Document:

EXHIBIT 4.5

      VOID AFTER 5:00 P.M., CALIFORNIA TIME, ON JULY 19, 2009

      NEITHER THESE  SECURITIES NOR THE SECURITIES  INTO WHICH THESE  SECURITIES
      ARE  EXERCISABLE  HAVE BEEN  REGISTERED  WITH THE  SECURITIES AND EXCHANGE
      COMMISSION OR THE  SECURITIES  COMMISSION OF ANY STATE IN RELIANCE UPON AN
      EXEMPTION FROM  REGISTRATION  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE "SECURITIES  ACT"), or the securities laws of any state of the United
      States.  The securities  represented  hereby may not be offered or sold in
      the absence of an  effective  registration  statement  for the  securities
      under applicable securities laws unless offered, sold or transferred under
      an available  exemption from the registration  requirements of those laws.
      NOTWITHSTANDING  THE  FOREGOING,   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 OR  FINANCING  ARRANGEMENT
      SECURED BY SUCH SECURITIES.

Date: July 19, 2004

                                CAMINOSOFT CORP.
                             STOCK PURCHASE WARRANT

      THIS CERTIFIES THAT, for value received, BFSUS Special Opportunities Trust
PLC, a public limited company registered in England and Wales, or its registered
assigns, is entitled to purchase from CAMINOSOFT CORP., a corporation  organized
under the laws of the State of California (the  "COMPANY"),  at any time or from
time to time  during  the  Exercise  Period  (as  defined  in Section 2 hereof),
471,698 fully paid and  nonassessable  shares of the Company's  common stock, no
par value (the "COMMON  STOCK"),  at an exercise  price per share (the "EXERCISE
PRICE") of $0.53.  The number of shares of Common  Stock  purchasable  hereunder
(the  "WARRANT  SHARES") and the  Exercise  Price are subject to  adjustment  as
provided in Section 4 hereof.

         This  Warrant  is  subject  to  the  following  terms,  provisions  and
conditions:

      1. (a)  MANNER OF  EXERCISE;  ISSUANCE  OF  CERTIFICATES.  Subject  to the
provisions hereof, including,  without limitation,  the limitations contained in
Section 7 hereof,  this Warrant may be exercised at any time during the Exercise
Period by the holder  hereof,  in whole or in part,  by  delivery of a completed
exercise  agreement in the form attached hereto (the "EXERCISE  AGREEMENT"),  to
the  Company by 5 p.m.  California  time on any  Business  Day at the  Company's
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof) and upon payment to the Company as
provided in Section 1(b) below of the applicable  Exercise Price for the Warrant
Shares  specified in the  Exercise  Agreement.  The Warrant  Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee,  as
the record  owner of such  shares,  as of the close of  business  on the date on
which  this  Warrant  shall have been  surrendered  and the  completed  Exercise
Agreement  shall have been  delivered  and payment shall have been made for such
shares as set forth  above or, if such day is not a  Business  Day,  on the next
succeeding  Business  Day. The Warrant  Shares so  purchased,  representing  the
aggregate  number  of  shares  specified  in the  Exercise  Agreement,  shall be
delivered to the holder hereof within a reasonable  time, not exceeding five (5)
Business  Days,  after this Warrant shall have been so exercised  (the "DELIVERY
PERIOD").  If the Company's  transfer agent is  participating  in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as
the  certificates  therefor  do not  require  a  legend  and the  holder  is not
obligated to return such certificate for the placement of a legend thereon,  the
Company shall cause its transfer  agent to  electronically  transmit the Warrant
Shares so purchased to the holder by crediting  the account of the holder or its
nominee with DTC through its Deposit  Withdrawal Agent  Commission  system ("DTC
TRANSFER").  If  the  aforementioned  conditions  to  a  DTC  Transfer  are  not
satisfied,  the  Company  shall  deliver  to the  holder  physical  certificates
representing the Warrant Shares so purchased.  Further,  the holder may instruct
the  Company to deliver to the holder  physical  certificates  representing  the
Warrant  Shares so  purchased  in lieu of  delivering  such shares by way of DTC
Transfer. Any certificates so delivered shall be in such denominations as may be
requested by the holder  hereof,  shall be registered in the name of such holder
or such other name as shall be designated by such holder and, following the date
on which the  Warrant  Shares may be sold by the holder  pursuant to Rule 144(k)
promulgated  under the Securities Act (or a successor rule),  shall not bear any
restrictive  legend.  If this Warrant  shall have been  exercised  only in part,
then, unless this Warrant has expired, the Company shall, at its expense, at the
time of  delivery  of such  certificates,  deliver to the  holder a new  Warrant
representing  the number of shares with respect to which this Warrant  shall not
then have been exercised.

      (b) PAYMENT OF EXERCISE PRICE.  The holder shall pay the Exercise Price in
immediately available funds; provided,  however, if a registration statement has
not become effective pursuant to a registration  requested by holder pursuant to
the terms of the Registration Rights Agreement, dated as of July 19, 2004, among
CaminoSoft  Corp.,  Renaissance US Growth Investment Trust PLC and BFSUS Special
Opportunities  Trust PLC and is not effective at the time holder  exercises this
Warrant,  the holder hereof may satisfy its obligation to pay the Exercise Price
through a "cashless  exercise,"  in which  event the Company  shall issue to the
holder hereof the number of Warrant Shares determined as follows:

<PAGE>

                                 X = Y [(A-B)/A]

                where:

                                    X =  the  number  of  Warrant  Shares  to be
                                    issued to the holder.

                                    Y  =  the  number  of  Warrant  Shares  with
                                    respect  to  which  this  Warrant  is  being
                                    exercised.

                                    A = the  average of the  Closing  Prices for
                                    the five trading days  immediately  prior to
                                    (but not including) the Exercise Date.

                                    B = the Exercise Price.

            For purposes of Rule 144 promulgated under the Securities Act, it is
intended,  understood  and  acknowledged  that the  Warrant  Shares  issued in a
cashless  exercise  transaction  shall be deemed to have  been  acquired  by the
holder hereof,  and the holding period for the Warrant Shares shall be deemed to
have commenced,  on the date this Warrant was originally  issued pursuant to the
Purchase Agreement.

      2. PERIOD OF  EXERCISE.  Except as set forth in Section  7(h) below,  this
Warrant may be exercised at any time or from time to time (an  "EXERCISE  DATE")
during the period (the "EXERCISE  PERIOD")  beginning on (a) the date hereof and
ending (b) at 5:00 p.m., California time, on the fifth annual anniversary of the
date of original  issuance  hereof.  Notwithstanding  anything  to the  contrary
herein, the Exercise Period shall be extended one (1) day for each day following
the  Exercise  Date  that  the  holder  hereof  may  not  sell  shares  under  a
registration  properly  requested by holder pursuant to the Registration  Rights
Agreement  or  pursuant  to Rule 144  under  the  Securities  Act if the  holder
effected a "cashless exercise" of this Warrant pursuant to Section 1(b), in each
case only if and only to the extent such  inability to sell is the result of the
Company's breach of its  registration  obligations set forth in the Registration
Rights  Agreement or obligations with respect to resales of Warrant Shares under
Rule 144 of the Securities Act.

