          Common Stock of record to be entitled to such dividend, distributions,
          redemption, rights or warrants are to be determined or (y) the date on
          which such reclassification,  consolidation, merger, sale, transfer or
          share exchange is expected to become  effective or close, and the date
          as of which it is  expected  that  holders  of Common  Stock of record
          shall be entitled to exchange their Common Stock for securities,  cash
          or   other   property   deliverable   upon   such    reclassification,
          consolidation,  merger, sale, transfer or share exchange.  Holders are
          entitled to convert shares of Preferred Stock during the 20-day period
          commencing  the date of such notice to the effective date of the event
          triggering such notice.

               (x)  EXCEPTIONS TO  ADJUSTMENT  OF SET PRICE AND FLOOR PRICE.  No
          adjustment  to the Set Price and Floor Price will be made (i) upon the
          conversion of any other Preferred Stock of this series or of any other
          securities issued by the Company in connection with the offer and sale
          of  this  Company's  securities  pursuant  to the  Purchase  Agreement
          including the Warrant;  (ii) upon the exercise of or conversion of any
          convertible securities,  options or warrants issued and outstanding on
          the Closing  Date;  (iii) upon the grant or exercise of any options to
          employees,  directors  or key  consultants  of the  Company  which may
          hereafter be granted or exercised  under any employee  benefit plan or
          other stock option, stock purchase or stock bonus plan or agreement of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance  of such  options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose;  (iv) upon the issuance of Common Stock
          or  convertible  securities  in any  acquisition  of another  business
          entity or segment  (whether through a purchase of assets or stock or a
          merger) or any  transaction  of the nature  contemplated  by Rule 145,
          promulgated  under the Securities  Act; or (v) in connection  with any
          strategic   partnership   or  joint  venture  or  acquisition  or  key
          consulting  agreements  (the primary  purpose of which is not to raise
          equity capital for the Company).

          (d) The Company  covenants  that it will at all times reserve and keep
     available out of its authorized and unissued  shares of Common Stock solely
     for the purpose of issuance  upon  conversion of Preferred  Stock,  each as
     herein provided, free from preemptive rights or any other actual contingent
     purchase  rights of  persons  other  than the  Holders,  not less than such
     number of shares of Common Stock as shall be issuable  (taking into account
     the provisions of Section 5(a) and Section 5(c)) upon the conversion of all
     outstanding  shares of  Preferred  Stock.  The Company  covenants  that all
     shares of Common Stock that shall be so issuable shall, upon issue, be duly
     and validly authorized, issued and fully paid and nonassessable.

                                      -12-
<PAGE>
          (e) Upon a conversion  hereunder  the Company shall not be required to
     issue stock certificates  representing fractions of shares of Common Stock,
     but may if otherwise permitted, make a cash payment in respect of any final
     fraction of a share based on the Per Share  Market  Value at such time.  If
     any fraction of an  Underlying  Share would,  except for the  provisions of
     this Section,  be issuable upon a conversion  hereunder,  the Company shall
     pay an amount in cash  equal to the  Conversion  Ratio  multiplied  by such
     fraction.

          (f) The issuance of  certificates  for Common Stock on  conversion  of
     Preferred Stock shall be made without charge to the Holders thereof for any
     documentary  stamp or  similar  taxes that may be payable in respect of the
     issue or delivery of such certificate,  provided that the Company shall not
     be required  to pay any tax that may be payable in respect of any  transfer
     involved  in the  issuance  and  delivery  of  any  such  certificate  upon
     conversion  in a name  other  than  that of the  Holder  of such  shares of
     Preferred Stock so converted.

          (g) Shares of Preferred  Stock converted into Common Stock or redeemed
     in  accordance  with the  terms  hereof  shall be  canceled  and may not be
     reissued.

          (h) Any and all notices or other  communications  or  deliveries to be
     provided  by the  Holders  of the  Preferred  Stock  hereunder,  including,
     without  limitation,  any  Conversion  Notice,  shall  be  in  writing  and
     delivered  personally,  by  facsimile  or sent by a  nationally  recognized
     overnight  courier  service,  addressed  to  the  attention  of  the  Chief
     Executive  Officer of the  Company  addressed  to 1600  California  Circle,
     Milpitas,  California 95035, fax: (408) 956-5777,  or to such other address
     or  facsimile  number as shall be  specified  in writing by the Company for
     such purpose.  Any and all notices or other communications or deliveries to
     be  provided  by the Company  hereunder  shall be in writing and  delivered
     personally,  by  facsimile  or sent by a  nationally  recognized  overnight
     courier service, addressed to each Holder at the facsimile telephone number
     or address of such Holder  appearing on the books of the Company,  or if no
     such facsimile  telephone number or address appears, at the principal place
     of business of the Holder. Any notice or other  communication or deliveries
     hereunder  shall be deemed  given and  effective on the earliest of (i) the
     date of  transmission,  if such notice or  communication  is delivered  via
     facsimile at the facsimile telephone number specified in this Section prior
     to 6:30 p.m. (New York City time) (with confirmation of transmission), (ii)
     the date after the date of transmission, if such notice or communication is
     delivered via facsimile at the facsimile telephone number specified in this
     Section  later than 6:30 p.m.  (New York City time) on any date and earlier
     than 11:59 p.m.  (New York City  time) on such date (with  confirmation  of
     transmission),  (iii)  upon  receipt,  if sent by a  nationally  recognized
     overnight courier service, or (iv) upon actual receipt by the party to whom
     such notice is required to be given.

                                      -13-
<PAGE>
     Section 6. REDEMPTION.

          (a)  OPTIONAL REDEMPTION BY COMPANY.

               (i) After the Effective  Date,  the Company shall have the right,
          upon at  least  10  Trading  Days'  notice  to the  Holder  (a "TYPE A
          OPTIONAL  REDEMPTION  NOTICE"  and the date such notice is received by
          the Holder, the "TYPE A NOTICE DATE"), to redeem for cash no less than
          all of the  outstanding  Preferred  Stock  at a  price  per  share  of
          Preferred  Stock equal to 115% of the Stated  Value of such  Preferred
          Stock plus all accrued and unpaid  dividends  and other  amounts owing
          thereon (the "TYPE A OPTIONAL REDEMPTION PRICE");  PROVIDED,  HOWEVER,
          during the period  beginning  on the Type A Notice  Date and ending on
          the date the Type A Optional Redemption Price is paid in full, (A) the
          Registration  Statement  must  be  maintained  effective,  and (B) the
          Common  Stock  must  have  been  listed  for  trading  on the NSM or a
          Subsequent  Market;  PROVIDED,  FURTHER,  that the Conversion Price in
          effect  during  the 5  Trading  Days  immediately  prior to the Type A
          Optional  Redemption Notice must have been less than $1.00 (subject to
          reverse and forward stock splits and the like) per  Conversion  Share.
          Nothing in this  Section 6 shall be deemed to  restrict  or  otherwise
          limit the  Holder's  right to convert  any of the shares of  Preferred
          Stock  pursuant  to Section  5(a)(i) at any time prior to the date the
          Type A Optional Redemption Price is paid in full.

               (ii) After the Effective  Date, the Company shall have the right,
          upon at  least  30  Trading  Days'  notice  to the  Holder  (a "TYPE B
          OPTIONAL  REDEMPTION  NOTICE",  and  together  with a Type A  Optional
          Redemption Notice,  each an "OPTIONAL  REDEMPTION NOTICE" and the date
          such notice is received  by the Holder,  the "TYPE B NOTICE  DATE" and
          together  with a Type A Notice Date, a "NOTICE  DATE"),  to redeem for
          cash no less than all of the  outstanding  Preferred  Stock at a price
          per share of Preferred Stock equal to 115% of the Stated Value of such
          Preferred  Stock  plus all  accrued  and  unpaid  dividends  and other
          amounts  owing  thereon  (the "TYPE B OPTIONAL  REDEMPTION  PRICE" and
          together with a Type A Optional Redemption Price, "OPTIONAL REDEMPTION
          PRICES"); PROVIDED, HOWEVER, during the period beginning on the Type B
          Notice  Date and  ending  on the date the Type B  Optional  Redemption
          Price  is  paid  in  full,  (A)  the  Registration  Statement  must be
          maintained  effective,  and (B) the Common Stock must have been listed
          for trading on the NSM or a Subsequent Market; PROVIDED, FURTHER, that
          the  Conversion  Price in effect  during  each of the 20 Trading  Days
          immediately  prior to the Type B Optional  Redemption Notice must have
          been  greater  than 175% of the Set Price.  Nothing in this  Section 6
          shall be deemed to restrict or otherwise  limit the Holder's  right to
          convert  any of the  shares of  Preferred  Stock  pursuant  to Section

                                      -14-
<PAGE>
          5(a)(i) at any time  prior to the date the Type B Optional  Redemption
          Price is paid in full.

          (b)  REDEMPTION  PROCEDURE.  The  payment  of  cash  pursuant  to  any
     redemption  hereunder shall be made on the date set forth in the applicable
     Optional  Redemption Notice,  which shall be at least 10 Trading Days after
     the  applicable  Notice  Date.  If any  portion of the cash  payment for an
     Optional Redemption shall not be paid by the Company by such date, interest
     shall  accrue  thereon  at the rate of 18% per annum (or the  maximum  rate
     permitted by applicable law,  whichever is less) until the cash payment for
     such Optional Redemption Price is paid in full. In addition, if any portion
     of an Optional Redemption Price remains unpaid after such date, the Holders
     subject to such  redemption  may elect,  by written  notice to the  Company
     given at any time  thereafter,  to  invalidate  AB INITIO such  redemption,
     notwithstanding  anything  herein  contained to the  contrary.  If a Holder
     elects to invalidate such  redemption the Company shall  promptly,  and, in
     any event,  not later  than 3 Trading  Days from  receipt of such  Holder's
     notice of such election,  return to such Holder all of the Preferred  Stock
     for which  the  redemption  price  shall not have been paid in full and the
     Company  shall  have  no  further  right  to  redeem  the  Preferred  Stock
     hereunder.  For purposes of this  Section,  a share of  Preferred  Stock is
     outstanding  until such date as the Holder shall have  received  Underlying
     Shares upon a conversion (or attempted  conversion)  thereof that meets the
     requirements hereof.

     Section 7. REDEMPTION UPON TRIGGERING EVENTS.

