Document:

Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "Agreement") is dated as of
August 20, 2003, among The Singing Machine Company, Inc., a Delaware corporation
(the "Company"), and the purchasers identified on the signature pages hereto
(each, including its successors and assigns, 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, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires 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 each Purchaser agrees
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 Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:

                  "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" means 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" means any securities, rights or
         obligations that are convertible into or exchangeable for or give any
         right to subscribe for or purchase, directly or indirectly, any Capital
         Shares of the Company or any warrants, options or other rights to
         subscribe for or purchase, directly or indirectly, Capital Shares or
         any such convertible or exchangeable securities.

                  "Closing" means the closing of the purchase and sale of the
         Securities pursuant to Section 2.1.

                  "Closing Date" means the Trading Day when all of the
         Transaction Documents have been executed and delivered by the
         applicable parties thereto, and all conditions precedent to the
         Purchasers' obligations to pay the Subscription Amount have been
         satisfied or waived.
<PAGE>

                  "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 have been reclassified into.

                  "Company Counsel" means Adorno & Yoss, P.A.

                  "Debentures" means, the 8% Convertible Debentures due 30
         months from their date of issuance, issued by the Company to the
         Purchasers hereunder, in the form of Exhibit A.

                  "Disclosure Schedules" shall have the meaning ascribed to such
         term in Section 3.1 hereof.

                  "Effective Date" means the date that the initial Registration
         Statement filed by the Company pursuant to the Registration Rights
         Agreement is first declared effective by the Commission.

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

                  "FW" means Feldman Weinstein LLP with offices at 420 Lexington
         Avenue, Suite 2620, New York, New York 10170-0002.

                  "GAAP" shall have the meaning ascribed to such term in Section
         3.1(h) hereof.

                  "Liens" shall have the meaning ascribed to such term in
         Section 3.1(a) hereof.

                  "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) hereof.

                  "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.

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

                                      -2-
<PAGE>

                  "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.

                  "Registration Statement" means the registration statement to
         be filed by the Company pursuant to the Registration Rights Agreement.

                  "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) hereof.

                  "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 Debentures, ignoring any conversion or exercise limits
         set forth therein, and assuming that the Set Price is at all times on
         and after the date of determination the lesser of the Set Price and 75%
         of the VWAP on the Trading Day immediately prior to the date of
         determination.

                  "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.

                  "SEC Reports" shall have the meaning ascribed to such term in
         Section 3.1(h) hereof.

                  "Securities" means the Debentures, the Warrants and the
         Underlying Shares.

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

                  "Set Price" shall have the meaning ascribed to such term in
         the Debentures.

                  "Shareholder Approval" means such approval as may be required
         by the applicable rules and regulations of the Principal Market (or any
         successor entity) from the shareholders of the Company with respect to
         the transactions contemplated by the Transaction Documents, including
         the issuance of all of the Underlying Shares and shares of Common Stock
         issuable upon exercise of the Warrants in excess of 19.9% of the
         Company's issued and outstanding Common Stock on the Closing Date.

                  "Subscription Amount" means, as to each Purchaser, the amount
         to be paid for Debentures purchased hereunder as specified below such
         Purchaser's name on the signature page of this Agreement and next to
         the heading "Subscription Amount", in United States Dollars and in
         immediately available funds.

                                      -3-
<PAGE>

                  "Subsidiary" means any subsidiary of the Company as set forth
         on Schedule 3.1(a) attached hereto.

                  "Trading Day" means any day during which the Principal Market
         shall be open for business.

                  "Transaction Documents" means this Agreement, the Debentures,
         the Warrants, 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 Debentures and upon exercise of the Warrants and
         issued and issuable in lieu of the cash payment of interest on the
         Debentures.

                  "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 each Purchaser as provided for in the
         Registration Rights Agreement.

                  "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 a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the 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. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
         Common Stock is not then listed or quoted on a 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 Purchasers and reasonably acceptable to the Company.

                  "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 hereof.

                  "Warrant Shares" means the shares of Common Stock issuable
         upon exercise of the Warrants.

                                      -4-
<PAGE>

                                   ARTICLE II
                                PURCHASE AND SALE

         2.1 Closing. Upon the terms and subject to the conditions set forth
herein, concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and the Purchasers agree to purchase
in the aggregate, severally and not jointly, up to $4,000,000 principal amount
of the Debentures. Each Purchaser shall deliver to the Company via wire transfer
or a certified check immediately available funds equal to their Subscription
Amount and the Company shall deliver to each Purchaser their respective
Debenture evidencing a principal amount equal to such Purchaser's Subscription
Amount and the other items set forth in Section 2.2 issuable at the Closing.
Upon satisfaction of the conditions set forth in Section 2.2, the Closing shall
occur at the offices of FW, or such other location as the parties shall mutually
agree.