      3. CERTAIN  AGREEMENTS OF THE COMPANY.  The Company  hereby  covenants and
agrees as follows:

                                       2
<PAGE>

            (a) SHARES TO BE FULLY PAID. All Warrant Shares will,  upon issuance
in accordance with the terms of this Warrant, be validly issued,  fully paid and
nonassessable and free from all taxes,  liens,  claims and encumbrances  (except
for restrictions existing under applicable securities laws).

            (b) RESERVATION OF SHARES.  During the Exercise Period,  the Company
shall at all times have  authorized,  and  reserved  for the purpose of issuance
upon exercise of this Warrant,  a sufficient number of shares of Common Stock to
provide for the exercise in full of this Warrant  (without  giving effect to the
limitations on exercise set forth in Section 7(h) hereof).

            (c)  LISTING.  The  Company has secured the listing of the shares of
Common Stock  issuable  upon  exercise of or otherwise  pursuant to this Warrant
upon each national  securities  exchange or automated  quotation system, if any,
upon which shares of Common Stock are then listed or become  listed  (subject to
official  notice of issuance upon exercise of this Warrant) and shall  maintain,
so long as any other shares of Common Stock shall be so listed,  such listing of
all shares of Common  Stock from time to time  issuable  upon the exercise of or
otherwise  pursuant  to this  Warrant;  and the  Company  shall  so list on each
national  securities exchange or automated quotation system, as the case may be,
and shall  maintain  such listing of, any other  shares of capital  stock of the
Company  issuable upon the exercise of or otherwise  pursuant to this Warrant if
and so long as any  shares of the same  class  shall be listed on such  national
securities exchange or automated quotation system.

            (d) CERTAIN ACTIONS  PROHIBITED.  The Company will not, by amendment
of its  Articles of  Incorporation  or through any  reorganization,  transfer of
assets, consolidation,  merger, dissolution,  issuance or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed by it hereunder, but will at all
times in good faith  assist in the carrying  out of all the  provisions  of this
Warrant.  Without  limiting the generality of the foregoing,  without consent of
the holder, the Company (i) will not (a) increase the par value of any shares of
Common Stock  receivable  upon the  exercise of this Warrant  above the Exercise
Price then in effect,  (b)  increase the number of  authorized  shares of Common
Stock,  or (c) authorize or issue preferred  stock,  and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally  authorize and issue fully paid and  nonassessable  shares of Common
Stock upon the exercise of this Warrant, not subject to preemptive rights.

            (e) SUCCESSORS  AND ASSIGNS.  This Warrant shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.

            (f) BLUE SKY LAWS.  The  Company  shall,  on or  before  the date of
issuance  of  any  Warrant  Shares,  take  such  actions  as the  Company  shall
reasonably  determine are necessary to qualify the Warrant Shares for, or obtain
exemption  for the Warrant  Shares for,  sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States,  and shall provide evidence of any such action so taken to
the holder of this  Warrant  prior to such  date;  provided,  however,  that the
Company  shall not be  required  to qualify as a foreign  corporation  or file a
general consent to service of process in any such jurisdiction.

                                       3
<PAGE>

      4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise Price
and the number of Warrant  Shares  issuable  upon the exercise of the  Warrants,
shall be subject to adjustment from time to time as provided in this Section 4.

      In the event that any adjustment of the Exercise Price as required  herein
results in a fraction of a cent, such Exercise Price shall be rounded up or down
to the nearest cent;  provided  that,  in no event shall the Exercise  Price per
share be reduced below $0.01.

            (a) SUBDIVISION OR COMBINATION OF COMMON STOCK.  If the Company,  at
any time during the  Exercise  Period,  subdivides  (by any stock  split,  stock
dividend, recapitalization,  reorganization,  reclassification or otherwise) its
shares of Common Stock into a greater number of shares,  then, after the date of
record for effecting such subdivision,  the Exercise Price in effect immediately
prior to such subdivision will be proportionately  reduced.  If the Company,  at
any  time  during  the  Exercise  Period,  combines  (by  reverse  stock  split,
recapitalization,  reorganization,  reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such  combination,  the Exercise Price in effect  immediately prior to
such combination will be proportionately increased.

            (b)  ADJUSTMENT  IN NUMBER OF SHARES.  Upon each  adjustment  of the
Exercise Price pursuant to the provisions of this Section 4 other than a Company
Reduction  as  defined  in Section  4(l),  the number of shares of Common  Stock
issuable  upon exercise of this Warrant shall be increased or decreased to equal
the quotient  obtained by dividing (i) the product of (A) the Exercise  Price in
effect  immediately  prior to such  adjustment,  multiplied by (B) the number of
shares of Common Stock issuable upon exercise of this Warrant  immediately prior
to such adjustment, by (ii) the adjusted Exercise Price.

            (c)  CONSOLIDATION,  MERGER OR SALE. In case of any consolidation of
the Company with, or merger of the Company into, any other entity, or in case of
any sale or conveyance of all or substantially  all of the assets of the Company
other than in connection  with a plan of complete  liquidation of the Company at
any time during the Exercise Period,  then as a condition of such consolidation,
merger or sale or conveyance, adequate provision will be made whereby the holder
of this Warrant will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore acquirable
upon the exercise of this  Warrant,  such shares of stock,  securities,  cash or
assets as may be issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore acquirable and receivable upon
exercise of this Warrant had such  consolidation,  merger or sale or  conveyance
not taken place. In any such case, the Company will make  appropriate  provision
to cause the  provisions of this Section 4 thereafter to be applicable as nearly
as  may  be in  relation  to  any  shares  of  stock  or  securities  thereafter
deliverable  upon the exercise of this Warrant.  The Company will not effect any
consolidation,  merger or sale or conveyance of all or substantially  all of its
assets unless prior to the consummation  thereof, the successor entity (if other
than the  Company)  assumes by written  instrument  the  obligations  under this
Warrant and the obligations to deliver to the holder of this Warrant such shares
of stock,  securities or assets as, in accordance with the foregoing provisions,
the holder may be entitled to acquire.  If a transaction  constitutes or results
in a Change of  Control,  then at the  request  of the holder  hereof  delivered
before the 90th day after such  transaction,  the Company (or any such successor
or surviving  entity) will  purchase the Warrant from the holder of this Warrant
for a purchase  price,  payable in cash within five (5) Business Days after such
request (or, if later, on the effective date of such transaction),  equal to the
Black-Scholes value of the remaining  unexercised portion of this Warrant on the
date of such  request.  For the  purposes of this  Section,  "CHANGE OF CONTROL"
means the  consummation  of a "Rule 13e-3  transaction" as defined in Rule 13e-3
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), with
respect to the Company that is initiated by a member of the Company's management
(but not a Rule 13e-3 transaction  initiated by the holder of this Warrant,  any
of its  affiliates or any officers,  directors or managers of such holder or its
affiliates).