          (a) Upon the occurrence of a Triggering  Event,  each Holder shall (in
     addition  to all other  rights it may have  hereunder  or under  applicable
     law),  have the right,  exercisable  at the sole option of such Holder,  to
     require the Company to redeem all or a portion of the  Preferred  Stock and
     such shares of Common Stock as described below then held by such Holder for
     a redemption  price, in cash, equal to the sum of (i) the Redemption Amount
     (as  defined  in  Section  8) plus (ii) the  product  of (A) the  number of
     Underlying  Shares issued in respect of  conversions of shares of Preferred
     Stock  hereunder not more than thirty Trading Days prior to the date of the
     Holder's demand for redemption pursuant to this Section 7, and then held by
     the Holder and (B) the Per Share Market  Value on the date such  redemption
     is demanded or the date the  redemption  price  hereunder  is paid in full,
     whichever is greater (such sum, the "REDEMPTION PRICE"); PROVIDED, HOWEVER,
     that the  Redemption  Price due and payable upon the  Triggering  Event set
     forth in Section  7(b)(ix) shall be equal to 100% of the Stated Value.  The
     Redemption  Price shall be due and payable  within five Trading Days of the
     date on which the notice for the payment  therefor is provided by a Holder.
     If the Company fails to pay the Redemption Price hereunder in full pursuant
     to this  Section  on the date such  amount is due in  accordance  with this
     Section,  the Company will pay interest  thereon at a rate of 18% per annum
     (or the lesser amount  permitted by applicable  law),  accruing  daily from
     such date until the Redemption Price,  plus all such interest  thereon,  is

                                      -15-
<PAGE>
     paid in full. For purposes of this Section,  a share of Preferred  Stock is
     outstanding  until such date as the Holder shall have  received  Underlying
     Shares upon a conversion (or attempted  conversion)  thereof that meets the
     requirements hereof.

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

               (i) the failure of an Underlying Shares Registration Statement to
          be declared  effective by the  Commission on or prior to the 180th day
          after the Original Issue Date;

               (ii) if, during the  Effectiveness  Period,  the effectiveness of
          the Underlying Shares Registration Statement lapses for any reason for
          more  than  an  aggregate  of 20  calendar  days  (which  need  not be
          consecutive  days),  or the Holder  shall not be  permitted  to resell
          Registrable   Securities  under  the  Underlying  Shares  Registration
          Statement  for more than an aggregate of 20 calendar  days (which need
          not be  consecutive  days);  PROVIDED,  HOWEVER,  that,  upon 30 days'
          written  notification  to the  Holder,  the Company may exceed such 20
          Calendar days without constituting a Triggering Event if:

                    (A) The Board of Directors of the Company determines, in its
               good faith judgment, that the use of any prospectus would require
               the disclosure of important  information  which the Company has a
               bona fide business  purpose for preserving as confidential or the
               disclosure  of  which  would  impede  the  Company's  ability  to
               consummate a significant transaction,  in which event such period
               may be  extended  for up to  sixty  (60)  additional  days in any
               twelve (12) month period;

                    (B) The Company  consummates  any business  combination  for
               purposes of Rule 3-05 or Article 11 of  Regulation  S-X under the
               Securities  Act,  in which  event such  restricted  period may be
               extended  until the date on which  the  Company  has  filed  such
               reports or obtained the  financial  information  required by Rule
               3-05  or  Article  11 of  Regulation  S-X to be  included  in the
               Registration   Statement,   but  in  no  event  more  sixty  (60)
               additional days in any twelve (12) month period;

                    (C) After one year from the Closing Date,  the Company files
               or proposes to file a registration  statement in an  underwritten
               primary equity offering  initiated by the Company (other than any
               registration by the Company on Form S-8), which  underwriters are

                                      -16-
<PAGE>
               reasonably  acceptable  to a majority in interest of the Holders,
               or a successor or substantially  similar form, of (1) an employee
               stock  option,   stock  purchase  or  compensation   plan  or  of
               securities issued or issuable pursuant to any such plan, or (2) a
               dividend  reinvestment  plan),  in which  event  such  restricted
               period may be extended for 30 days prior to the effective date of
               the registration  statement  covering such  underwritten  primary
               equity offering and ending on the date specified by such managing
               underwriter  in such written  request to each Holder,  which date
               shall be no more than 30 days after such effective  date,  during
               which the Holder agrees,  if requested in writing by the managing
               underwriter or underwriters  administering such offering,  not to
               effect any offer, sale or distribution of Company  securities (or
               any option or right to acquire Company securities;

               notwithstanding  the  foregoing,  the  aggregate  number  of days
          (whether or not consecutive)  during which the Company may preclude or
          prevent offerings, sales or distribution by the Holder pursuant to the
          conditions  set forth  herein  shall in no event  exceed  one  hundred
          twenty (120) days during any 12-month period;

               (iii) the Company shall fail to deliver certificates representing
          Underlying  Shares  issuable upon a conversion  hereunder  that comply
          with the  provisions  hereof  prior to the 7th  Trading  Day after the
          Conversion  Date or the Company  shall  provide  notice to any Holder,
          including by way of public announcement, at any time, of its intention
          not to comply with requests for  conversion of any shares of Preferred
          Stock in accordance with the terms hereof;

               (iv)  the  Company  shall  be a party to any  Change  of  Control
          Transaction,  shall  agree  to sell  (in one or a  series  of  related
          transactions)  all or substantially  all of its assets or shall redeem
          more  than a de  minimis  number  of  Common  Stock  or  other  Junior
          Securities (other than redemptions of Underlying Shares);

               (v) an Event (as defined in the  Registration  Rights  Agreement)
          shall not have been cured to the  satisfaction of the Holders prior to
          the  expiration  of 60 days from the  Event  Date (as  defined  in the
          Registration  Rights Agreement)  relating thereto (other than an Event
          resulting  from  a  failure  of  an  Underlying  Shares   Registration
          Statement to be declared  effective by the  Commission  on or prior to
          the 180th day after the Original Issue Date, which shall be covered by
          Section 7(a)(i));

               (vi) the  Company  shall  fail for any  reason to pay in full the
          amount of cash due pursuant to a Buy-In within 7 days after

                                      -17-
<PAGE>
          notice  therefor  is  delivered  hereunder  or  shall  fail to pay all
          amounts owed on account of an Event within seven days of the date due;

               (vii) the  Company  shall  fail to have  available  a  sufficient
          number of authorized and unreserved shares of Common Stock to issue to
          such Holder upon a conversion hereunder; or

               (viii) the  Company  shall  fail to observe or perform  any other
          covenant,  agreement or warranty contained in, or otherwise commit any
          breach of the  Transaction  Documents  (as  defined in Section 8), and
          such failure or breach shall not, if subject to the  possibility  of a
          cure by the Company, have been remedied within ten calendar days after
          the date on which written  notice of such failure or breach shall have
          been given, or if such failure or breach cannot reasonably be cured or
          remedied  in such  period,  if the Company  has not  commenced  taking
          actions to cure or remedy such failure or breach within such period or
          is not diligently pursuing such cure or remedy.

     Section 8 DEFINITIONS.  For the purposes hereof,  the following terms shall
have the following meanings:

          "CHANGE OF CONTROL  TRANSACTION" means the occurrence of any of (i) an
     acquisition  after the date  hereof  by an  individual  or legal  entity or
     "group" (as described in Rule  13d-5(b)(1)  promulgated  under the Exchange
     Act) of effective control (whether through legal or beneficial ownership of
     capital stock of the Company, by contract or otherwise) of in excess of 40%
     of the voting securities of the Company,  (ii) a replacement at one time or
     over time of more than  one-half of the members of the  Company's  board of
     directors which is not approved by a majority of those  individuals who are
     members  of  the  board  of  directors  on the  date  hereof  (or by  those
     individuals  who are  serving as members of the board of  directors  on any
     date whose  nomination to the board of directors was approved by a majority
     of the  members  of the  board of  directors  who are  members  on the date
     hereof),  (iii) the merger of the Company with or into another  entity that
     is not  wholly-owned  by  the  Company,  consolidation  or  sale  of all or
     substantially  all of the  assets  of the  Company  in one or a  series  of
     related transactions,  or (iv) the execution by the Company of an agreement
     to which the Company is a party or by which it is bound,  providing for any
     of the events set forth above in (i), (ii) or (iii).

          "CLOSINGS"  means  closings of the purchase and sale of the  Preferred
     Stock.

          "CLOSING  PRICE" means on any  particular  date (a) the last  reported
     closing  price  per share of  Common  Stock on such  date on the  Principal
     Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if

                                      -18-
<PAGE>
     there is no such price on such date,  then the closing price on such market
     or  exchange  on the date  nearest  preceding  such  date (as  reported  by
     Bloomberg  L.P.  at 4:15 PM (New York time) for the  closing  bid price for
     regular  session trading on such day), or (c) if the shares of Common Stock
     are not then  reported  on the  Principal  Market,  then the average of the
     "OTCBB" quotes for the relevant  conversion  period,  as determined in good
     faith by the  Holders,  or (c) if the  shares of Common  Stock are not then
     publicly  traded  the  fair  market  value of a share  of  Common  Stock as
     determined  by an  appraiser  selected  in good  faith by the  Holders of a
     majority  in  interest  of  the  Stated  Value  of  Preferred   Stock  then
     outstanding.

          "COMMISSION" means the Securities and Exchange Commission.

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

          "CONVERSION  RATIO" means,  at any time, a fraction,  the numerator of
     which is Stated Value (or Excess Stated Value,  as the case may be) and the
     denominator of which is the Conversion Price at such time.

          "CONVERSION  SHARE"  means  shares  issuable  upon  conversion  of the
     Preferred Stock.

          "DIVIDEND  EFFECTIVENESS  DATE"  means the earlier to occur of (x) the
     Effectiveness  Date (as defined in the Registration  Rights  Agreement) and
     (y) the Effective Date.

          "EFFECTIVE   DATE"   means  the  date  that  the   Underlying   Shares
     Registration Statement is declared effective by the Commission.

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

          "JUNIOR  SECURITIES"  means the Common  Stock and all other  equity or
     equity  equivalent  securities of the Company  other than those  securities
     that are  outstanding  on the Original  Issue Date and which are explicitly
     senior in rights or liquidation preference to the Preferred Stock.

          "ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
     shares of the Preferred Stock  regardless of the number of transfers of any
     particular  shares of  Preferred  Stock  and  regardless  of the  number of
     certificates which may be issued to evidence such Preferred Stock.