         2.2 Conditions to Closing. Upon satisfaction or waiver by the party
sought to be benefited thereby of the conditions set forth in this Section 2.2,
the Closing shall occur.

                  (a) At or prior to the Closing, the Company shall deliver or
         cause to be delivered to each Purchaser the following:

                           (i) a Debenture with a principal amount equal to such
                  Purchaser's Subscription Amount, registered in the name of
                  such Purchaser;

                           (ii) a Warrant registered in the name of such
                  Purchaser to purchase up to a number of shares of Common Stock
                  equal to 40% of such Purchaser's Subscription Amount divided
                  by $3.50 ("Closing Market Price"), with a term of 3 years and
                  an exercise price equal to $4.025, subject to adjustment
                  therein;

                           (iii) the legal opinion of Company Counsel, in the
                  form of Exhibit D attached hereto, addressed to the
                  Purchasers;

                           (iv) the Registration Rights Agreement duly executed
                  by the Company in the form of Exhibit B attached hereto;

                           (v) the written voting agreements of the officers and
                  directors of the Company to vote all Common Stock owned by
                  each of the as of the record date for the annual meeting of
                  shareholders of the Company in favor of Shareholder Approval;

                           (vi) the Company will have entered into an amendment
                  with its commercial lender, LaSalle Business Credit, LLC to
                  increase the line of credit thereunder to $12,500,000 and to
                  extend the maturity date of such line of credit to March 31,
                  2004; and

                           (vii) this Agreement, duly executed by the Company.

                  (b) At or prior to the Closing, each Purchaser shall deliver
         or cause to be delivered to the Company the following:

                           (i) such Purchaser's Subscription Amount;

                                      -5-
<PAGE>

                           (ii) this Agreement, duly executed by such Purchaser;
                  and (iii) the Registration Rights Agreement duly executed by
                  such Purchaser.

                  (c) All representations and warranties of the other party
         contained herein shall remain true and correct as of the Closing Date
         and all covenants of the other party shall have been performed if due
         prior to such date.

                  (d) There shall have been no Material Adverse Effect (as
         defined in Section 3.1(b)) with respect to the Company since the date
         hereof.

                  (e) From the date hereof to the 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 Closing),
         and, at any time prior to the 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, nor
         shall there have occurred any material outbreak or escalation of
         hostilities or other national or international calamity of such
         magnitude in its effect on, or any material adverse change in, any
         financial market which, in each case, in the reasonable judgment of the
         Purchasers, makes it impracticable or inadvisable to purchase the
         Debentures at the Closing.

                                   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 delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.

                  (a) Subsidiaries. Except as set forth in the SEC Reports, the
         Company has no direct or indirect subsidiaries. The Company owns,
         directly or indirectly, all of the capital stock or other equity
         interests 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.

                  (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

                                      -6-
<PAGE>

         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, could not, individually or in the
         aggregate: (i) adversely affect the legality, validity or
         enforceability of any Transaction Document, (ii) have or result in or
         be reasonably likely to 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 hereunder or thereunder. The
         execution and delivery of each of the Transaction Documents by the
         Company and the consummation by it of the transactions contemplated
         hereby or thereby have been duly authorized by all necessary action on
         the part of the Company and no further consent or action is required by
         the Company other than Required Approvals. 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, 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, 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 could not, individually or in the aggregate,
         have or result in a Material Adverse Effect.

                                      -7-
<PAGE>

                  (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 filings required under Section 4.7, (ii) the filing with the
         Commission of the Underlying Shares Registration Statement, (iii) the
         notice and/or application(s) to each applicable Principal Market for
         the issuance and sale of the Debentures and Warrants and the listing of
         the Underlying Shares for trading thereon in the time and manner
         required thereby, (iv) the filing of Form D with the Commission and
         applicable Blue Sky filings (collectively, the "Required Approvals")
         and (v) Shareholder Approval.

                  (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 non-assessable, 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. The Company has not, and to
         the knowledge of the Company, no Affiliate of the Company has sold,
         offered for sale or solicited offers to buy or otherwise negotiated 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.

                  (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 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.

                                      -8-
<PAGE>

                  (h) SEC Reports; Financial Statements. The Company has filed
         all reports required to be filed by it under the Exchange Act,
         including pursuant to Section 13(a) or 15(d) thereof, for the 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") 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 identified and made available 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 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 or for other compensatory purposes.

                  (j) Litigation. Except as disclosed in the SEC Reports, 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

                                      -9-
<PAGE>

         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 reasonably be expected to 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 dispute 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 reasonably be expected
         to result in a Material Adverse Effect ("Material 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 under valid, subsisting and enforceable leases of which the
         Company and the Subsidiaries are in compliance.