                                       4
<PAGE>

            (d)  DISTRIBUTION  OF ASSETS.  In case the Company  shall declare or
make any  distribution of its assets (other than cash) (or rights to acquire its
assets  (other  than  cash))  to  all  holders  of  Common  Stock  as a  partial
liquidating dividend, stock repurchase, by way of return of capital or otherwise
(including any dividend or distribution to the Company's  stockholders of shares
(or  rights  to  acquire   shares)  of  capital  stock  of  a   subsidiary)   (a
"DISTRIBUTION"),  at any time during the Exercise Period, then, upon exercise of
this  Warrant  for the  purchase  of any or all of the  shares of  Common  Stock
subject  hereto,  the holder of this  Warrant  shall be  entitled to receive its
pro-rata  amount of such assets (or such  rights) as would have been  payable to
the holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of stockholders entitled to such Distribution.

            (e) NOTICE OF  ADJUSTMENT.  Upon the  occurrence  of any event which
requires any adjustment of the Exercise Price other than a Company  Reduction as
defined in Section  4(l),  then,  and in each such case,  the Company shall give
notice  thereof to the holder of this  Warrant,  which  notice  shall  state the
Exercise Price  resulting  from such  adjustment and the increase or decrease in
the number of Warrant  Shares  issuable upon  exercise of this Warrant,  setting
forth in reasonable  detail the method of  calculation  and the facts upon which
such  calculation  is based.  Such  calculation  shall be certified by the chief
financial officer of the Company.

            (f) MINIMUM  ADJUSTMENT OF THE EXERCISE  PRICE. No adjustment of the
Exercise  Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise  required to be made, but any
such lesser  adjustment  shall be carried  forward and shall be made at the time
and  together  with the next  subsequent  adjustment  which,  together  with any
adjustments  so  carried  forward,  shall  amount  to not  less  than 1% of such
Exercise Price.

            (g) NO FRACTIONAL  SHARES.  No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional  share which would otherwise be issuable
in an amount  equal to the same  fraction of the closing bid price of a share of
Common Stock on the Principal Market on the date of such exercise.

                                       5
<PAGE>

            (h) OTHER NOTICES. In case at any time:

                  (i) the Company  shall  declare any  dividend  upon the Common
Stock  payable  in shares  of stock of any class or make any other  distribution
(other than dividends or distributions  payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;

                  (ii) the Company shall offer for  subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

                  (iii)  there  shall  be  any  capital  reorganization  of  the
Company,  or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially  all of its assets to,
another corporation or entity; or

                  (iv) there shall be a voluntary  or  involuntary  dissolution,
liquidation or winding-up of the Company;

then,  in each such case,  the Company  shall give to the holder of this Warrant
(a) notice of the date or estimated date on which the books of the Company shall
close or a record  shall be taken for  determining  the holders of Common  Stock
entitled to receive any such dividend,  distribution,  or subscription rights or
for  determining  the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation  or  winding-up  and  (b) in the  case of any  such  reorganization,
reclassification,  consolidation,  merger,  sale,  dissolution,  liquidation  or
winding-up,  notice of the date (or, if not then known,  a  reasonable  estimate
thereof by the Company)  when the same shall take place.  Such notice shall also
specify  the date on which the  holders of Common  Stock  shall be  entitled  to
receive such dividend, distribution, or subscription rights or to exchange their
Common Stock for stock or other  securities  or property  deliverable  upon such
reorganization,  reclassification,  consolidation,  merger,  sale,  dissolution,
liquidation,  or  winding-up,  as the case may be. Such notice shall be given at
least  fifteen  (15)  days  prior to the  record  date or the date on which  the
Company's books are closed in respect  thereto.  Failure to give any such notice
or any defect therein shall not affect the validity of the proceedings  referred
to in clauses (i), (ii),  (iii) and (iv) above.  Notwithstanding  the foregoing,
the  Company  may  publicly  disclose  the  substance  of any  notice  delivered
hereunder prior to delivery of such notice to the holder of this Warrant.

            (i) CERTAIN EVENTS.  If, at any time during the Exercise Period, any
event  occurs of the type  contemplated  by the  adjustment  provisions  of this
Section 4 but not expressly  provided for by such  provisions,  the Company will
give notice of such event as provided in Section 4(f) hereof,  and the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither  enhanced nor  diminished by such
event.

                                       6
<PAGE>

            (j) CERTAIN DEFINITIONS.

                  (i)  "BUSINESS  DAY" means any day,  other than a Saturday  or
Sunday  or a day on  which  banking  institutions  in the  State of New York are
authorized or obligated by law, regulation or executive order to close.

                  (ii) "COMMON  STOCK," for purposes of this Section 4, includes
the Common  Stock and any  additional  class of stock of the  Company  having no
preference as to dividends or  distributions  on liquidation,  provided that the
shares  purchasable  pursuant to this Warrant shall include only Common Stock in
respect  of which this  Warrant is  exercisable,  or shares  resulting  from any
subdivision  or  combination  of  such  Common  Stock,  or in  the  case  of any
reorganization,   reclassification,   consolidation,  merger,  or  sale  of  the
character  referred to in Section 4(d) hereof,  the stock or other securities or
property provided for in such Section.

            (k)  ADJUSTMENT  OF  EXERCISE  PRICE BY THE  COMPANY.  To the extent
permitted  by  applicable  law,  the Company at any time shall have the right to
reduce the Exercise  Price (a "COMPANY  REDUCTION") by any amount for any period
of time;  provided that the conditions of this Section 4(l) are  satisfied.  The
Company may exercise its right to Company Reduction by delivering to each holder
of the Warrants written notice (a "COMPANY  REDUCTION  NOTICE") at least fifteen
(15)  Business Days prior to the first day of the Company  Reduction  Period (as
defined below).  The Company  Reduction  Notice shall state the reduced Exercise
Price (the "ALTERNATIVE  EXERCISE PRICE") and the period (the "COMPANY REDUCTION
PERIOD")  during which the Alternative  Exercise Price will be in effect,  which
Company  Reduction  Period  must  be at  least  fifteen  (15)  Business  Days in
duration.  A Company  Reduction Notice shall be irrevocable.  The Exercise Price
shall be adjusted  upon the  expiration of the Company  Reduction  Period to the
Exercise Price that otherwise  would then be in effect if the Company  Reduction
had not occurred. Notwithstanding anything to the contrary in this Section 4(l),
the  Alternative  Exercise  Price shall at no time be greater  than the Exercise
Price that otherwise would be in effect during such Company  Reduction Period if
such Company Reduction had not occurred.