          "PER SHARE MARKET VALUE" means on any  particular  date (a) the lowest
     sale  price  for a share  of the  Common  Stock  (other  than a sale by the
     Holder) on such date on the Subsequent  Market on which the Common Stock is
     then listed or quoted,  or if there is no such price on such date, then the
     lowest sale price of the Common  Stock (other than a sale by the Holder) on

                                      -19-
<PAGE>
     the  Subsequent  Market on the date nearest  preceding such date, or (b) if
     the Common Stock is not then listed or quoted on a Subsequent  Market,  the
     lowest sale price of the Common  Stock (other than a sale by the Holder) in
     the NSM, as reported  by the  National  Quotation  Bureau  Incorporated  or
     similar  organization  or agency  succeeding  to its functions of reporting
     prices) at the close of business on such date,  or (c) if the Common  Stock
     is not then  reported by the National  Quotation  Bureau  Incorporated  (or
     similar  organization  or agency  succeeding  to its functions of reporting
     prices),  then the lowest "Pink Sheet"  quotes for the relevant  conversion
     period,  as  determined  in good faith by the Holder,  or (d) if the Common
     Stock are not then  publicly  traded  the fair  market  value of a share of
     Common Stock as  determined  by an Appraiser  selected in good faith by the
     Holders of a majority of the shares of the Preferred Stock.

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

          "PURCHASE  AGREEMENT"  means the Convertible  Preferred Stock Purchase
     Agreement,  dated as of the Original  Issue Date,  to which the Company and
     the original Holders are parties, as amended, modified or supplemented from
     time to time in accordance with its terms.

          "REDEMPTION AMOUNT" for each share of Preferred Stock means the sum of
     (i) the greater of (A) 150% of the Stated  Value and (B) the product of (a)
     the Per Share Market Value on the Trading Day immediately preceding (x) the
     date of the Triggering Event or the Conversion Date, as the case may be, or
     (y) the date of payment in full by the Company of the applicable redemption
     price,  whichever is greater,  and (b) the Conversion Ratio (without regard
     to the limitation set forth in Section 5(a)(iv)(C))  calculated on the date
     of the Triggering  Event,  or the Conversion  Date, as the case may be, and
     (ii) all other  amounts,  costs,  expenses  and  liquidated  damages due in
     respect of such share of Preferred Stock.

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

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

          "TRADING DAY" means (a) a day on which the Common Stock is traded on a
     Subsequent  Market on which the Common  Stock is then listed or quoted,  as
     the case may be, or (b) if the Common  Stock is not listed on a  Subsequent
     Market,  a day on which the Common Stock is traded in the  over-the-counter
     market, as reported by the NSM, or (c) if the Common Stock is not quoted on
     the NSM, a day on which the Common Stock is quoted in the  over-the-counter
     market as reported by the National  Quotation  Bureau  Incorporated (or any
     similar  organization  or agency  succeeding  its  functions  of  reporting
     prices); provided,  however, that in the event that the Common Stock is not
     listed or quoted as set forth in (a), (b) and (c) hereof,  then Trading Day

                                      -20-
<PAGE>
     shall mean any day  except  Saturday,  Sunday and any day which  shall be a
     legal  holiday or a day on which banking  institutions  in the State of New
     York are authorized or required by law or other government action to close.

          "TRANSACTION  DOCUMENTS"  shall  have  the  meaning  set  forth in the
     Purchase Agreement.

          "UNDERLYING  SHARES" means,  collectively,  the shares of Common Stock
     into which the shares of Preferred Stock are convertible in accordance with
     the terms hereof.

          "UNDERLYING  SHARES  REGISTRATION   STATEMENT"  means  a  registration
     statement that meets the requirements of the Registration  Rights Agreement
     and registers the resale of all Underlying Shares by the Holder,  who shall
     be named as a "selling stockholder" thereunder.

          "VWAP" means,  for any date, the price  determined by the first of the
     following  clauses that applies:  (a) if the Common Stock is then listed or
     quoted on an Trading Market, the daily volume weighted average price of the
     Common Stock for such date (or the nearest  preceding  date) on the primary
     Trading  Market  on which  the  Common  Stock is then  listed  or quoted as
     reported by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m.
     ET to 4:02 p.m.  Eastern  Time) using the VAP  function;  (b) if the Common
     Stock is not then  listed or quoted on an Trading  Market and if prices for
     the Common  Stock are then  quoted on the OTC  Bulletin  Board,  the volume
     weighted  average  price of the Common  Stock for such date (or the nearest
     preceding date) on the OTC Bulletin  Board;  (c) if the Common Stock is not
     then  listed  or  quoted on the OTC  Bulletin  Board and if prices  for the
     Common  Stock are then  reported  in the  "Pink  Sheets"  published  by the
     National Quotation Bureau Incorporated (or a similar organization or agency
     succeeding to its functions of reporting prices), the most recent bid price
     per share of the Common Stock so reported;  or (d) in all other cases,  the
     fair  market  value  of a  share  of  Common  Stock  as  determined  by  an
     independent appraiser selected in good faith by the Holders.

                                      -21-
<PAGE>
     RESOLVED,  FURTHER, that the Chairman, the president or any vice-president,
and the secretary or any assistant  secretary,  of the  Corporation  be and they
hereby  are  authorized  and  directed  to  prepare  and file a  Certificate  of
Designation  of  Preferences,  Rights and  Limitations  in  accordance  with the
foregoing resolution and the provisions of Nevada law.

     IN WITNESS  WHEREOF,  the undersigned  have executed this  Certificate this
31st day of May, 2002.

/s/ Theodore S. Li                           /s/ Hui "Cynthia" Lee
---------------------------------            -----------------------------------
Theodore S. Li, President                    Hui "Cynthia" Lee, Secretary

                                      -22-
<PAGE>
                                     ANNEX A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert shares of Preferred
Stock)

The  undersigned  hereby  elects to convert  the number of shares of 4% Series D
Convertible  Preferred Stock indicated  below,  into shares of common stock, par
value $.001 per share (the "COMMON  STOCK"),  of Pacific  Magtron  International
Corp., a Nevada corporation (the "COMPANY"), according to the conditions hereof,
as of the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable with
respect  thereto and is delivering  herewith such  certificates  and opinions as
reasonably  requested  by the Company in  accordance  therewith.  No fee will be
charged to the Holder for any  conversion,  except for such transfer  taxes,  if
any.

THE UNDERSIGNED REPRESENTS TO THE COMPANY THAT IT HAS SOLD OR WILL PROMPTLY SELL
UPON  RECEIPT,  SUCH SHARES OF COMMON  STOCK.  [REQUIRED  TO RECEIVE  UNLEGENDED
SHARES IMMEDIATELY PURSUANT TO THE REGISTRATION STATEMENT]

Conversion calculations:

Date to Effect Conversion

--------------------------------------------------------------------------------
Number of shares of Preferred Stock owned prior to Conversion

--------------------------------------------------------------------------------
Number of shares of Preferred Stock to be Converted

--------------------------------------------------------------------------------
Stated Value of shares of Preferred Stock to be Converted

--------------------------------------------------------------------------------
Number of shares of Common Stock to be Issued

--------------------------------------------------------------------------------
Applicable Conversion Price

--------------------------------------------------------------------------------
Number of shares of Preferred Stock subsequent to Conversion

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

                                    [HOLDER]

                                    By:
                                        ----------------------------------------
                                        Name:
                                        Title:EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

     This Securities  Purchase  Agreement (this  "AGREEMENT") is dated as of May
31, 2002, among Pacific Magtron  International  Corp., a Nevada corporation (the
"COMPANY"),  and the purchasers identified on the signature pages hereto (each a
"PURCHASER" and collectively the "PURCHASERS").

     WHEREAS,  subject to the terms and  conditions  set forth in this Agreement
and  pursuant to Section  4(2) of the  Securities  Act of 1933 (the  "SECURITIES
ACT") and Rule 506 promulgated thereunder, the Company desires to issue and sell
to the  Purchasers,  and the  Purchasers,  severally and not jointly,  desire to
purchase from the Company,  securities of the Company as more fully described in
this Agreement.

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

                                    ARTICLE I
                                   DEFINITIONS

     1.1  DEFINITIONS.  In  addition  to the  terms  defined  elsewhere  in this
Agreement:  (a) capitalized terms that are not otherwise defined herein have the
meanings  given to such terms in the  Certificate  of  Designation  (as  defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:

          "ACTUAL  MINIMUM" means, as of any date, the maximum  aggregate number
     of shares of Common Stock then issued or potentially issuable in the future
     pursuant to the  Transaction  Documents,  including any  Underlying  Shares
     issuable  upon exercise or conversion in full of all Warrants and shares of
     Preferred  Stock,  ignoring  any  conversion  or exercise  limits set forth
     therein,  and assuming that any previously  unconverted shares of Preferred
     Stock are held until the third  anniversary  of the Closing  Date,  and all
     dividends thereon are accreted to the Stated Value of such Preferred Stock.

          "AFFILIATE" means any Person that,  directly or indirectly through one
     or more  intermediaries,  controls or is  controlled  by or is under common
     control with a Person,  as such terms are used in and construed  under Rule
     144 under the Securities Act.

          "CAPITAL  SHARES"  shall mean the  Common  Stock and any shares of any
     other class of common stock whether now or hereafter authorized, having the
     right to  participate  in the  distribution  of earnings  and assets of the
     Company.

          "CAPITAL SHARES  EQUIVALENTS"  shall mean any securities,  rights,  or
     obligations that are convertible into or exchangeable for or give any right
     to subscribe for any Capital Shares of the Company or any warrants, options
     or other rights to  subscribe  for or purchase  Capital  Shares or any such
     convertible or exchangeable securities.
<PAGE>
          "CERTIFICATE   OF   DESIGNATIONS"   shall  mean  the   Certificate  of
     Designation  to be  filed  prior to the  Closing  by the  Company  with the
     Secretary of State of Nevada, in the form of EXHIBIT A attached hereto.

          "CLOSINGS"  means  collectively,  the First and  Second  Closings  (as
     defined in Section 2.1) of the purchase and sale of the Securities.

          "CLOSING DATES" means the dates of the Closings.

          "CLOSING  PRICE" means on any  particular  date (a) the last  reported
     closing  price  per share of  Common  Stock on such  date on the  Principal
     Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if
     there is no such price on such date,  then the closing price on such market
     or  exchange  on the date  nearest  preceding  such  date (as  reported  by
     Bloomberg  L.P.  at 4:15 PM (New York time) for the  closing  bid price for
     regular  session trading on such day), or (c) if the shares of Common Stock
     are not then  reported  on the  Principal  Market,  then the average of the
     "OTCBB"  bid  and  ask  quotes  for  the  relevant  conversion  period,  as
     determined in good faith by the Purchasers,  or (c) if the shares of Common
     Stock are not then  publicly  traded  the fair  market  value of a share of
     Common Stock as  determined  by an appraiser  selected in good faith by the
     Purchasers and the Company.

          "COMMISSION" means the Securities and Exchange Commission.