                                      -10-
<PAGE>

                  (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 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. To
         the best of Company's knowledge, such insurance contracts and policies
         are accurate and complete. Neither the Company nor any Subsidiary has
         any reason to believe 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
         required to be set forth in the 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 management's general or specific
         authorizations, (ii) transactions are recorded as necessary to permit
         preparation of financial statements in conformity with GAAP 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. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-14 and
         15d-14) for the Company and designed such disclosures controls and
         procedures to ensure that material information relating to the Company,
         including its subsidiaries, is made known to the certifying officers by

                                      -11-
<PAGE>

         others within those entities, particularly during the period in which
         the Company's Form 10-K or 10-Q, as the case may be, is being prepared.
         The Company's certifying officers have evaluated the effectiveness of
         the Company's controls and procedures as of a date within 90 days prior
         to the filing date of the Form 10-Q for the quarter ended June 30, 2003
         (such date, the "Evaluation Date"). The Company presented in the Form
         10-Q for the quarter ended June 30, 2003 the conclusions of the
         certifying officers about the effectiveness of the disclosure controls
         and procedures based on their evaluations as of the Evaluation Date.
         Since the Evaluation Date, there have been no significant changes in
         the Company's internal controls (as such term is defined in Item 307(b)
         of Regulation S-K under the Exchange Act) or, the Company's knowledge,
         in other factors that could significantly affect the Company's internal
         controls.

                  (s) Solvency/Indebtedness. Based on the financial condition of
         the Company as of the Closing Date and to the knowledge of the Company:
         (i) the fair saleable value of the Company's 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). The Company has no knowledge of any facts or
         circumstances which lead it to believe that it will file for
         reorganization or liquidation under the bankruptcy or reorganization
         laws of any jurisdiction within one year from the Closing Date. The SEC
         Reports set forth as of the dates thereof all outstanding secured and
         unsecured Indebtedness of the Company or any Subsidiary, or for which
         the Company or any Subsidiary has commitments. For the purposes of this
         Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed
         money or amounts owed in excess of $50,000 (other than trade accounts
         payable incurred in the ordinary course of business), (b) all
         guaranties, endorsements and other contingent obligations, whether or
         not the same are or should be reflected in the Company's balance sheet
         or the notes thereto, except guaranties by endorsement of negotiable
         instruments for deposit or collection in the ordinary course of
         business, and (c) the present value of any lease payments in excess of
         $50,000 due under leases required to be capitalized in accordance with
         GAAP. Neither the Company nor any Subsidiary is in default with respect
         to any Indebtedness.

                  (t) Certain Fees. Except as set forth in Section 5.2, 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

                                      -12-
<PAGE>

         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.

                  (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.

                  (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. Other than as set
         forth on Diclsoure Schedule 3.1(x), 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.

                  (y) Seniority. As of the Closing Date, no indebtedness of the
         Company is senior to the Debentures in right of payment, whether with
         respect to interest or upon liquidation or dissolution, or otherwise,
         other than indebtedness secured by purchase money security interests
         (which is senior only as to underlying assets covered thereby) and
         capital lease obligations (which is senior only as to the property
         covered thereby).

                  (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

                                      -13-
<PAGE>

         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 hereof. Set forth on the Disclosure Schedule attached hereto is a
         schedule of all payments to be made to Acoustic Systems, Inc. (formerly
         known as Eastech).

                  (aa) Tax Status. The Company and each of its Subsidiaries has
         made or filed all federal, state and foreign income and all other tax
         returns, reports and declarations required by any jurisdiction to which
         it is subject (unless and only to the extent that the Company and each
         of its Subsidiaries has set aside on its books provisions reasonably
         adequate for the payment of all unpaid and unreported taxes) and has
         paid all taxes and other governmental assessments and charges that are
         material in amount, shown or determined to be due on such returns,
         reports and declarations, except those disclosed in the SEC Reports and
         being contested in good faith and has set aside on its books provisions
         reasonably adequate for the payment of all taxes for periods subsequent
         to the periods to which such returns, reports or declarations apply.
         There are no unpaid taxes in any material amount claimed to be due by
         the taxing authority of any jurisdiction, and the officers of the
         Company know of no basis for any such claim, except as disclosed in the
         SEC Reports. The Company has not executed a waiver with respect to the
         statute of limitations relating to the assessment or collection of any
         foreign, federal, statue or local tax. None of the Company's tax
         returns is presently being audited by any taxing authority.

                  (bb) Acknowledgment Regarding Purchasers' Purchase of
         Securities. The Company acknowledges and agrees that the Purchasers are
         acting solely in the capacity of arm's length purchasers with respect
         to this Agreement and the transactions contemplated hereby. The Company
         further acknowledges that no Purchaser is acting as a financial advisor
         or fiduciary of the Company (or in any similar capacity) with respect
         to this Agreement and the transactions contemplated hereby and any
         statement made by any Purchaser or any of their respective
         representatives or agents in connection with this Agreement and the
         transactions contemplated hereby is not advice or a recommendation and
         is merely incidental to the Purchasers' purchase of the Securities. The
         Company further represents to each Purchaser that the Company's
         decision to enter into this Agreement has been based solely on the
         independent evaluation of the Company and its representatives.