      5. ISSUE TAX. The  issuance of  certificates  for Warrant  Shares upon the
exercise  of this  Warrant  shall be made  without  charge to the holder of this
Warrant or such shares for any issuance  tax or other costs in respect  thereof,
provided  that the  Company  shall not be  required  to pay any tax which may be
payable in respect of any transfer  involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

      6. NO RIGHTS OR  LIABILITIES  AS A  STOCKHOLDER.  This  Warrant  shall not
entitle the holder  hereof to any voting rights or other rights as a stockholder
of the  Company.  No provision of this  Warrant,  in the absence of  affirmative
action by the holder hereof to purchase Warrant Shares,  and no mere enumeration
herein of the rights or privileges of the holder hereof,  shall give rise to any
liability  of such  holder for the  Exercise  Price or as a  stockholder  of the
Company,  whether  such  liability is asserted by the Company or by creditors of
the Company.

                                       7
<PAGE>

      7. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.

            (a) RESTRICTION ON TRANSFER.  This Warrant and the rights granted to
the holder hereof are  transferable  in whole or in part, at any one time,  upon
surrender of this Warrant,  together with a properly executed  assignment in the
form  attached  hereto,  at the office or agency of the  Company  referred to in
Section 7(e) below; PROVIDED,  HOWEVER, that any transfer or assignment shall be
subject  to  the  conditions  set  forth  herein.   Until  due  presentment  for
registration of transfer on the books of the Company,  the Company may treat the
registered  holder hereof as the owner and holder  hereof for all purposes,  and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration  rights described in
Section 8 hereof are  assignable  only in accordance  with the provisions of the
Registration Rights Agreement.

            (b) WARRANT EXCHANGEABLE FOR DIFFERENT  DENOMINATIONS.  This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company  referred to in Section  7(e) below,  for new  Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased  hereunder,
each of such new  Warrant to  represent  the right to  purchase  such  number of
shares  as  shall  be  designated  by the  holder  hereof  at the  time  of such
surrender.

            (c)  REPLACEMENT  OF WARRANT.  Upon  receipt of evidence  reasonably
satisfactory to the Company of the loss,  theft,  destruction,  or mutilation of
this  Warrant and, in the case of any such loss,  theft,  or  destruction,  upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the  Company,  or,  in the  case of any  such  mutilation,  upon  surrender  and
cancellation  of this  Warrant,  the Company,  at its expense,  will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

            (d)  CANCELLATION;  PAYMENT OF EXPENSES.  Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this  Warrant  shall be promptly  canceled by the  Company.  The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses  (other  than  legal  expenses,  if  any,  incurred  by the  holder  or
transferees) and charges payable in connection with the preparation,  execution,
and delivery of Warrants pursuant to this Section 7.

            (e) WARRANT REGISTER.  The Company shall maintain,  at its principal
executive  offices  (or such  other  office or agency of the  Company  as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company  shall  record the name and address of the person in whose name this
Warrant has been issued,  as well as the name and address of each transferee and
each prior owner of this Warrant.

                                       8
<PAGE>

            (f) EXERCISE OR TRANSFER  WITHOUT  REGISTRATION.  If, at the time of
the surrender of this Warrant in  connection  with any  exercise,  transfer,  or
exchange of this  Warrant,  this Warrant (or, in the case of any  exercise,  the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under  applicable  state  securities  or blue sky laws,  the Company may
require, as a condition of allowing such exercise,  transfer,  or exchange,  (i)
that the holder or transferee of this  Warrant,  as the case may be,  furnish to
the Company a written  opinion of counsel  (which  opinion  shall be  reasonably
acceptable to the Company and shall be in form,  substance  and scope  customary
for  opinions  of counsel in  comparable  transactions)  to the effect that such
exercise,  transfer,  or exchange  may be made  without  registration  under the
Securities Act and under applicable state securities or blue sky laws, (ii) that
the holder or transferee execute and deliver to the Company an investment letter
in form and  substance  reasonably  acceptable to the Company and (iii) that the
transferee  be an  "ACCREDITED  INVESTOR" as defined in Rule 501(a)  promulgated
under the Securities Act; provided,  that no such opinion,  letter, or status as
an  "accredited  investor"  shall be  required  in  connection  with a  transfer
pursuant to Rule 144 under the Securities Act.

      8.  REGISTRATION  RIGHTS.  The initial holder of this Warrant (and certain
assignees  thereof) are entitled to the benefit of such  registration  rights in
respect  of the  Warrant  Shares  as are set  forth in the  Registration  Rights
Agreement,  including the right to assign such rights to certain  assignees,  as
set forth therein.

      9. NOTICES.  Any notices required or permitted to be given under the terms
of this Warrant  shall be sent by certified or registered  mail (return  receipt
requested) or delivered  personally or by courier or by confirmed telecopy,  and
shall be effective  five (5) days after being placed in the mail, if mailed,  or
upon receipt or refusal of receipt, if delivered personally or by courier, or by
confirmed  telecopy,  in each case addressed to a party.  The addresses for such
communications shall be:

                           If to the Company:

                           CaminoSoft Corp.
                           600 North Hampshire Road, Suite 105
                           West Lake Village, California  91361
                           Attn:   Stephen Crosson, President
                           Telephone:       (818) 707-2000
                           Telecopier:      (818) 707-1627

                           With a copy to:

                           Loeb & Loeb LLP

                           101000 Santa Monica Boulevard, Suite 2200
                           Los Angeles, California  90067-4164
                           Attn:   David Ficksman, Esq.
                           Telephone:       (310) 282-2000
                           Telecopier:      (310) 282-2200

      If to the holder,  at such address as such holder  shall have  provided in
writing to the  Company,  or at such other  address as such holder  furnishes by
notice given in accordance with this Section 9.

                                        9
<PAGE>

      10. GOVERNING LAW; VENUE;  WAIVER OF JURY TRIAL. All questions  concerning
the construction, validity, enforcement and interpretation of this warrant shall
be governed by and  construed  and enforced in  accordance  with the laws of the
State  of  Texas.  Each  party  hereby  irrevocably  submits  to  the  exclusive
jurisdiction  of the state and  federal  courts  sitting  in the city of Dallas,
Texas, 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.  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 Company
hereby waives all rights to a trial by jury.

      11. MISCELLANEOUS.

            (a)  AMENDMENTS.  Except as provided in Section  7(h)  hereof,  this
Warrant and any provision hereof may only be amended by an instrument in writing
signed by the Company and the holder hereof.

            (b) DESCRIPTIVE  HEADINGS.  The descriptive  headings of the several
Sections of this Warrant are inserted for purposes of reference  only, and shall
not affect the meaning or construction of any of the provisions hereof.

            (c) In case any one or more of the  provisions of this Warrant shall
be invalid or unenforceable in any respect,  the validity and  enforceability of
the  remaining  terms and  provisions  of this  Warrant  shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially  reasonable
substitute  therefor,  and upon so agreeing,  shall  incorporate such substitute
provision in this Warrant.

            (d) Subject to the  restrictions on transfer set forth herein,  this
Warrant may be assigned by the holder.  This  Warrant may not be assigned by the
Company.  This  Warrant  shall be  binding  on and inure to the  benefit  of the
parties  hereto and their  respective  successors  and  assigns.  Subject to the
preceding  sentence,  nothing in this Warrant  shall be construed to give to any
Person  other than the  Company  and the holder  any legal or  equitable  right,
remedy or cause of action under this Warrant.