          "COMMON STOCK" means the common stock of the Company, par value $0.001
     per  share,   and  any  securities  into  which  such  common  stock  shall
     hereinafter be reclassified into.

          "COMPANY  COUNSEL"  means  Quarles & Brady  Streich Lang LLP,  outside
     counsel to the Company.

          "DISCLOSURE SCHEDULES" shall have the meaning ascribed to such term in
     Section 3.1.

          "EFFECTIVE  DATE" means the date that the  Registration  Statement  is
     first declared effective by the Commission.

          "ESCROW  AGENT"  shall  have  the  meaning  set  forth  in the  Escrow
     Agreement.

          "ESCROW  AGREEMENT"  shall mean the Escrow  Agreement in substantially
     the form of EXHIBIT F hereto executed and delivered  contemporaneously with
     this Agreement.

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

          "GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
<PAGE>
          "LIENS"  shall  have the  meaning  ascribed  to such  term in  Section
     3.1(a).

          "LOSSES"  means  any and all  losses,  claims,  damages,  liabilities,
     settlement  costs  and  expenses,  including  without  limitation  costs of
     preparation and reasonable attorneys' fees.

          "MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such term
     in Section 3.1(b).

          "PERSON"  means an  individual  or  corporation,  partnership,  trust,
     incorporated  or  unincorporated   association,   joint  venture,   limited
     liability  company,  joint  stock  company,  government  (or an  agency  or
     subdivision thereof) or other entity of any kind.

          "PREFERRED  STOCK"  means the 1,000 shares of the  Company's  Series A
     Preferred  Stock  issued  hereunder  having  the  rights,  preferences  and
     privileges set forth in Certificate of Designation.

          "PRINCIPAL  MARKET" shall initially mean the NASDAQ  Small-Cap  Market
     and shall also  include the  American  Stock  Exchange,  the New York Stock
     Exchange  or the  NASDAQ  National  Market,  whichever  is at the  time the
     principal trading exchange or market for the Common Stock, based upon share
     volume.

          "PROCEEDING" means an action, claim, suit, investigation or proceeding
     (including,  without  limitation,  an investigation or partial  proceeding,
     such as a deposition), whether commenced or threatened.

          "PURCHASER  COUNSEL"  means  Feldman  Weinstein LLP with offices at 36
     West 44th Street, New York, New York 10036-8102.

          "REGISTRATION   RIGHTS   AGREEMENT"  means  the  Registration   Rights
     Agreement, dated the Closing Date, among the Company and the Purchasers, in
     the form of EXHIBIT B.

          "REQUIRED  APPROVALS"  shall have the meaning ascribed to such term in
     Section 3.1(e).

          "REQUIRED MINIMUM" means, as of any date, the maximum aggregate number
     of shares of Common Stock then issued or potentially issuable in the future
     pursuant to the  Transaction  Documents,  including any  Underlying  Shares
     issuable  upon exercise or conversion in full of all Warrants and Preferred
     Stock,  ignoring any conversion or exercise  limits set forth therein,  and
     assuming that any previously unconverted shares of Preferred Stock are held
     until the third  anniversary of the Closing Date and all dividends  thereon
     are accreted to the Stated Value of such Preferred Stock.

          "RULE 144" means Rule 144  promulgated by the  Commission  pursuant to
     the  Securities  Act, as such Rule may be amended from time to time, or any
     similar  rule or  regulation  hereafter  adopted by the  Commission  having
     substantially the same effect as such Rule.
<PAGE>
          "SEC REPORTS" shall have the meaning  ascribed to such term in Section
     3.1(h).

          "SECURITIES"   means  the  Preferred   Stock,  the  Warrants  and  the
     Underlying Shares.

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

          "STATED  VALUE"  shall have the  meaning  ascribed to such term in the
     Certificate of Designations.

          "SUBSIDIARY"  means any  subsidiary of the Company that is required to
     be listed in SCHEDULE 3.1(A).

          "TRADING  DAY" shall mean any day during  which the  Principal  Market
     shall be open for business.

          "TRANSACTION  DOCUMENTS"  means this  Agreement,  the  Certificate  of
     Designations,  the Warrants,  the Transfer Agent  Instructions,  the Escrow
     Agreement,  the  Registration  Rights  Agreement and any other documents or
     agreements  executed  in  connection  with  the  transactions  contemplated
     hereunder.

          "UNDERLYING  SHARES"  means the shares of Common Stock  issuable  upon
     conversion of the Preferred Stock and upon exercise of the Warrants.

          "UNDERLYING SHARES REGISTRATION STATEMENT" OR "REGISTRATION STATEMENT"
     means a registration  statement  meeting the  requirements set forth in the
     Registration  Rights  Agreement  and covering the resale of the  Underlying
     Shares by the Purchasers.

          "WARRANTS" means collectively the Common Stock purchase  warrants,  in
     the form of  EXHIBIT  C  delivered  to the  Purchasers  at the  Closing  in
     accordance with Section 2.2.

                                   ARTICLE II
                                PURCHASE AND SALE

     2.1 INVESTMENT.

          (a) Upon the terms and subject to the conditions set forth herein, the
     Company agrees to sell, and the Purchasers agree to purchase, severally and
     not jointly, the Preferred Stock together with the Warrants at the purchase
     price of up to $1,000,000.00 ("PURCHASE PRICE") as follows:

               (i)  FIRST  CLOSING.  Within  five (5)  Trading  Days of the date
          hereof (the "FIRST  CLOSING" and such date, the "FIRST CLOSING DATE"),
          the  Purchasers  shall  purchase,  severally  and not jointly,  in the
          aggregate,  a number of shares of  Preferred  Stock  equal to $600,000
          divided by the Stated Value,  together with the Warrants. On the First
          Closing  Date,  each  Investor  shall  deliver to the Company via wire
          transfer or a certified check immediately available funds their amount
          of the Purchase  Price as set forth on the signature  pages hereto and
<PAGE>
          labeled as the subscription  amount, and the Company shall deliver the
          certificates  evidencing  said number of shares of Preferred Stock and
          the Warrants issuable at such Closing.

               (ii) SECOND  CLOSING.  Within  five (5)  Trading  Days of written
          notice  from the  Company  to the  Purchasers  that  the  Registration
          Statement registering the shares of Common Stock underlying all of the
          securities  purchased  at the First and  Second  Closing  (as  defined
          below) has been  declared  effective  by the  Commission  (the "SECOND
          CLOSING" and such date,  the "SECOND  CLOSING  DATE"),  the Purchasers
          shall purchase,  severally and not jointly, in the aggregate, a number
          of shares of Preferred  Stock equal to $400,000  divided by the Stated
          Value.  On the Second Closing Date, each Investor shall deliver to the
          Company via wire transfer or a certified check  immediately  available
          funds their amount of the Purchase Price as set forth on the signature
          pages hereto and labeled as the subscription  amount,  and the Company
          shall  deliver the  certificates  evidencing  said number of shares of
          Preferred Stock issuable at such Closing.

               (iii) EACH CLOSING. Upon satisfaction of the conditions set forth
          in Section 2.2,  each Closing shall occur at the offices of the Escrow
          Agent, or such other location as the parties shall mutually agree.

     2.2 CONDITIONS TO CLOSINGS.  Each Closing is subject to the satisfaction or
waiver by the party to be benefited thereby of the following conditions:

          (a) At each Closing,  the Company shall have delivered or caused to be
     delivered to the Escrow Agent on behalf of each Purchaser the following:

               (i) As to the First Closing only, this Agreement duly executed by
          the Company.

               (ii) a  certificate  evidencing  a number of shares of  Preferred
          Stock equal to the  subscription  amount as to the applicable  Closing
          indicated  below such  Purchaser's  name on the signature page of this
          Agreement divided by the Stated Value,  registered in the name of such
          Purchaser;

               (iii) at the First  Closing  only, a Warrant,  registered  in the
          name of such  Purchaser,  pursuant to which such Purchaser  shall have
          the right to acquire up to its  pro-rata  share of, in the  aggregate,
          300,000  shares of Common Stock with a term of exercise of 3 years and
          with an exercise price equal to 120% of the Closing Price  immediately
          prior to the First Closing;

               (iv) as to the First  Closing  only,  a legal  opinion of Company
          Counsel,  in the form of EXHIBIT D attached  hereto,  addressed to the
          Purchasers;

               (v)  as to  the  First  Closing  only,  the  Registration  Rights
          Agreement  duly executed by the Company;
<PAGE>
               (vi) as to the First  Closing  only,  the Escrow  Agreement  duly
          executed by the Company;

               (vii) as to the First Closing only, delivery to the Purchasers of
          the executed agreements,  in the form of attached hereto as EXHIBIT G,
          by each member of the Board of Directors of the Company and each other
          executive officer of the Company that own shares of the Company; and

               (vii)  as  to  the  First  Closing  only,   the  Transfer   Agent
          Instructions executed by the Company and delivered to and acknowledged
          by the Company's  transfer agent in the form annexed hereto as EXHIBIT
          E;

          (b) At the Closing,  each Purchaser  shall have delivered or caused to
     be delivered to the Escrow Agent the following:

               (i) as to the First Closing only, this Agreement duly executed by
          such Purchaser;

               (ii)  the  subscription  amount  as  to  the  applicable  Closing
          indicated  below such  Purchaser's  name on the signature page of this
          Agreement,  in United  States  dollars  and in  immediately  available
          funds, by wire transfer to the account of the Escrow Agent;

               (iii)  as to  the  First  Closing  only,  a  Registration  Rights
          Agreement duly executed by such Purchaser; and

               (iv) as to the  First  Closing  only,  an Escrow  Agreement  duly
          executed by such Purchaser;

          (c) All  representations  and warranties of the other party  contained
     herein  shall  remain true and correct in all  material  respects as of the
     applicable Closing Date;

          (d) As to the Second  Closing only,  there shall have been no Material
     Adverse  Effect (as defined in Section  3.1(b)) with respect to the Company
     since the date of the First Closing;

          (e) From the date hereof to the Second  Closing  Date,  trading in the
     Common Stock shall not have been  suspended by the  Commission  (except for
     any  suspension  of trading of limited  duration  agreed to by the Company,
     which suspension shall be terminated prior to the applicable Closing), and,
     at any time prior to such Closing Date, trading in securities  generally as
     reported by Bloomberg  Financial  Markets shall not have been  suspended or
     limited,  or minimum  prices shall not have been  established on securities
     whose trades are reported by such service,  or on the Principal Market, nor
     shall a banking  moratorium  have been declared either by the United States
     or New York  State  authorities,  which,  in each case,  in the  reasonable
     judgment  of the  Purchasers,  makes it  impracticable  or  inadvisable  to
     purchase the shares of Preferred Stock at the Second Closing; and
<PAGE>
          (f) As to the Second  Closing only,  the Company shall have filed with
     the Commission the Registration Statement registering all of the Underlying
     Shares relating to both Closings and such Registration Statement shall have
     been declared effective by the Commission as to all such securities.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

     3.1  REPRESENTATIONS  AND  WARRANTIES  OF THE COMPANY.  Except as set forth
under the corresponding section of the disclosure schedules attached hereto (the
"DISCLOSURE SCHEDULES"),  the Company hereby makes the following representations
and warranties to the Purchasers:

          (a) SUBSIDIARIES.  The Company has no direct or indirect subsidiaries.
     The Company owns, directly or indirectly,  all of the capital stock of each
     Subsidiary  free  and  clear  of  any  lien,  charge,   security  interest,
     encumbrance,  right of first  refusal or other  restriction  (collectively,
     "LIENS"),  and all the issued and  outstanding  shares of capital  stock of
     each Subsidiary are validly issued and are fully paid,  non-assessable  and
     free of preemptive and similar rights.  If the Company has no subsidiaries,
     then references in the Transaction  Documents to the  Subsidiaries  will be
     disregarded.