                  (cc) No General Solicitation or Advertising in Regard to this
         Transaction. Neither the Company nor, to the knowledge of the Company,
         any of its directors or officers (i) has conducted or will conduct any
         general solicitation (as that term is used in Rule 502(c) of Regulation
         D) or general advertising with respect to the sale of the Debentures or
         the Warrants, or (ii) made any offers or sales of any security or
         solicited any offers to buy any security under any circumstances that
         would require registration of the Debentures, the Underlying Shares or
         the Warrants under the Securities Act or made any "directed selling
         efforts" as defined in Rule 902 of Regulation S.

                                      -14-
<PAGE>

                  (dd) No Disagreements with Accountants and Lawyers. There are
         no disagreements of any kind presently existing, or reasonably
         anticipated by the Company to arise, between the accountants and
         lawyers formerly or presently employed by the Company and the Company
         is current with respect to any fees owed to its accountants and
         lawyers.

                  (ee) Form S-3 Eligibility. Except as set forth on Disclosure
         Schedule 3.1(ee), the Company is eligible to register the resale of the
         Underlying Shares for resale by the Purchaser on Form S-3 promulgated
         under the Securities Act.

         Each Purchaser acknowledges and agrees that the Company does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically se forth in this
Section 3.1.

         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) No Conflicts. The execution, delivery and performance of
         the Transaction Documents by the Purchaser and the consummation by the
         Purchaser of the transactions contemplated thereby do not and will not:
         (i) conflict with or violate any provision of the Purchaser's
         certificate or articles of incorporation, bylaws or other
         organizational or charter documents, or (ii) 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 Purchaser debt or otherwise) or other
         understanding to which the Purchaser is a party or by which any
         property or asset of the Purchaser 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 Purchaser is subject (including federal and

                                      -15-
<PAGE>

         state securities laws and regulations), or by which any property or
         asset of the Purchaser is bound or affected; except in the case of each
         of clauses (ii) and (iii), such as could not, individually or in the
         aggregate, have or result in a material adverse effect on the
         Purchaser.

                  (c) 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 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.

                  (d) 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 Debentures 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 registered
         broker-dealer under Section 15 of the Exchange Act.

                  (e) 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. Such Purchaser has had the
         opportunity to ask the representatives of the Company questions about
         the Company's business and financial condition and the terms of this
         offering and has obtained such information as it has requested to the
         extent it has deemed necessary to permit it to fully evaluate the
         merits and risks of its investment in the Company. Such Purchaser also
         represents that it has had the opportunity to examine all material
         books and records of the Company and all material contracts and
         documents relating to his investment. Further, such Purchaser has
         consulted with such other of his investment and/or accounting and/or
         legal and/or tax advisors as it has deemed necessary and appropriate in
         making its decision to invest in the Company on the terms described
         herein.

                  (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.

                                      -16-
<PAGE>

         The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically se forth in this
Section 3.2.

                                   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 or to an Affiliate of a Purchaser, the Company may
         require the transferor thereof to provide to the Company an opinion of
         counsel selected by the transferor and reasonably acceptable to the
         Company, 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) Each Purchaser agrees 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 [EXERCISABLE] [CONVERTIBLE]]
         HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
         SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
         REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
         PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
         ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
         SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
         ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A
         LEGAL OPINION OF COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE
         COMPANY 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 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. If

                                      -17-
<PAGE>

         required by the Company's transfer agent in order to effect a pledge,
         the Company shall cause its counsel, at no cost to the Purchasers, to
         issue an opinion of counsel to the Company's transfer agent. 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 Underlying Shares shall not
         contain any legend (including the legend set forth in Section 4.1(b)
         hereof): (i) while a registration statement (including the Underlying
         Shares Registration Statement) covering the resale of such security is
         effective under the Securities Act (unless, subsequent to the date
         hereof, the Commission enacts any new rules or regulations which
         specifically requires a legend on the certificates until a sale is made
         by the holder thereof), or (ii) following any sale of such Underlying
         Shares pursuant to Rule 144, or (iii) if such Underlying Shares 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); provided, however, in connection with the issuance of the
         Underlying Shares, each Purchaser, severally and not jointly with the
         other Purchasers, hereby agrees to adhere to and abide by all
         prospectus delivery requirements under the Securities Act and rules and
         regulations of the Commission. If all or any portion of a Debenture or
         Warrant is converted or exercised (as applicable) at a time when there
         is an 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
         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 Underlying Shares issued with a
         restrictive legend (such third Trading Day, the "Legend Removal Date",
         deliver or cause to be delivered to such Purchaser a certificate
         representing such shares 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.