                                       10
<PAGE>

            (e) The Company will not, by amendment of its governing documents or
through  any  reorganization,   transfer  of  assets,   consolidation,   merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder hereof against impairment.  Without limiting
the generality of the foregoing, the Company (i) will not increase the par value
of any Warrant Shares above the amount payable  therefor on such exercise,  (ii)
will take all such action as may be reasonably necessary or appropriate in order
that the Company may  validly  and  legally  issue fully paid and  nonassessable
Warrant  Shares on the  exercise of this  Warrant,  and (iii) will not close its
stockholder  books or  records in any manner  which  interferes  with the timely
exercise of this Warrant.

            (f) In addition to any other rights available to a holder hereof, if
the Company  fails to deliver to the holder  hereof a  certificate  representing
Warrant  Shares by the fifth  Business  Day after the date on which  delivery of
such  certificate is required by this Warrant,  and if after such fifth Business
Day the holder  hereof  purchases (in an open market  transaction  or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the holder hereof
of the Warrant  Shares that the holder  hereof  anticipated  receiving  from the
Company (a  "BUY-IN"),  then the Company  shall,  within  three (3) Trading Days
after the holder hereof  requests and in the  discretion  of the holder  hereof,
either  (i) pay cash to the  holder  hereof in an amount  equal to the  holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased  (the "BUY-IN  PRICE"),  at which point the  Company's
obligation  to deliver such  certificate  (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the holder hereof
a certificate or certificates representing such Common Stock and pay cash to the
holder hereof in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock,  times (B) the Closing
Price  on the date of the  event  giving  rise to the  Company's  obligation  to
deliver such certificate. Notwithstanding anything to the contrary, this Section
11(f) shall not apply if the Company fails to timely perform due to the Transfer
Agent's  failure to timely  deliver the  certificates  or  otherwise  effect the
issuance in accordance with the instructions from the Company.

            (g) The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the holder  hereof to enforce the same,  any waiver or
consent  with  respect to any  provision  hereof,  the  recovery of any judgment
against  any  Person  or  any  action  to  enforce  the  same,  or  any  setoff,
counterclaim,  recoupment,  limitation or termination,  or any breach or alleged
breach by the holder hereof or any other Person of any obligation to the Company
or any  violation or alleged  violation of law by the holder hereof or any other
Person,  and irrespective of any other  circumstance which might otherwise limit
such  obligation  of the  Company to the holder  hereof in  connection  with the
issuance of Warrant  Shares.  Nothing  herein  shall limit a right of the holder
hereof to pursue any other  remedies  available  to it  hereunder,  at law or in
equity including,  without limitation,  a decree of specific  performance and/or
injunctive  relief  with  respect to the  Company's  failure  to timely  deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       11
<PAGE>

      IN WITNESS  WHEREOF,  the Company has caused this  Warrant to be signed by
its duly authorized officer.

                             CAMINOSOFT CORP.

                             By:
                                ------------------------------------------------
                                Michael Skelton
                                Chief Executive Officer

                                       12
<PAGE>

                           FORM OF EXERCISE AGREEMENT
         (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)

         To:      CaminoSoft Corp.
                  600 North Hampshire Road, Suite 105
                  West Lake Village, California  91361
                  Telephone:        (818) 707-2000
                  Telecopier:       (818) 707-1627
                  Attn:    Michael Skelton, Chief Executive Officer

The undersigned hereby irrevocably exercises the right to purchase _____________
shares of the Common  Stock,  no par value per share,  of  CAMINOSOFT  CORP.,  a
corporation organized under the laws of the State of California (the "COMPANY"),
and tenders  herewith  payment of the Exercise  Price in full,  in the amount of
$_____________,  in cash,  by certified  bank check or by wire  transfer for the
account of the Company or  exercises  this  Warrant  pursuant  to the  "cashless
exercise" provisions thereof; and

         The  undersigned  agrees  not to offer,  sell,  transfer  or  otherwise
dispose of any Common Stock  obtained on exercise of the  Warrant,  except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.

[_]   The  undersigned  requests  that the Company  cause its transfer  agent to
      electronically  transmit  the  Common  Stock  issuable  pursuant  to  this
      Exercise Agreement to the account of the undersigned or its nominee (which
      is  _________________)  with DTC  through  its  Deposit  Withdrawal  Agent
      Commission System ("DTC TRANSFER").

[_]   In lieu of receiving the shares of Common Stock issuable  pursuant to this
      Exercise Agreement by way of DTC Transfer, the undersigned hereby requests
      that the  Company  cause its  transfer  agent to issue and  deliver to the
      undersigned  physical  certificates  representing  such  shares  of Common
      Stock.

      The  undersigned  requests  that a Warrant  representing  any  unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:

Dated:_________________               _____________________________________
                                      Signature of Holder

                                      -------------------------------------
                                      Name of Holder (Print)

                                      Address:
                                      -------------------------------------

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

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

<PAGE>

                               FORM OF ASSIGNMENT

      FOR VALUE RECEIVED,  the undersigned hereby sells,  assigns, and transfers
all the rights of the undersigned  under the attached  Warrant,  with respect to
the number of shares of Common Stock covered  thereby  issuable  pursuant to the
attached Warrant set forth hereinbelow, to:

NAME OF ASSIGNEE                   ADDRESS                     NO OF SHARES
----------------                   -------                     ------------

and hereby irrevocably constitutes and appoints _____________________________ as
agent  and  attorney-in-fact  to  transfer  said  Warrant  on the  books  of the
within-named corporation, with full power of substitution in the premises.

Dated: _____________________, ____

In the presence of

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

                                  Name: ____________________________

                                  Signature: _______________________
                                  Title of Signing Officer or Agent (if any):
                                           ------------------------
                                  Address: ________________________

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

                                  Note: The above signature should correspond
                                        exactly with the name on the face  of
                                        the within Warrant.EXHIBIT 4.7

                           CONVERTIBLE LOAN AGREEMENT

                          DATED AS OF NOVEMBER 27, 2002

                                  BY AND AMONG

                                CAMINOSOFT CORP.

                                   AS BORROWER

                                       AND

                      BFSUS SPECIAL OPPORTUNITIES TRUST PLC

                                  AS THE LENDER

                                       AND

                         RENAISSANCE CAPITAL GROUP, INC.