          (b)  ORGANIZATION  AND  QUALIFICATION.  Each  of the  Company  and the
     Subsidiaries is an entity duly incorporated or otherwise organized, validly
     existing and in good  standing  under the laws of the  jurisdiction  of its
     incorporation or organization (as applicable), with the requisite power and
     authority  to own and use its  properties  and  assets  and to carry on its
     business as currently conducted.  Neither the Company nor any Subsidiary is
     in violation of any of the  provisions  of its  respective  certificate  or
     articles  of  incorporation,  bylaws  or other  organizational  or  charter
     documents. Each of the Company and the Subsidiaries is duly qualified to do
     business and is in good standing as a foreign  corporation  or other entity
     in each  jurisdiction  in which the  nature of the  business  conducted  or
     property owned by it makes such qualification  necessary,  except where the
     failure to be so qualified or in good  standing,  as the case may be, would
     not,  individually or in the aggregate:  (i) adversely affect the legality,
     validity or enforceability of any Transaction Document, (ii) have or result
     in a  material  adverse  effect  on  the  results  of  operations,  assets,
     prospects,  business or condition  (financial  or otherwise) of the Company
     and the  Subsidiaries,  taken as a whole,  or (iii)  adversely  impair  the
     Company's  ability to perform fully on a timely basis its obligations under
     any of the  Transaction  Documents  (any of (i), (ii) or (iii), a "MATERIAL
     ADVERSE EFFECT").

          (c)  AUTHORIZATION;   ENFORCEMENT.   The  Company  has  the  requisite
     corporate  power  and  authority  to  enter  into  and  to  consummate  the
     transactions   contemplated  by  each  of  the  Transaction  Documents  and
     otherwise  to carry  out its  obligations  thereunder.  The  execution  and
     delivery  of each  of the  Transaction  Documents  by the  Company  and the
     consummation by it of the transactions  contemplated thereby have been duly
     authorized  by all  necessary  action  on the  part of the  Company  and no
     further  action  is  required  by the  Company.  Each  of  the  Transaction
     Documents  has been (or upon delivery will be) duly executed by the Company
     and, when delivered in accordance  with the terms hereof,  will  constitute
     the valid and binding  obligation  of the Company  enforceable  against the
     Company in accordance  with its terms,  subject to  applicable  bankruptcy,
<PAGE>
     insolvency, fraudulent conveyance,  reorganization,  moratorium and similar
     laws  affecting  creditors'  rights  and  remedies  generally  and  general
     principles  of  equity.  Neither  the  Company  nor  any  Subsidiary  is in
     violation  of any of  the  provisions  of  its  respective  certificate  or
     articles  of  incorporation,  by-laws  or other  organizational  or charter
     documents.

          (d) NO  CONFLICTS.  The  execution,  delivery and  performance  of the
     Transaction Documents by the Company and the consummation by the Company of
     the  transactions  contemplated  thereby do not and will not:  (i) conflict
     with  or  violate  any  provision  of the  Company's  or  any  Subsidiary's
     certificate or articles of incorporation, bylaws or other organizational or
     charter documents,  or (ii) subject to obtaining the Required Approvals (as
     defined  below),  conflict  with, or constitute a default (or an event that
     with notice or lapse of time or both would become a default) under, or give
     to  others  any  rights  of   termination,   amendment,   acceleration   or
     cancellation  (with or  without  notice,  lapse of time or  both)  of,  any
     agreement,  credit facility, debt or other instrument (evidencing a Company
     or  Subsidiary  debt or  otherwise)  or other  understanding  to which  the
     Company or any  Subsidiary  is a party or by which any property or asset of
     the Company or any  Subsidiary  is bound or affected,  or (iii) result in a
     violation of any law, rule, regulation, order, judgment, injunction, decree
     or other  restriction of any court or  governmental  authority to which the
     Company or a Subsidiary is subject  (including federal and state securities
     laws and regulations),  or by which any property or asset of the Company or
     a Subsidiary  is bound or  affected;  except in the case of each of clauses
     (ii) and (iii), such as would not,  individually or in the aggregate,  have
     or result in a Material Adverse Effect.

          (e)  FILINGS,  CONSENTS  AND  APPROVALS.  Neither  the Company nor any
     Subsidiary  is required to obtain any  consent,  waiver,  authorization  or
     order of, give any notice to, or make any filing or registration  with, any
     court or other federal,  state,  local or other  governmental  authority or
     other Person in connection with the execution,  delivery and performance by
     the Company of the  Transaction  Documents,  other than (i) the filing with
     the Commission of the Underlying Shares  Registration  Statement,  (ii) the
     application(s)  to each applicable  Principal Market for the listing of the
     Underlying  Shares for  trading  thereon  in the time and  manner  required
     thereby, and (iii) applicable Blue Sky filings (collectively, the "REQUIRED
     APPROVALS").

          (f) ISSUANCE OF THE  SECURITIES.  The Securities  are duly  authorized
     and, when issued and paid for in accordance with the applicable Transaction
     Documents,  will be duly and validly issued,  fully paid and nonassessable,
     free  and  clear of all  Liens.  The  Company  has  reserved  from its duly
     authorized capital stock a number of shares of Common Stock for issuance of
     the  Underlying  Shares at least equal to the Required  Minimum on the date
     hereof.

          (g)  CAPITALIZATION.  The number of shares and type of all authorized,
     issued and  outstanding  capital  stock of the  Company is set forth in the
     Disclosure  Schedules  attached  hereto.  No  securities of the Company are
     entitled to  preemptive or similar  rights,  and no Person has any right of
     first refusal,  preemptive right,  right of  participation,  or any similar
<PAGE>
     right to participate in the  transactions  contemplated  by the Transaction
     Documents.  Except as a result of the purchase and sale of the  Securities,
     there are no outstanding options,  warrants, script rights to subscribe to,
     calls  or  commitments  of  any  character   whatsoever   relating  to,  or
     securities,  rights or obligations convertible into or exchangeable for, or
     giving any  Person any right to  subscribe  for or  acquire,  any shares of
     Common Stock, or contracts, commitments,  understandings or arrangements by
     which  the  Company  or any  Subsidiary  is or may  become  bound  to issue
     additional  shares of Common Stock, or securities or rights  convertible or
     exchangeable  into shares of Common  Stock.  The  issuance  and sale of the
     Securities will not obligate the Company to issue shares of Common Stock or
     other  securities  to any Person (other than the  Purchasers)  and will not
     result  in a right of any  holder  of  Company  securities  to  adjust  the
     exercise, conversion, exchange or reset price under such securities.

          (h) SEC  REPORTS;  FINANCIAL  STATEMENTS.  The  Company  has filed all
     reports  required  to be  filed  by it  under  the  Securities  Act and the
     Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
     two years  preceding the date hereof (or such shorter period as the Company
     was required by law to file such material) (the foregoing  materials  being
     collectively referred to herein as the "SEC REPORTS" and, together with the
     Disclosure  Schedules) on a timely basis or has received a valid  extension
     of such time of filing  and has  filed  any such SEC  Reports  prior to the
     expiration  of  any  such  extension.  The  Company  has  delivered  to the
     Purchasers a copy of all SEC Reports filed within the 10 days preceding the
     date hereof.  As of their respective dates, the SEC Reports complied in all
     material  respects  with the  requirements  of the  Securities  Act and the
     Exchange Act and the rules and  regulations of the  Commission  promulgated
     thereunder,  and none of the SEC Reports, when filed,  contained any untrue
     statement of a material  fact or omitted to state a material  fact required
     to be stated therein or necessary in order to make the statements  therein,
     in light of the  circumstances  under which they were made, not misleading.
     The financial  statements of the Company included in the SEC Reports comply
     in all material  respects with applicable  accounting  requirements and the
     rules and  regulations of the Commission  with respect thereto as in effect
     at the time of filing.  Such  financial  statements  have been  prepared in
     accordance  with  generally  accepted  accounting  principles  applied on a
     consistent  basis during the periods  involved  ("GAAP"),  except as may be
     otherwise specified in such financial  statements or the notes thereto, and
     fairly  present in all  material  respects  the  financial  position of the
     Company and its  consolidated  subsidiaries as of and for the dates thereof
     and the results of  operations  and cash flows for the periods  then ended,
     subject,  in the  case of  unaudited  statements,  to  normal,  immaterial,
     year-end audit adjustments.

          (i) MATERIAL  CHANGES.  Since the date of the latest audited financial
     statements  included  within  the  SEC  Reports,   except  as  specifically
     disclosed in the SEC Reports:  (i) there has been no event,  occurrence  or
     development that has had or that could result in a Material Adverse Effect,
     (ii) the Company has not incurred any liabilities (contingent or otherwise)
     other than (A) trade payables and accrued expenses incurred in the ordinary
     course of business  consistent  with past practice and (B)  liabilities not
     required to be reflected in the Company's financial  statements pursuant to
<PAGE>
     GAAP or required to be disclosed in filings made with the Commission, (iii)
     the Company has not altered its method of accounting or the identity of its
     auditors,  (iv)  the  Company  has not  declared  or made any  dividend  or
     distribution  of cash or other property to its  stockholders  or purchased,
     redeemed  or made any  agreements  to  purchase or redeem any shares of its
     capital stock, and (v) the Company has not issued any equity  securities to
     any officer,  director or Affiliate,  except  pursuant to existing  Company
     stock option or similar plans.