                  (d) In addition to such Purchaser's other available remedies,
         the Company shall pay to a Purchaser, in cash, as liquidated damages
         and not as a penalty, for each $5,000 of Underlying Shares (based on
         the VWAP of the Common Stock on the date such Securities are submitted
         to the Company's transfer agent) delivered for removal of the
         restrictive legend and subject to this Section 4.1(c), $50 per Trading
         Day (increasing to $100 per Trading Day 3 Trading Days after such
         damages have begun to accrue) for each Trading Day after the Legend
         Removal Date until such certificate is delivered without a legend.

                                      -18-
<PAGE>

         4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

         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. As long as any Purchaser
owns Securities, 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. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by 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 the
         Required Minimum on such date, then the Board of Directors of the
         Company shall use commercially reasonable 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, as soon as possible and in any event
         not later than the 75th day after such date.

                  (c) The Company shall, if applicable: (i) in the time and
         manner required by the Principal Market, prepare and file with such
         Principal Market an additional shares listing application covering a
         number of shares of Common Stock at least equal to the Required Minimum

                                      -19-
<PAGE>

         on the date of such application, (ii) take all steps necessary to cause
         such shares of Common Stock to be approved for listing on the 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 any date at least equal to the Required Minimum on such date
         on such Principal Market or another Principal Market. In addition, the
         Company shall hold a special meeting of shareholders (which may also be
         at the annual meeting of shareholders) at the earliest practical date,
         but in no event later than November 30, 2003, for the purpose of
         obtaining Shareholder Approval, with the recommendation of the
         Company's Board of Directors that such proposal be approved, and the
         Company shall solicit proxies from its shareholders in connection
         therewith in the same manner as all other management proposals in such
         proxy statement and all management-appointed proxyholders shall vote
         their proxies in favor of such proposal.

                  (d) The Company shall not undertake a reverse or forward stock
         split or reclassification of the Common Stock without the prior written
         consent of the Purchasers holding a majority in interest of the
         Debentures.

         4.6 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents. In addition, the Company shall hold a
special meeting of shareholders (which may also be at the annual meeting of
shareholders) at the earliest practical date, but in no event later than
November 30, 2003, for the purpose of obtaining Shareholder Approval, with the
recommendation of the Company's Supervisory Board that such proposal be
approved, and the Company shall solicit proxies from its shareholders in
connection therewith in the same manner as all other management proposals in
such proxy statement and all management-appointed proxyholders shall vote their
proxies in favor of such proposal.

         4.7 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the Closing Date, issue a press
release or file a Current Report on Form 8-K reasonably acceptable to each
Purchaser 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 each Purchaser with prior
notice of such disclosure.

                                      -20-
<PAGE>

         4.8 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 information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.

         4.9 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, 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.

         4.10 Reimbursement. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company,
solely as a result of such Purchaser's acquisition of the Securities under this
Agreement and without causation by any other activity, obligation, condition or
liability on the part of, or pertaining to such Purchaser and not to the
purchase of Securities pursuant to this Agreement, the Company will reimburse
such Purchaser, to the extent such reimbursement is not provided for in Section
4.11, 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. The reimbursement
obligations (and limitations thereon) of the Company under this paragraph shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any Affiliates of the Purchasers
who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement except to the extent any covenant or warranty owing to the
Company is breached.

         4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, each party (the "Indemnifying Party") will indemnify and hold the
other parties and their directors, officers, shareholders, partners, employees
and agents (each, an "Indemnified 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 Indemnified Party may
suffer or incur as a result of or relating to any breach of any of the
representations, warranties, covenants or agreements made by the Indemnifying
Party in this Agreement or in the other Transaction Documents. If any action

                                      -21-
<PAGE>

shall be brought against any Indemnified Party in respect of which indemnity may
be sought pursuant to this Agreement, such Indemnified Party shall promptly
notify the Indemnifying Party in writing, and the Indemnifying Party shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party except to the extent
that (i) the employment thereof has been specifically authorized by the
Indemnifying Party in writing, (ii) the Indemnifying Party has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Indemnifying
Party and the position of such Indemnified Party. The Indemnifying Party will
not be liable to any Indemnified Party under this Agreement (i) for any
settlement by an Indemnified Party effected without the Indemnifying Party's
prior written consent, which shall not be unreasonably withheld or delayed; or
(ii) to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Indemnified Party's breach of any of the
representations, warranties, covenants or agreements made by the Purchasers in
this Agreement or in the other Transaction Documents. In no event shall the
liability of any Purchaser hereunder be greater in amount than the dollar amount
of the net proceeds received by such Purchaser upon the sale of the Securities.