                           AS THE AGENT FOR THE LENDER

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                Page
<S>                                                                                                              <C>
WITNESSETH:.......................................................................................................1

ARTICLE I. - DEFINITION OF TERMS..................................................................................1

   SECTION 1.01       DEFINITIONS.................................................................................1
   SECTION 1.02       OTHER DEFINITION PROVISIONS.................................................................7

ARTICLE II. - LOAN PROVISIONS.....................................................................................7

   SECTION 2.01       THE LOAN....................................................................................7
   SECTION 2.02       USE OF PROCEEDS.............................................................................8
   SECTION 2.03       INTEREST RATE AND INTEREST PAYMENTS.........................................................8
   SECTION 2.04       MATURITY....................................................................................8
   SECTION 2.05       REDEMPTION..................................................................................8
   SECTION 2.06       CONVERSION..................................................................................8
   SECTION 2.07       FEES AND EXPENSES...........................................................................8
   SECTION 2.08       FINDER'S FEES...............................................................................9
   SECTION 2.09       TAXES.......................................................................................9
   SECTION 2.10       SECURITY AGREEMENTS.........................................................................9

ARTICLE III. - CONDITIONS PRECEDENT..............................................................................10

   SECTION 3.01       PRE-DISBURSEMENT CONDITIONS................................................................10

ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER.........................................................11

   SECTION 4.01       ORGANIZATION AND GOOD STANDING.............................................................11
   SECTION 4.02       AUTHORIZATION AND POWER....................................................................12
   SECTION 4.03       NO CONFLICTS OR CONSENTS...................................................................12
   SECTION 4.04       ENFORCEABLE OBLIGATIONS....................................................................12
   SECTION 4.05       NO LIENS...................................................................................12
   SECTION 4.06       FINANCIAL CONDITION........................................................................12
   SECTION 4.07       NO DEFAULT.................................................................................13
   SECTION 4.08       MATERIAL AGREEMENTS........................................................................13
   SECTION 4.09       NO LITIGATION..............................................................................13
   SECTION 4.10       TAXES......................................................................................13
   SECTION 4.11       CAPITALIZATION.............................................................................14
   SECTION 4.12       USE OF PROCEEDS............................................................................14
   SECTION 4.13       EMPLOYEE MATTERS...........................................................................14
   SECTION 4.14       EMPLOYEE BENEFIT PLANS.....................................................................15
   SECTION 4.15       COMPLIANCE WITH LAWS.......................................................................15
   SECTION 4.16       LICENSES AND PERMITS.......................................................................15
   SECTION 4.17       CONTRACTS..................................................................................16
   SECTION 4.18       SHARES ISSUABLE UPON CONVERSION............................................................16
   SECTION 4.19       INSIDER....................................................................................16
   SECTION 4.20       SUBSIDIARIES...............................................................................16
   SECTION 4.21       CASUALTIES.................................................................................16
   SECTION 4.22       INVESTMENT COMPANY ACT.....................................................................16
   SECTION 4.23       SUFFICIENCY OF CAPITAL.....................................................................17
   SECTION 4.24       CORPORATE NAMES............................................................................17
   SECTION 4.25       SENIOR OBLIGATIONS.........................................................................17
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                              <C>
   SECTION 4.26       INSURANCE..................................................................................17
   SECTION 4.27       INTELLECTUAL PROPERTY......................................................................17
   SECTION 4.28       REAL PROPERTY..............................................................................17
   SECTION 4.29       ENVIRONMENTAL..............................................................................18
   SECTION 4.30       SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................................20
   SECTION 4.31       FULL DISCLOSURE............................................................................20

ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER...................................................................20

   SECTION 5.01       FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS................................................20
   SECTION 5.02       ANNUAL FINANCIAL STATEMENTS................................................................21
   SECTION 5.03       QUARTERLY FINANCIAL STATEMENTS.............................................................21
   SECTION 5.04       MONTHLY FINANCIAL STATEMENTS...............................................................22
   SECTION 5.05       PREPARATION OF BUDGETS.....................................................................22
   SECTION 5.06       PAYMENT OF TAXES AND OTHER INDEBTEDNESS....................................................22
   SECTION 5.07       MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS...................................23
   SECTION 5.08       SEC FILINGS................................................................................23
   SECTION 5.09       NOTICE.....................................................................................23
   SECTION 5.10       COMPLIANCE WITH LOAN DOCUMENTS.............................................................23
   SECTION 5.11       COMPLIANCE WITH MATERIAL AGREEMENTS........................................................23
   SECTION 5.12       OPERATIONS AND PROPERTIES..................................................................23
   SECTION 5.13       BOOKS AND RECORDS; ACCESS..................................................................24
   SECTION 5.14       COMPLIANCE WITH LAW........................................................................24
   SECTION 5.15       INSURANCE..................................................................................24
   SECTION 5.16       AUTHORIZATIONS AND APPROVALS...............................................................24
   SECTION 5.17       ERISA COMPLIANCE...........................................................................24
   SECTION 5.18       FURTHER ASSURANCES.........................................................................24
   SECTION 5.19       INDEMNITY BY BORROWER......................................................................25
   SECTION 5.20       RESERVATION OF SHARES......................................................................26
   SECTION 5.21       RETENTION OF STOCK OWNERSHIP...............................................................26
   SECTION 5.22       SUBSEQUENTLY FORMED SUBSIDIARIES...........................................................26

ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER.....................................................................26

   SECTION 6.01       LIMITATION ON INDEBTEDNESS.................................................................26
   SECTION 6.02       LIMITATION ON LIENS........................................................................26
   SECTION 6.03       LIMITATION ON INVESTMENTS..................................................................26
   SECTION 6.04       ALTERATION OF MATERIAL AGREEMENTS..........................................................27
   SECTION 6.05       TRANSACTIONS WITH AFFILIATES...............................................................27
   SECTION 6.06       LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS..........................................27
   SECTION 6.07       LIMITATION ON SALE OF PROPERTIES...........................................................27
   SECTION 6.08       FISCAL YEAR AND ACCOUNTING METHOD..........................................................27
   SECTION 6.09       LIQUIDATION................................................................................27
   SECTION 6.10       MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.................................27
   SECTION 6.11       EXECUTIVE COMPENSATION.....................................................................28
   SECTION 6.12       RESTRICTED PAYMENTS........................................................................28
   SECTION 6.13       CONSOLIDATION OR MERGER....................................................................28

ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS...................................................28

   SECTION 7.01       FINANCIAL RATIOS AND REQUIREMENTS..........................................................28
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                              <C>
ARTICLE VIII. - EVENTS OF DEFAULT................................................................................29

   SECTION 8.01       EVENTS OF DEFAULT..........................................................................29
   SECTION 8.02       REMEDIES UPON EVENT OF DEFAULT.............................................................30
   SECTION 8.03       PERFORMANCE BY THE LENDER..................................................................30
   SECTION 8.04       PAYMENT OF EXPENSES INCURRED BY THE LENDER.................................................30

ARTICLE IX. - REGISTRATION RIGHTS................................................................................31

   SECTION 9.01       "PIGGY-BACK" REGISTRATION..................................................................31
   SECTION 9.02       SHELF REGISTRATION.........................................................................32
   SECTION 9.03       OBLIGATIONS OF BORROWER....................................................................32
   SECTION 9.04       FURNISH INFORMATION........................................................................33
   SECTION 9.05       EXPENSES OF REGISTRATION...................................................................34
   SECTION 9.06       INDEMNIFICATION REGARDING REGISTRATION RIGHTS..............................................34
   SECTION 9.07       REPORTS UNDER THE 1934 ACT.................................................................36
   SECTION 9.08       ASSIGNMENT OF REGISTRATION RIGHTS..........................................................36
   SECTION 9.09       OTHER MATTERS..............................................................................36