          (j)  LITIGATION.   There  is  no  action,  suit,  inquiry,  notice  of
     violation,  proceeding or investigation pending or, to the knowledge of the
     Company, threatened against or affecting the Company, any Subsidiary or any
     of  their  respective  properties  before  or  by  any  court,  arbitrator,
     governmental or  administrative  agency or regulatory  authority  (federal,
     state,  county,  local or foreign)  (collectively,  an "ACTION") which: (i)
     adversely affects or challenges the legality, validity or enforceability of
     any of the Transaction  Documents or the Securities or (ii) could, if there
     were an unfavorable  decision,  individually  or in the aggregate,  have or
     result  in  a  Material  Adverse  Effect.   Neither  the  Company  nor  any
     Subsidiary, nor any director or officer thereof, is or has been the subject
     of any Action  involving a claim of violation of or liability under federal
     or state  securities  laws or a claim of  breach  of  fiduciary  duty.  The
     Company  does not have  pending  before  the  Commission  any  request  for
     confidential  treatment  of  information.  There has not  been,  and to the
     knowledge  of the  Company,  there  is not  pending  or  contemplated,  any
     investigation  by the  Commission  involving  the Company or any current or
     former  director or officer of the Company.  The  Commission has not issued
     any  stop  order  or  other  order  suspending  the  effectiveness  of  any
     registration  statement  filed by the Company or any  Subsidiary  under the
     Exchange Act or the Securities Act.

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

          (l) LABOR  RELATIONS.  No  material  labor  problem  exists or, to the
     knowledge of the Company,  is imminent with respect to any of the employees
     of the Company.

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

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

          (o) PATENTS AND TRADEMARKS.  The Company and the Subsidiaries have, or
     have rights to use, all patents, patent applications, trademarks, trademark
     applications,  service marks, trade names,  copyrights,  licenses and other
     similar  rights that are necessary or material for use in  connection  with
     their  respective  businesses as described in the SEC Reports and which the
     failure to so have could have a Material Adverse Effect (collectively,  the
     "INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
     received a written notice that the Intellectual Property Rights used by the
     Company or any  Subsidiary  violates  or  infringes  upon the rights of any
     Person.  To the knowledge of the Company,  all such  Intellectual  Property
     Rights are  enforceable  and there is no existing  infringement  by another
     Person of any of the Intellectual Property Rights.

          (p)  INSURANCE.  The  Company  and the  Subsidiaries  are  insured  by
     insurers of  recognized  financial  responsibility  against such losses and
     risks and in such amounts as are prudent and customary in the businesses in
     which the Company and the Subsidiaries are engaged. Neither the Company nor
     any  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 without a significant increase in cost.

          (q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth in
     SEC  Reports,  none of the officers or directors of the Company and, to the
     knowledge of the Company, none of the employees of the Company is presently
     a party to any transaction  with the Company or any Subsidiary  (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  officer,  director  or such
     employee  or, to the  knowledge  of the  Company,  any  entity in which any
     officer, director, or any such employee has a substantial interest or is an
     officer, director, trustee or partner.

          (r) INTERNAL  ACCOUNTING  CONTROLS.  The Company and the  Subsidiaries
     maintain a system of internal  accounting  controls  sufficient  to provide
     reasonable  assurance that (i) transactions are executed in accordance with
<PAGE>
     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  accountability,   (iii)  access  to  assets  is  permitted  only  in
     accordance with management's  general or specific  authorization,  and (iv)
     the recorded accountability for assets is compared with the existing assets
     at reasonable intervals and appropriate action is taken with respect to any
     differences.

          (s) SOLVENCY.  Based on the  financial  condition of the Company as of
     the Closing  Date:  (i) the  Company's  fair  saleable  value of its assets
     exceeds the amount that will be required to be paid on or in respect of the
     Company's existing debts and other liabilities  (including known contingent
     liabilities)  as they mature;  (ii) the Company's  assets do not constitute
     unreasonably  small capital to carry on its business for the current fiscal
     year as now conducted and as proposed to be conducted including its capital
     needs  taking  into  account the  particular  capital  requirements  of the
     business conducted by the Company,  and projected capital  requirements and
     capital  availability  thereof;  and  (iii)  the  current  cash flow of the
     Company,  together with the proceeds the Company would receive,  were it to
     liquidate all of its assets, after taking into account all anticipated uses
     of the cash, would be sufficient to pay all amounts on or in respect of its
     debt when such amounts are required to be paid. The Company does not intend
     to incur debts beyond its ability to pay such debts as they mature  (taking
     into  account the timing and amounts of cash to be payable on or in respect
     of its debt).

          (t) CERTAIN FEES. No brokerage or finder's fees or commissions  are or
     will  be  payable  by the  Company  to any  broker,  financial  advisor  or
     consultant,  finder,  placement  agent,  investment  banker,  bank or other
     Person with respect to the transactions contemplated by this Agreement, and
     the Company has not taken any action that would cause any  Purchaser  to be
     liable  for any such  fees or  commissions.  The  Company  agrees  that the
     Purchasers  shall  have no  obligation  with  respect  to any  fees or with
     respect  to any  claims  made by or on behalf of any Person for fees of the
     type  contemplated  by this Section with the  transactions  contemplated by
     this Agreement.

          (u) PRIVATE  PLACEMENT.  Assuming the accuracy of the  representations
     and  warranties of the  Purchasers  set forth in Sections  3.2(b)-(f),  the
     offer,   issuance  and  sale  of  the   Securities  to  the  Purchasers  as
     contemplated  hereby are exempt from the  registration  requirements of the
     Securities Act. The issuance and sale of the Securities  hereunder does not
     contravene  the  rules  and  regulations  of the  Principal  Market  and no
     shareholder approval is required for the Company to fulfill its obligations
     under the Transaction Documents.

          (v) LISTING AND MAINTENANCE REQUIREMENTS.  The Company has not, in the
     12 months  preceding  the date hereof,  received  notice from any Principal
     Market on which  the  Common  Stock is or has been  listed or quoted to the
     effect  that  the  Company  is  not  in  compliance  with  the  listing  or
     maintenance  requirements of such Principal Market. The Company is, and has
     no reason to believe that it will not in the foreseeable future continue to
     be, in compliance with all such listing and maintenance requirements.
<PAGE>
          (w)  REGISTRATION  RIGHTS.  The  Company  has not granted or agreed to
     grant to any Person any rights (including "piggy-back" registration rights)
     to have any securities of the Company registered with the Commission or any
     other governmental authority that have not been satisfied.

          (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 Company's  Certificate of  Incorporation
     (or similar  charter  documents) or the laws of its state of  incorporation
     that is or could become  applicable  to the  Purchasers  as a result of the
     Purchasers and the Company fulfilling their obligations or exercising their
     rights under the Transaction  Documents,  including without limitation as a
     result of the  Company's  issuance of the  Securities  and the  Purchasers'
     ownership of the Securities.

          (z)  DISCLOSURE.  The Company  confirms  that neither it nor any other
     Person  acting on its behalf has  provided any of the  Purchasers  or their
     agents or counsel with any information that constitutes or might constitute
     material,  nonpublic information. The Company understands and confirms that
     the  Purchasers  will rely on the  foregoing  representations  in effecting
     transactions in securities of the Company.  All disclosure  provided to the
     Purchasers  regarding  the  Company,  its  business  and  the  transactions
     contemplated hereby,  including the Schedules to this Agreement,  furnished
     by or on behalf of the  Company  with  respect to the  representations  and
     warranties   made  herein  are  true  and  correct  with  respect  to  such
     representations and warranties and do not contain any untrue statement of a
     material fact or omit to state any material fact necessary in order to make
     the statements made therein, in light of the circumstances under which they
     were made,  not  misleading.  The Company  acknowledges  and agrees that no
     Purchaser makes or has made any  representations or warranties with respect
     to the transactions  contemplated  hereby other than those specifically set
     forth in SECTION 3.2.

     3.2  REPRESENTATIONS  AND  WARRANTIES  OF THE  PURCHASERS.  Each  Purchaser
hereby,  for itself and for no other  Purchaser,  represents and warrants to the
Company as follows:

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

          (b) INVESTMENT  INTENT.  Such Purchaser is acquiring the Securities as
     principal for its own account for  investment  purposes only and not with a
     view to or for  distributing  or  reselling  such  Securities  or any  part

                                       3
<PAGE>
     thereof, without prejudice,  however, to such Purchaser's right, subject to
     the provisions of this Agreement, at all times to sell or otherwise dispose
     of all or any part of such Securities pursuant to an effective registration
     statement  under  the  Securities  Act or  under  an  exemption  from  such
     registration and in compliance with applicable federal and state securities
     laws. Nothing contained herein shall be deemed a representation or warranty
     by such Purchaser to hold Securities for any period of time. Such Purchaser
     is  acquiring  the  Securities  hereunder  in the  ordinary  course  of its
     business.  Such  Purchaser  does not have any  agreement or  understanding,
     directly  or  indirectly,   with  any  Person  to  distribute  any  of  the
     Securities.

          (c)  PURCHASER  STATUS.  At the time such  Purchaser  was  offered the
     Securities, it was, and at the date hereof it is, and on each date on which
     it exercises  any Warrants or converts any Preferred  Stock,  it will be an
     "accredited  investor" as defined in Rule 501(a) under the Securities  Act.
     Such  Purchaser has not been formed solely for the purpose of acquiring the
     Securities.  Such Purchaser is not a broker-dealer  requiring  registration
     under Section 15 of the Exchange Act.

          (d)  EXPERIENCE OF SUCH  PURCHASER.  Such  Purchaser,  either alone or
     together with its representatives,  has such knowledge,  sophistication and
     experience  in  business  and  financial  matters  so as to be  capable  of
     evaluating  the  merits  and  risks of the  prospective  investment  in the
     Securities,  and has so evaluated the merits and risks of such  investment.
     Such  Purchaser is able to bear the economic  risk of an  investment in the
     Securities  and, at the present  time, is able to afford a complete loss of
     such investment.

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

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

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

          (h) FURTHER REPRESENTATION BY FOREIGN PURCHASERS.  If Purchaser is not
     a U.S. person or entity,  Purchaser hereby  represents that, to the best of
     its knowledge,  the Purchaser is satisfied as to the full observance of the
     laws of such Purchaser's  jurisdiction in connection with any invitation to
     subscribe for the  Securities or any use of this  Agreement,  including (i)
     the legal requirements with such Purchaser's  jurisdiction for the purchase
     of the Securities,  (ii) any foreign  exchange  restrictions  applicable to
     such purchase, (iii) any governmental or other consents that may need to be
     obtained, and (iv) the income tax and other tax consequences, if any, which
     may be relevant to the purchase,  holding,  redemption, sale or transfer of
     the  Securities and does hereby warrant that, to the best of its knowledge,
     the execution and delivery of this  Agreement and the  consummation  of the
     transactions  contemplated  hereby do not violate any laws,  regulation  or
     requirements of such Purchaser's jurisdiction or require any further action
     required thereunder.