         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
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 Future Financings. From the date hereof until 90 days after the
Effective Date, other than as contemplated by this Agreement, neither the
Company nor any Subsidiary shall issue or sell any Capital Shares or Capital
Shares Equivalents. Notwithstanding anything herein to the contrary, the 120 day
period set forth in this Section 4.13 shall be extended for the number of
Trading Days during such period in which (y) trading in the Common Stock is
suspended by any Principal Market, or (z) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of the
Underlying Shares. Notwithstanding anything to the contrary herein, this Section
4.13 shall not apply to the following (a) the granting or issuance of shares of
Common Stock or options to employees, officers and directors of the Company
pursuant to any stock option plan or employee incentive plan or agreement duly
adopted or 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, (b) the exercise of a
Debenture or any other security issued by the Company in connection with the
offer and sale of this Company's securities pursuant to this Agreement, or (c)
the exercise of or conversion of any Capital Shares Equivalents issued and
outstanding on the date hereof, provided that such securities have not been
amended since the date hereof, or (d) the issuance of Capital Shares or Capital
Shares Equivalents in connection with acquisitions, strategic investments or
strategic partnering arrangements, the primary purpose of which is not to raise
capital, or (e) the granting of stock, stock options and/or warrants to an
investment group in connection with the advancement of $1 million to the
Company, which transaction is described in Item 13 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2003. Additionally, in
additional to the limitations set forth herein, from the date hereof until such
time as there are no longer any Debentures, the Company shall be prohibited from
effecting or enter into an agreement to effect any Subsequent Financing

                                      -22-
<PAGE>

involving a "Variable Rate Transaction" or an "MFN Transaction" (each as defined
below). The term "Variable Rate Transaction" shall mean a transaction in which
the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock. The term "MFN
Transaction" shall mean a transaction in which the Company issues or sells any
securities in a capital raising transaction or series of related transactions
which grants to an investor the right to receive additional shares based upon
future transactions of the Company on terms more favorable than those granted to
the such investor in such offering. In addition, unless Shareholder Approval has
been obtained and deemed effective in accordance with Section 4.5(c), the
Company shall not make any issuance whatsoever of Capital Shares or Capital
Shares Equivalents which would cause any adjustment of the Set Price (other than
pursuant to Section 4(c)(ii) of the Debentures) to the extent the holders of
Debentures would not be permitted, pursuant to Section 4(a)(ii)(B) of the
Debenture, to convert their respective outstanding Debentures and exercise their
respective Warrants in full.

         4.14 Participation in Future Financing. From the date hereof until the
first anniversary of the Effective Date, the Company shall not effect a
financing of its Capital Shares or Capital Shares Equivalents (a "Subsequent
Financing") unless (i) the Company delivers to each Purchaser a written notice
at least 5 Trading Days prior to the closing of such Subsequent Financing (the
"Subsequent Financing Notice") of its intention to effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto and (ii) such Purchaser shall not have notified the
Company by 6:30 p.m. (New York City time) on the fifth (5th) Trading Day after
its receipt of the Subsequent Financing Notice of its willingness to provide (or
to cause its designee to provide), subject to completion of mutually acceptable
documentation, all or part of up to the greater of (a) the principal amount of
Debentures then outstanding and (b) 50% of such financing to the Company on the
same terms set forth in the Subsequent Financing Notice. If one or more
Purchasers shall fail to so notify the Company of their willingness to
participate in the Subsequent Financing, the Company may effect the remaining
portion of such Subsequent Financing on the terms and to the Persons set forth
in the Subsequent Financing Notice; provided that the Company must provide the
Purchasers with a second Subsequent Financing Notice, and the Purchasers will
again have the right of first refusal set forth above in this Section 4.14, if
the Subsequent Financing subject to the initial Subsequent Financing Notice is
not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial Subsequent
Financing Notice with the Person identified in the Subsequent Financing Notice.
In the event the Company receives responses to Subsequent Financing Notices from
Purchasers seeking to purchase more than the financing sought by the Company in
the Subsequent Financing such Purchasers shall have the right to purchase their
Pro Rata Portion (as defined below) of up to the greater of (a) the principal
amount of Debentures then outstanding and (b) 50% of the Capital Shares or

                                      -23-
<PAGE>

Capital Shares Equivalents to be issued in such Subsequent Financing. "Pro Rata
Portion" is the ratio of (x) the principal amount of Debentures purchased by a
Purchaser and (y) the sum of the aggregate principal amount of Debentures issued
hereunder. If any Purchaser no longer holds any Debentures, then the Pro Rata
Portions shall be re-allocated among the remaining Purchasers. Notwithstanding
anything to the contrary herein, this Section 4.14 shall not apply to the
following (a) the granting and exercise of options to employees, officers,
directors and key consultants of the Company pursuant to any stock option plan
or other plan duly adopted 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, or (b) the exercise of the
Debenture or any other security issued by the Company in connection with the
offer and sale of this Company's securities pursuant to this Agreement, or (c)
the exercise of or conversion of any Capital Shares Equivalents issued and
outstanding on the Original Issue Date, provided such securities have not been
amended since the date hereof, or (d) the issuance of Capital Shares or Capital
Shares Equivalents in connection with acquisitions, strategic investments or
strategic partnering arrangements, the primary purpose of which is not to raise
capital or subsequent exercise of any such Capital Shares Equivalents, or (e)
the granting of stock, stock options and/or warrants to an investment group in
connection with the advancement of $1 million to the Company, which transaction
is described in Item 13 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2003.