ARTICLE X. - BOARD OF DIRECTORS..................................................................................37

   SECTION 10.01      BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.............................................37
   SECTION 10.02      LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR NOMINEE........................37
   SECTION 10.03      NONLIABILITY OF THE LENDER.................................................................38

ARTICLE XI. - AGENCY PROVISIONS..................................................................................38

   SECTION 11.01      THE LENDER'S REPRESENTATIONS AND WARRANTIES TO THE AGENT...................................38
   SECTION 11.02      WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS................................38
   SECTION 11.03      AGENCY.....................................................................................39

ARTICLE XII. - MISCELLANEOUS.....................................................................................40

   SECTION 12.01      STRICT COMPLIANCE..........................................................................40
   SECTION 12.02      WAIVERS AND MODIFICATIONS..................................................................40
   SECTION 12.03      LIMITATION ON LIABILITY....................................................................40
   SECTION 12.04      CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION............................40
   SECTION 12.05      INVALID PROVISIONS.........................................................................41
   SECTION 12.06      MAXIMUM INTEREST RATE......................................................................41
   SECTION 12.07      PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURE............................................42
   SECTION 12.08      CONFIDENTIALITY............................................................................42
   SECTION 12.09      BINDING EFFECT.............................................................................42
   SECTION 12.10      NO THIRD PARTY BENEFICIARY.................................................................43
   SECTION 12.11      ENTIRETY...................................................................................43
   SECTION 12.12      HEADINGS...................................................................................43
   SECTION 12.13      SURVIVAL...................................................................................43
   SECTION 12.14      MULTIPLE COUNTERPARTS......................................................................43
   SECTION 12.15      KNOWLEDGE OF BORROWER......................................................................43
   SECTION 12.16      NOTICES....................................................................................43
   SECTION 12.17      GOVERNING LAW..............................................................................45

SCHEDULES TO CONVERTIBLE LOAN AGREEMENT..........................................................................47
</TABLE>

<PAGE>

      THIS  AGREEMENT,  dated as of November 27, 2002,  by and among  CAMINOSOFT
CORP., a California  corporation  ("Borrower"),  and BFSUS SPECIAL OPPORTUNITIES
TRUST PLC, a public limited  company  registered in England and Wales  ("BFSUS")
(BFSUS,  together  with any  permitted  assignees  or  successors  in  interest,
referred to as the  "Lender"),  and  RENAISSANCE  CAPITAL  GROUP,  INC., a Texas
corporation, as agent for the Lender (the "Agent").

                                   WITNESSETH:

      WHEREAS,  Borrower  seeks to borrow up to a total of One  Million  Dollars
($1,000,000) from the Lender; and

      WHEREAS,  Borrower  has  requested  that the Lender  provide  such loan as
herein provided, and that the Lender is willing to furnish such to Borrower upon
the terms and subject to the conditions and for the  considerations  hereinafter
set forth;

      NOW,  THEREFORE,  in consideration of the mutual promises herein contained
and for  other  valuable  consideration,  receipt  and  sufficiency  of which is
acknowledged, the parties hereto agree as follows:

                        ARTICLE I. - DEFINITION OF TERMS

SECTION 1.01 DEFINITIONS.

      For the purposes of this  Agreement,  the  following  terms shall have the
respective  meanings  assigned  to them in this  Article I or in the  section or
recital referred to below:

      "Affiliate"  with respect to any Person shall mean a person that  directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person.

      "Agreement Date" shall mean November 27, 2002.

      "BFSUS" shall mean BFSUS Special Opportunities Trust PLC, a public limited
company registered in England and Wales.

      "Capital  Expenditure"  shall  mean  an  expenditure  for  assets  that is
properly classifiable as a capital expenditure in accordance with GAAP.

      "Capital Lease" shall mean any lease of property, real or personal,  which
would be properly classifiable as a capital lease in accordance with GAAP.

      "Closing  Fee"  shall  mean that  amount  equal to 1.0% of the  commitment
amount which equals Ten Thousand Dollars ($10,000),  deposited by Borrower in an
escrow  account and which shall be applied to the  Lender's  reasonable  closing
costs and out of pocket expenses.

      "Closing  Expense  Fee" shall mean Seven  Thousand  Five  Hundred  Dollars
($7,500),  deposited by Borrower in an escrow account and which shall be applied
to the Lender's reasonable closing costs and out-of-pocket expenses.

      "Commitment  Fee" shall mean that amount  equal to 1.0% of the  commitment
amount, which equals Ten Thousand Dollars ($10,000), deposited by Borrower in an
escrow account.

                                       1
<PAGE>

      "Common Stock" shall mean Borrower's common stock, no par value per share.

      "Consolidated  Trailing  Twelve  Months Free Cash Flow" shall mean for any
Person,  for the  immediately  preceding  twelve-month  period on such date, Net
Income of such Person for such twelve-month period, plus (a) all deferred income
tax expense of such Person and its  Subsidiaries for such  twelve-month  period,
(b) all  depreciation  expense  of such  Person  and its  Subsidiaries  for such
twelve-month  period,  and (c) all  amortization  expense of such Person and its
Subsidiaries for such  twelve-month  period,  less capital  expenditures of such
Person and its Subsidiaries for such twelve-month period.

      "Conversion" or "Conversion  Rights" shall mean exchange of, or the rights
to exchange,  the Principal  Amount of the Loan, or any part thereof,  for fully
paid and nonassessable  Common Stock on the terms and conditions provided in the
Debentures.

      "Current  Assets" shall mean, for any Person as of any date, the assets of
such  Person and its  consolidated  Subsidiaries  which  would be  reflected  as
current  assets  on a  consolidated  balance  sheet  for  such  Person  and  its
Subsidiaries prepared as of such date in accordance with GAAP.

      "Current  Liabilities"  shall  mean,  for any  Person as of any date,  the
liabilities  of such  Person and its  consolidated  Subsidiaries  which would be
reflected as current liabilities on a consolidated balance sheet for such Person
and its  subsidiaries  prepared  as of such date in  accordance  with GAAP.  For
purposes of calculating compliance with any covenant contained in this Agreement
or any other Loan Document,  the principal amount of Current  Liabilities  shall
include any balance under any revolving credit facility of Borrower,  regardless
of whether  such  revolving  credit  facility  would be  reflected  as a current
liability in accordance with GAAP.

      "Current  Ratio" shall mean,  for any Person as of any date,  the ratio of
such Person's Current Assets to Current Liabilities as of such date.

      "Debenture"  shall mean the  Debenture  executed by Borrower and delivered
pursuant to the terms of this Agreement,  together with any renewals, extensions
or modifications thereof.