                                   ARTICLE IV
                         OTHER AGREEMENTS OF THE PARTIES

     4.1 TRANSFER RESTRICTIONS.

          (a) The  Securities  may only be disposed of in compliance  with state
     and federal  securities laws. In connection with any transfer of Securities
     other than pursuant to an effective registration statement, to the Company,
     to an Affiliate of a Purchaser,  to an entity  managed by a Purchaser or in
     connection with a pledge as contemplated in Section 4.1(b), the Company may
     require  the  transferor  thereof to  provide to the  Company an opinion of
     counsel selected by the transferor, the form and substance of which opinion
     shall be reasonably  satisfactory  to the Company,  to the effect that such
     transfer does not require registration of such transferred Securities under
     the Securities Act. As a condition of transfer,  any such transferee  shall
     agree in writing to be bound by the terms of this  Agreement and shall have
     the rights of a Purchaser under this Agreement and the Registration  Rights
     Agreement.

          (b) The Purchasers agree to the imprinting,  so long as is required by
     this SECTION 4.1(B), of the following legend on any certificate  evidencing
     Securities:

     NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
     CONVERTIBLE   HAVE  BEEN   REGISTERED  WITH  THE  SECURITIES  AND  EXCHANGE
     COMMISSION  OR THE  SECURITIES  COMMISSION OF ANY STATE IN RELIANCE UPON AN
     EXEMPTION  FROM  REGISTRATION  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
     (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
     PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
<PAGE>
     PURSUANT TO AN AVAILABLE  EXEMPTION  FROM, OR IN A TRANSACTION  NOT SUBJECT
     TO, THE  REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
     WITH  APPLICABLE  STATE  SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
     COUNSEL TO THE  TRANSFEROR TO SUCH EFFECT,  THE SUBSTANCE OF WHICH SHALL BE
     REASONABLY  ACCEPTABLE TO THE COMPANY.  THESE SECURITIES AND THE SECURITIES
     ISSUABLE  UPON  EXERCISE OF THESE  SECURITIES  MAY BE PLEDGED IN CONNECTION
     WITH A BONA FIDE MARGIN  ACCOUNT OR OTHER LOAN SECURED BY SUCH  SECURITIES.
     THE COMPANY SHALL ISSUE STOP TRANSFER INSTRUCTIONS IN CONNECTION HEREWITH.

          The Company  acknowledges and agrees that a Purchaser may from time to
     time pledge  pursuant to a bona fide margin  agreement  or grant a security
     interest in some or all of the Securities  and, if required under the terms
     of such  arrangement,  such  Purchaser  may  transfer  pledged  or  secured
     Securities  to the pledgees or secured  parties.  Such a pledge or transfer
     would not be subject to approval of the Company and no legal opinion of the
     pledgee,   secured  party  or  pledgor  shall  be  required  in  connection
     therewith.  Further,  no notice  shall be required of such  pledge.  At the
     appropriate  Purchaser's expense, the Company will execute and deliver such
     reasonable  documentation  as a pledgee or secured party of Securities  may
     reasonably  request  in  connection  with  a  pledge  or  transfer  of  the
     Securities, including the preparation and filing of any required prospectus
     supplement  under Rule 424(b)(3) of the Securities Act or other  applicable
     provision of the Securities Act to appropriately  amend the list of Selling
     Stockholders thereunder.

          (c)  Certificates  evidencing  Securities shall not contain any legend
     (including  the  legend  set  forth  in  Section   4.1(b)):   (i)  while  a
     registration   statement  (including  the  Underlying  Shares  Registration
     Statement)  covering  the resale of such  security is  effective  under the
     Securities  Act,  provided the Purchaser  represents to the Company that it
     has sold or will promptly sell such security, or (ii) following any sale of
     such  Securities  pursuant  to Rule 144,  or (iii) if such  Securities  are
     eligible for sale under Rule 144(k), or (iv) if such legend is not required
     under  applicable  requirements  of the Securities Act (including  judicial
     interpretations  and pronouncements  issued by the Staff of the Commission)
     as  determined  by the  Company  in  good  faith.  In the  event  that  any
     certificate  does not bear the legend set forth in Section 4.1(b),  and, to
     the knowledge of the holder, none of the above-referenced conditions exist,
     then the holder shall submit the certificate to the Company for application
     of such legend to the  certificate.  The Company shall cause its counsel to
     issue the legal opinion included in the Transfer Agent  Instructions to the
     Company's  transfer  agent on the  Effective  Date. If all or any shares of
     Preferred  Stock or any portion of a Warrant is converted or exercised  (as
     applicable) at a time when there is a effective  registration  statement to
     cover the resale of the Underlying Shares, or if such Underlying Shares may
     be sold under Rule 144(k) or if such legend is not otherwise required under
     applicable   requirements   of  the  Securities  Act  (including   judicial
     interpretations  thereof) then such Underlying  Shares shall be issued free
     of all legends.  The Company agrees that following the Effective Date or at
<PAGE>
     such time as such legend is no longer  required under this Section  4.1(c),
     it will,  no later than three  Trading  Days  following  the  delivery by a
     Purchaser to the Company or the Company's  transfer  agent of a certificate
     representing  Securities issued with a restrictive legend, deliver or cause
     to  be  delivered  to  such  Purchaser  a  certificate   representing  such
     Securities that is free from all restrictive and other legends. The Company
     may not  make any  notation  on its  records  or give  instructions  to any
     transfer agent of the Company that enlarge the restrictions on transfer set
     forth in this Section.

     4.3 FURNISHING OF  INFORMATION.  As long as any Purchaser owns  Securities,
the Company  covenants to timely file (or obtain  extensions in respect  thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any  Purchaser,  the  Company  shall  deliver  to such  Purchaser  a  written
certification  of a duly  authorized  officer as to whether it has complied with
the preceding sentence.  Until such time as all Securities are eligible for sale
under Rule 144(k),  if the Company is not  required to file reports  pursuant to
such laws,  it will  prepare and  furnish to the  Purchasers  and make  publicly
available in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144.

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

     4.5 RESERVATION AND LISTING OF SECURITIES.

          (a) The  Company  shall  maintain a reserve  from its duly  authorized
     shares of Common Stock for issuance  pursuant to the Transaction  Documents
     in such amount as may be required to fulfill its  obligations in full under
     the Transaction Documents.

          (b) If, on any  date,  the  number of  authorized  but  unissued  (and
     otherwise  unreserved)  shares of Common Stock is less than 125% of (i) the
     Actual  Minimum  on such  date,  minus  (ii) the number of shares of Common
     Stock  previously  issued pursuant to the Transaction  Documents,  then the
     Board of Directors  of the Company  shall use its best efforts to amend the
     Company's  certificate or articles of  incorporation to increase the number
     of authorized but unissued  shares of Common Stock to at least the Required
     Minimum at such time (minus the number of shares of Common Stock previously
     issued pursuant to the Transaction  Documents),  as soon as possible and in
     any event not later than the 60th day after such  date;  provided  that the
     Company will not be required at any time to authorize a number of shares of
     Common Stock greater than the maximum  remaining number of shares of Common
     Stock  that  could  possibly  be issued  after  such time  pursuant  to the
     Transaction Documents.

          (c) The  Company  shall:  (i) in the time and manner  required by each
     Principal Market, prepare and file with such Principal Market an additional
     shares listing  application  covering a number of shares of Common Stock at
<PAGE>
     least equal to the greater of (A) the Required  Minimum on the Closing Date
     and (B) the Required Minimum on the date of such application, (ii) take all
     steps  necessary  to cause such shares of Common  Stock to be approved  for
     listing on each  Principal  Market as soon as  possible  thereafter,  (iii)
     provide to the Purchasers  evidence of such listing,  and (iv) maintain the
     listing  of such  Common  Stock on each such  Principal  Market or  another
     Principal Market.

          (d) If, on any date,  the number of shares of Common Stock  previously
     listed on a  Principal  Market is less than 125% of the  Actual  Minimum on
     such date,  then the Company  shall take the  necessary  actions to list on
     such Principal Market, as soon as reasonably  possible,  a number of shares
     of  Common  Stock at least  equal to the  Required  Minimum  on such  date;
     provided that the Company will not be required at any time to list a number
     of shares of Common  Stock  greater  than the  maximum  number of shares of
     Common  Stock that could  possibly be issued  pursuant  to the  Transaction
     Documents.

     4.6  CONVERSION AND EXERCISE  PROCEDURES.  The form of Election to Purchase
included in the  Warrants  and the forms of  Conversion  Notice  included in the
Preferred  Stock set forth the totality of the  procedures  required in order to
exercise  the  Warrants or convert the  Preferred  Stock.  No  additional  legal
opinion or other  information or  instructions  shall be necessary to enable the
Purchasers to exercise  their  Warrants or convert their  Preferred  Stock.  The
Company shall honor  exercises of the Warrants and  conversions of the Preferred
Stock  and  shall  deliver  Underlying  Shares  in  accordance  with the  terms,
conditions and time periods set forth in the Transaction Documents.

     4.7 SUBSEQUENT  EQUITY SALES.  From the date hereof until 60 days after the
Effective Date,  neither the Company nor any Subsidiary  shall issue  additional
shares of Common Stock or Capital Share Equivalents at an effective net price to
the  Company per share of Common  Stock (the  "EFFECTIVE  PRICE")  less than the
Conversion Price (as defined in the Certificate of Designations).

     4.8 SECURITIES LAWS DISCLOSURE;  PUBLICITY.  The Company shall, within five
business  days after the Closing  Date,  issue a press release or file a Current
Report  on Form 8-K  reasonably  acceptable  to the  Purchasers  disclosing  all
material  terms of the  transactions  contemplated  hereby.  The Company and the
Purchasers  shall  consult  with each other in issuing any press  releases  with
respect to the transactions contemplated hereby.  Notwithstanding the foregoing,
other than in any  registration  statement  filed  pursuant to the  Registration
Rights  Agreement and filings  related  thereto,  the Company shall not publicly
disclose the name of any Purchaser,  or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Principal Market, without
the  prior  written  consent  of  such  Purchaser,  except  to the  extent  such
disclosure is required by law or Principal Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure.

     4.9 NON-PUBLIC  INFORMATION.  The Company covenants and agrees that neither
it nor any other Person  acting on its behalf will provide any  Purchaser or its
agents or counsel with any  information  that the Company  believes  constitutes
material non-public information,  unless prior thereto such Purchaser shall have
executed  a written  agreement  regarding  the  confidentiality  and use of such
<PAGE>
information.  The Company  understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.