                                    ARTICLE V
                                  MISCELLANEOUS

         5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before August ___, 2003; 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. At the Closing, the Company has agreed to
reimburse Omicron Master Trust ("Omicron") up to $35,000 for its legal fees and
expenses. Accordingly, in lieu of the foregoing payments, the Company, on the
Closing Date, will direct that the aggregate amount that Omicron is to pay for
the Debentures and Warrants at the Closing, be reduced by $35,000 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.

                                      -24-
<PAGE>

         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 on the signature page attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day and an electronic confirmation of delivery is
received by the sender, (b) the next Trading Day after the date of transmission,
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) three Trading Days
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.

         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,

                                      -25-
<PAGE>

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.

         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 for the applicable statue of
limitations.

         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; provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.

         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

                                      -26-
<PAGE>

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
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.

         5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.

                                      -27-
<PAGE>

         5.18 Independent Nature of Purchasers' Obligations and Rights. 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. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Omicron. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.

         5.19 Liquidated Damages. The Company's obligations to pay any
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such liquidated damages or
other amounts are due and payable shall have been canceled.

                             ***********************

                                      -28-
<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.

                                            THE SINGING MACHINE COMPANY, INC.

                                            By:    /s/ Yi Ping Chan
                                               ---------------------------
                                            Name:  Yi Ping Chan
                                            Title: Chief Operating Officer

                                            Address for Notice:
                                            6601 Lyons Road, Building A-7
                                            Coconut Creek, FL 33073
                                            Attn:
                                            Tel: (954) 596-1000
                                            Fax:

With a copy to:

                                            Attn:
                                            Tel:
                                            Fax:

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]

                                      -29-
<PAGE>

                           PURCHASER'S SIGNATURE PAGE

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

OMICRON MASTER TRUST                              Address for Notice:
By:  Omicron Capital L.P., as subadvisor          c/o Omicron Capital L.P.
By:  Omicron Capital Inc., its general partner    810 Seventh Avenue, 39th Fl.
                                                  New York, NY 10019
                                                  Fax: (212) 803-5269
By:  /s/ Bruce Bernstein                          Attn:  Brian Daly
     ----------------------------
     Name:  Bruce Bernstein
     Title:   President

Subscription Amount:  $
--------------------
Warrant Shares:

With a copy to:
---------------
(which shall not constitute notice)               Feldman Weinstein LLP
                                                  420 Lexington Avenue
                                                  New York, New York 10170
                                                  Attn:  Robert F. Charron
                                                  Tel:  (212) 869-7000
                                                  Fax:  (212) 401-4741

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]

                                      -30-
<PAGE>

                           PURCHASER'S SIGNATURE PAGE

BRISTOL INVESTMENT FUND, LTD.               Address for Notice:
                                            c/o Bristol DLP, LLC
                                            6363 Sunset Boulevard, 5th Floor
                                            Hollywood, California 90028
By: /s/ Paul Kessler                        Attn:  Amy Wang, Esq.
--------------------------                  Fax:  (323) 468-8307
    Name:  Paul Kessler
    Title: Director

Subscription Amount: $
Warrant Shares:

                           [SIGNATURE PAGE CONTINUED]

                                      -31-
<PAGE>

                     PURCHASER'S SIGNATURE PAGE (CONT. . . )

ASCEND OFFSHORE FUND, LTD.

By:      /s/ Malcolm Fairbairn
         ---------------------------
         Name:  Malcolm Fairbairn
         Title:     Investment Manager

Subscription Amount: $478,000
-------------------

ASCEND PARTNERS LP

By:        /s/ Malcolm Fairbairn
         ---------------------------
         Name:  Malcolm Fairbairn
         Title:    Managing Member

Subscription Amount: $58,200
-------------------

ASCEND PARTNERS SAPIENT LP

By:       /s/ Malcolm Fairbairn
         ---------------------------
         Name:  Malcolm Fairbairn
         Title:    Managing Member

Subscription Amount: $163,800
-------------------

Address for Notice:

                                      -32-
<PAGE>

SF CAPITAL PARTNERS, LLC

By:   /s/ Brian H. Davidson
          -------------------------------
          Name:  Brian H. Davidson
          Title:    Authorized Signatory

                                      -33-Exhibit 10.2

                        THE SINGING MACHINE COMPANY, INC.
                          6601 Lyons Road, Building A-7
                          Coconut Creek, Florida 33073

                                                               September 5, 2003

Omicron Master Trust
SF Capital Partners, Ltd.
Bristol Investment Fund, Ltd.
Ascend Offshore Fund, Ltd.
Ascend Partners LP
Ascend Partners Sapient LP
c/o Feldman Weinstein LLP
420 Lexington Avenue
New York, NY  10170-0002

         RE: AMENDMENT TO THE TRANSACTION DOCUMENTS ("AMENDMENT")

Dear Sirs:

         Reference is made to that certain Securities Purchase Agreement
("Purchase Agreement") dated August 19, 2003 entered into by and among The
Singing Machine Company, Inc. (the "Company") and Omicron Master Trust, SF
Capital Partners, Ltd., Bristol Investment Fund, Ltd., Ascend Offshore Fund,
Ltd., Ascend Partners LP and Ascend Partners Sapient LP (collectively referred
to herein as the "Purchasers" and individually, as a "Purchaser"). All
capitalized terms not defined herein shall have the same meaning as defined
terms in the Purchase Agreement.

         The Purchasers agrees that the Company shall have forty five (45) days
from the Closing Date, to obtain approval from the American Stock Exchange
("AMEX") to list the Underlying Shares and any other securities which are being
issued in connection with the transactions set forth in the Transaction
Documents. If the Company does not obtain approval from AMEX by October 20,
2003, the Purchasers shall have the right to rescind the transactions set forth
in the Transaction Documents ("Rescission") or to provide the Company with an
additional thirty (30) day time period in which to seek AMEX approval (which
would continue every 30 days until AMEX approval is obtained). The Company shall
use its best efforts to obtain AMEX approval as soon as possible after the date
hereof.

         If the Transaction is rescinded, the Company agrees that it will return
to each Purchaser the Subscription Amount, plus interest on such amount at the
rate of 8% per annum, calculated on a pro-rata basis, on or before October 25,
2003 or such other date requested by the Purchasers. In exchange for the return
of the Subscription Amount, plus interest, each Purchaser agrees that it will
return it Debenture to the Company, along with all other Transaction Documents,
including but not limited to the Warrant, the Registration Rights Agreement and
the Purchase Agreement on or before October 25, 2003 or such other date. The
Company will place a notation on each Debenture noting that it has been "PAID IN
FULL" and will place a notation on the Warrant, Registration Rights Agreement
and Purchase Agreement noting that these agreements have been "CANCELLED AND
TERMINATED."

         If the Transaction is rescinded, the Company and the Purchaser each
agree that the other party will not have liability of any type to the other
party. Each Purchaser agrees that the return of the Subscription Amount, plus
interest, shall be their sole remedy for the Rescission.

<PAGE>

         In the Transaction Documents, there are statements that the Company
will not issue more than 19.99% of its common stock unless it obtains AMEX
approval. All of these statements are hereby deleted and replaced with the
statement that the Company will not issue any of its securities, until it has
obtained approval from AMEX to issue such shares.

         The Purchasers also agree that they will sign any subordination
agreements that LaSalle Business Credit, LLC or any of the Company's prospective
commercial lenders present to the Purchasers in connection with any new credit
agreements that the Company enters into while the Company has obligations under
the Transaction Documents, the terms of which shall be substantially similar to
the terms of the subordination agreement entered into with LaSalle Business
Credit, LLC in connection with the consummation of the Purchase Agreement and
issuance of the Debentures.

         Except as expressly amended hereby, the Purchase Agreement, the
Debentures, the Warrants and the Registration Rights Agreement are ratified and
confirmed by the parties hereto and remain in full force and effect in
accordance with the terms hereof.

         This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

                                               Sincerely,

                                               THE SINGING MACHINE COMPANY, INC.

                                               By: /s/ Yi Ping Chan
                                                       Yi Ping Chan
                                                       Chief Operating Officer

Agreed and accepted this 5th day of September, 2003:

Omicron Master Trust                         SF Capital Partners, Ltd.
By:      /s/ Bruce Bernstein                 By:      /s/ Brian Davidson
Name:    Bruce Bernstein                     Name:    Brian Davidson
Title:   Managing Partner                    Its:     Authorized Signator

Bristol Investment Fund, Ltd.                Ascend Offshore Fund, Ltd.
By:      /s/ Paul Kessler                    By:      /s/ Malcolm Fairbairn
Name:    Paul Kessler                        Name:    Malcolm Fairbairn
Title:   Director                            Title:   Managing Member

Ascend Partners LP                           Ascend Partners Sapient LP
By:      /s/ Malcolm Fairbairn               By:      /s/ Malcolm Fairbairn
Name:    Malcolm Fairbairn                   Name:    Malcolm Fairbairn
Title:   Managing Member                     Title:   Managing Member

                                       2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00056-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00056-of-00352.parquet"}]]