     4.10 USE OF PROCEEDS.  The Company shall use the net proceeds from the sale
of the  Securities  hereunder  for  working  capital  purposes  and  not for the
satisfaction  of any portion of the Company's  debt (other than payment of trade
payables,  inventory  line  payments,  capital  lease  obligations,  and accrued
expenses in the ordinary course of the Company's  business and prior practices),
to redeem any Company  equity or  equity-equivalent  securities or to settle any
outstanding litigation.

     4.11 INDEMNIFICATION OF PURCHASERS. The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders,  partners, employees and
agents  (each,  a  "PURCHASER   PARTY")   harmless  from  any  and  all  losses,
liabilities,  obligations,  claims, contingencies,  damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys'  fees and costs of  investigation  that any such Purchaser  Party may
suffer or incur as a result of or relating to: (a) any misrepresentation, breach
or  inaccuracy,  or any  allegation  by a  third  party  that,  if  true,  would
constitute a breach or inaccuracy,  of any of the  representations,  warranties,
covenants or  agreements  made by the Company in this  Agreement or in the other
Transaction Documents; or (b) any cause of action, suit or claim brought or made
against such Purchaser Party and arising solely out of or solely  resulting from
the execution,  delivery, performance or enforcement of this Agreement or any of
the other Transaction Documents; PROVIDED such cause of action, suit or claim is
not due to or the result of any activity, obligation,  condition or liability of
such Purchaser other than as contemplated by this Agreement.  resulting from the
execution,  delivery,  performance or enforcement of this Agreement. The Company
will  reimburse  such  Purchaser  for its  reasonable  legal and other  expenses
(including the cost of any  investigation,  preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are incurred.

     4.12 SHAREHOLDERS RIGHTS PLAN. In the event that a shareholders rights plan
is adopted by the  Company,  no claim will be made or enforced by the Company or
any other Person that any Purchaser is an  "Acquiring  Person" under the plan or
in any way could be deemed to trigger the  provisions  of such plan by virtue of
receiving Securities under the Transaction Documents.

     4.13 COMPLIANCE  WITH LAW. The Purchasers  agree that they will comply with
the prospectus delivery requirements under the Securities Act.

     4.14  LIMITATIONS ON SHORT SALES.  Each  Purchaser  agrees that it will not
enter into any Short Sales (as hereinafter  defined) from the period  commencing
on the Closing  Date and ending on the date that such  Purchaser no longer holds
any  Preferred  Stock.  For purposes of this Section 4.15, a "Short Sale" by any
Purchaser  shall mean a sale of Common Stock by such Purchaser that is marked as
a short sale and that is made at a time when there is no  equivalent  offsetting
long  position  in  Common  Stock  held  by  such  Purchaser.  For  purposes  of
determining  whether there is an equivalent  offsetting  long position in Common
Stock held by the  Purchasers,  all  Underlying  Shares  issued and held by such
Purchaser,  Underlying Shares underlying up to $50,000 aggregate Stated Value of
Preferred Stock that has not yet been converted and Underlying  Shares that have
not yet been issued upon exercise of the Warrant shall be deemed to be held long
<PAGE>
by the  Purchasers,  and the  amount of shares  of Common  Stock  held in a long
position  shall be the number of Underlying  Shares  issuable  pursuant to up to
$50,000 aggregate Stated Value of Preferred Stock assuming such holder converted
all the such Stated Value on such date  notwithstanding any limitations therein,
and (ii) the  number of  Underlying  Shares  issuable  pursuant  to the  Warrant
notwithstanding any limitations therein.

                                    ARTICLE V
                                  MISCELLANEOUS

     5.1  TERMINATION.  This  Agreement  may be terminated by the Company or any
Purchaser,  by written notice to the other parties, if the First Closing has not
been consummated by the third business day following the date of this Agreement;
provided that no such  termination will affect the right of any party to sue for
any breach by the other party (or parties).

     5.2 FEES AND  EXPENSES.  Except as expressly  set forth in the  Transaction
Documents  to the  contrary,  each party shall pay the fees and  expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party  incident  to the  negotiation,  preparation,  execution,
delivery and performance of this  Agreement.  The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
issuance of any Securities.

     5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the Exhibits
and  Schedules  thereto,  contain the entire  understanding  of the parties with
respect to the subject  matter  hereof and supersede  all prior  agreements  and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents,  exhibits and schedules. At or
after the  Closing,  and  without  further  consideration,  the  Company and the
Purchasers will execute and deliver to each other such further  documents as may
be reasonably  requested in order to give  practical  effect to the intention of
the parties under the Transaction Documents.

     5.4  NOTICES.  Any and all notices or other  communications  or  deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
specified in this Section  prior to 5:30 p.m.  (New York City time) on a Trading
Day and confirmation of receipt is received,  (b) the next Trading Day after the
date  of  transmission   and   confirmation  of  receipt,   if  such  notice  or
communication  is delivered via facsimile at the facsimile  number  specified in
this  Section on a day that is not a Trading  Day or later  than 5:30 p.m.  (New
York City time) on any Trading  Day, (c) the Trading Day  following  the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon  actual  receipt by the party to whom such  notice is required to be given.
The  addresses  for such notices and  communications  are those set forth on the
signature  pages  hereof,  or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
<PAGE>
     5.5  AMENDMENTS;  WAIVERS.  No provision of this Agreement may be waived or
amended except in a written instrument  signed, in the case of an amendment,  by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default
with respect to any provision,  condition or requirement of this Agreement shall
be deemed to be a continuing  waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise  any right  hereunder in
any manner impair the exercise of any such right.

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

     5.7 SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and inure
to the benefit of the parties and their  successors and permitted  assigns.  The
Company may not assign this  Agreement  or any rights or  obligations  hereunder
without the prior written  consent of the  Purchasers.  Any Purchaser may assign
its rights under this  Agreement and the  Registration  Rights  Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.

     5.8 NO  THIRD-PARTY  BENEFICIARIES.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.11 and 4.12.

     5.9 GOVERNING LAW; VENUE;  WAIVER OF JURY TRIAL.  All questions  concerning
the  construction,  validity,  enforcement and  interpretation of this Agreement
shall be governed by and construed and enforced in accordance  with the internal
laws of the State of New York,  without regard to the principles of conflicts of
law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and  federal  courts  sitting  in 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
(including with respect to the enforcement of any of the Transaction Documents),
and hereby  irrevocably  waives, and agrees not to assert in any suit, action or
proceeding,  any claim that it is not personally  subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and  consents  to process  being  served in any such suit,  action or
proceeding  by  mailing a copy  thereof  via  registered  or  certified  mail or
overnight  delivery  (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient  service of process and notice  thereof.  Nothing
contained  herein shall be deemed to limit in any way any right to serve process
in any manner  permitted by law. The parties  hereby waive all rights to a trial
by jury.  If either party shall  commence an action or proceeding to enforce any
provisions  of this  Agreement,  then the  prevailing  party in such  action  or
proceeding  shall be reimbursed  by the other party for its  attorneys  fees and
other  costs and  expenses  incurred  with the  investigation,  preparation  and
prosecution of such action or proceeding.
<PAGE>
     5.10 SURVIVAL.  The representations,  warranties,  agreements and covenants
contained  herein shall  survive the Closing and the delivery,  exercise  and/or
conversion of the Securities, as applicable.

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

     5.12 SEVERABILITY. If any provision of this Agreement is held to be invalid
or  unenforceable  in  any  respect,  the  validity  and  enforceability  of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

     5.13  RESCISSION  AND  WITHDRAWAL  RIGHT.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction  Documents,  whenever  any  Purchaser  exercises a right,  election,
demand or option  under a  Transaction  Document and the Company does not timely
perform its related  obligations within the periods therein provided,  then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice,  demand or election in whole
or in part without prejudice to its future actions and rights.

     5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument evidencing
any Securities is mutilated,  lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange  and  substitution  for and upon  cancellation
thereof,  or  in  lieu  of  and  substitution  therefor,  a new  certificate  or
instrument,  but only upon receipt of evidence  reasonably  satisfactory  to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such replacement Securities.

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

     5.16 PAYMENT SET ASIDE.  To the extent that the Company  makes a payment or
payments to any Purchaser  pursuant to any  Transaction  Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
<PAGE>
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,  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.

     5.18 INDEPENDENT NATURE OF PURCHASERS'  OBLIGATIONS AND RIGHTS. If there is
more than one Purchaser, the obligations of each Purchaser under any Transaction
Document are several and not joint with the obligations of any other  Purchaser,
and no Purchaser  shall be  responsible  in any way for the  performance  of the
obligations  of any other  Purchaser  under any  Transaction  Document.  Nothing
contained  herein or in any  Transaction  Document,  and no action  taken by any
Purchaser  pursuant  thereto,  shall be deemed to constitute the Purchasers as a
partnership,  an  association,  a joint venture or any other kind of entity,  or
create a presumption  that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Document.  Each Purchaser shall be entitled to independently protect
and enforce its rights,  including without  limitation the rights arising out of
this Agreement or out of the other  Transaction  Documents,  and it shall not be
necessary  for any other  Purchaser to be joined as an  additional  party in any
proceeding for such purpose.

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

WIRE INSTRUCTIONS:                    PACIFIC MAGTRON INTERNATIONAL CORP.

                                      By: /s/ Theodore S. Li
                                          --------------------------------
                                      Name: Theodore S. Li
                                      Title: Chairman of the Board and President

                                      ADDRESS FOR NOTICE:
                                      1600 California Circle,
                                      Milpitas, California 95035
                                      Attn:
                                      Tel:
                                      Fax:

WITH A COPY TO:                       Quarles & Brady Streich Lang LLP
                                      Renaissance One
                                      Two North Central Avenue
                                      Phoenix, Arizona 85004-2391
                                      Tel: (602) 229-5336
                                      Fax: (602) 229-5690
                                      Attn: Christian J. Hoffman III

STONESTREET L.P.                      ADDRESS FOR NOTICE:
                                      260 Town Centre Blvd.
                                      Suite 201
By:_________________________          Markham, ON L3R 8H8 Canada
   Name:                              Attn: Fund Manager
   Title:
                                      WITH A COPY TO:
SUBSCRIPTION AMOUNT:                  Feldman Weinstein LLP
First Closing: $600,000               36 West 44th Street
Second Closing: $400,000              New York, New York 10036
Warrant Shares: 300,000               Attn: Robert F. Charron
                                      Tel: (212) 869-7000
                                      Fax: (212) 401-4741

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