      "Debtor  Laws"  shall mean all  applicable  liquidation,  conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar  laws from time to time in effect  affecting  the rights of creditors or
debtors generally.

      "Default" or "Event of Default" shall mean any of the events  specified in
Article VIII.

      "Disbursement" shall mean any disbursement of the Loan pursuant to Section
2.01.

      "Disbursement  Date"  shall mean the date of any  Disbursement  under this
Agreement and the Debenture.

      "Dividends,"  in  respect  of  any   corporation,   shall  mean  (i)  cash
distributions  or any other  distributions  on, or in  respect  of, any class of
capital  stock of such  corporation,  except for  distributions  made  solely in
shares of stock of the same  class,  and (ii) any and all funds,  cash and other
payments made in respect of the  redemption,  repurchase or  acquisition of such
stock,  unless such stock shall be redeemed or acquired  through the exchange of
such stock with stock of the same class.

                                       2
<PAGE>

      "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all rules and regulations issued pursuant thereto.

      "GAAP" shall mean United States generally accepted  accounting  principles
applied on a  consistent  basis,  set forth in the  Opinions  of the  Accounting
Principles Board of the American  Institute of Certified  Public  Accountants or
the  Financial  Accounting  Standards  Board  or  their  successors,  which  are
applicable in the circumstances as of the date in question. The requirement that
such principles be applied on a consistent  basis shall mean that the accounting
principles  observed in a current period are comparable in all material respects
to those applied in a preceding period.

      "Governmental  Authority"  shall  mean any  government  (or any  political
subdivision  or  jurisdiction   thereof),   court,   bureau,   agency  or  other
governmental   authority  having  jurisdiction  over  Borrower  or  any  of  its
businesses, operations or properties.

      "Guaranty"   of  any  Person  shall  mean  any   contract,   agreement  or
understanding of such Person pursuant to which such Person in effect  guarantees
the payment of any  Indebtedness of any other Person (the "Primary  Obligor") in
any manner,  whether  directly or  indirectly,  including,  without  limitation,
agreements:  (i) to purchase  such  Indebtedness  or any  property  constituting
security therefor;  (ii) to advance or supply funds primarily for the purpose of
assuring the holder of such  Indebtedness  of the ability of the Primary Obligor
to make payment;  or (iii) otherwise to assure the holder of the Indebtedness of
the Primary  Obligor  against loss in respect  thereof,  except that  "Guaranty"
shall not include the endorsement by Borrower in the ordinary course of business
of negotiable instruments or documents for deposit or collection.

      "Holder" shall mean the owner of Registrable Securities.

      "Indebtedness"   shall  mean,   with   respect  to  any  Person,   without
duplication,  the following  indebtedness,  obligations  and liabilities of such
Person: (i) indebtedness for borrowed money; (ii) all obligations of such Person
in respect of any Guaranty;  (iii) all  obligations of such Person in respect of
any Capital Lease, (iv) all obligations, indebtedness and liabilities secured by
any lien or any security interest on any property or assets of such Person,  but
only to the extent so secured;  and (v) all preferred stock of such Person which
is  subject,  at  the  time  of  calculation  of  Indebtedness,  to a  mandatory
redemption  requirement,  valued at the  greater of its  involuntary  redemption
price or  liquidation  preference  plus  accrued and unpaid  dividends,  and all
extensions, renewals, modifications and amendments thereto.

      "Interest  Coverage  Ratio"  means  for  any  period,  the  ratio  of  (a)
Borrower's  consolidated  net  income  after  taxes for such  period  (excluding
Borrower's  after tax gains or losses on the sale of assets (other than the sale
of Inventory in the ordinary  course of business) and excluding  other after tax
extraordinary gains or losses),  PLUS depreciation and amortization  deducted in
determining net income for such period, PLUS interest expense for such period to
(b) interest expense for such period,  all as determined on a consolidated basis
in accordance with GAAP.

      "Investment" in any Person shall mean any investment,  whether by means of
share purchase,  loan, advance, capital contribution or otherwise, in or to such
Person, the Guaranty of any Indebtedness of such Person, or the subordination of
any claim  against such Person to other  Indebtedness  of such Person;  provided
however,  that "Investment"  shall not include (i) any demand deposits in a duly
chartered  state or national bank or other cash  equivalent  investments or (ii)
any acquisitions of equity in any other Person.

      "IRS Code"  shall mean the  Internal  Revenue  Code of 1986,  as  amended,
together with all rules and regulations issued thereunder.

                                       3
<PAGE>

      "Lien" shall mean any lien, mortgage, security interest, tax lien, pledge,
encumbrance,  conditional  sale or title  retention  arrangement,  or any  other
interest in property  designed to secure the repayment of Indebtedness,  whether
arising by agreement or under any statute or law, or otherwise.

      "Loan" shall mean the money lent to Borrower  pursuant to this  Agreement,
along with any accrued, unpaid interest thereon.

      "Loan  Documents"  shall mean this Agreement,  the Debenture and any other
agreements  or  documents  required  to be  executed  or  delivered  by Borrower
pursuant  to the terms of this  Agreement  (and any  amendments  or  supplements
hereto or modifications hereof).

      "Lock-Up Agreement" shall mean the "lock-up"  agreements to be executed by
certain  executive  officers and principal  shareholders of Borrower pursuant to
Section 5.21 of this Agreement.

      "Material  Adverse Effect" or "Material Adverse Change" shall mean (i) any
change,  factor or event that shall (a) have a material  adverse effect upon the
validity or  enforceability  of any Loan Documents,  (b) have a material adverse
effect  upon  the  financial   condition,   results  of  operations,   business,
properties,  operations  or assets of Borrower  taken as a whole,  or (c) have a
material  adverse effect upon the ability of Borrower to fulfill its obligations
under the Loan  Documents,  or (ii) any event that causes an Event of Default or
which,  with notice or lapse of time or both,  could  reasonably  be expected to
become an Event of Default.

      "Net Income" shall mean, for any Person for any period,  consolidated  net
income of such Person and its  consolidated  Subsidiaries  for such period which
would be reflected in accordance  with GAAP,  but excluding (a) any gain or loss
arising from the sale of capital  assets,  (b) any gain or loss arising from any
write-up  or  write-down   of  assets,   (c)  income  or  loss  of  any  Person,
substantially  all of the assets of which have been  acquired  by such Person in
any  manner,  to the extent that such  earnings or losses were  realized by such
other  Person prior to the date of such  acquisition,  (d) income or loss of any
Person in which the Person has any ownership  interests (other than consolidated
Subsidiaries  of such Person),  unless such earnings have actually been received
or paid by the  Person  or its  consolidated  Subsidiaries  in the  form of cash
distributions  or  additional  cash  calls,  (e) income or loss of any Person to
which  assets of the  Person or its  consolidated  Subsidiaries  shall have been
sold, transferred or disposed of, or into which the Person shall have merged, to
the extent that such  earnings or losses of any other  Person arise prior to the
date of such  transaction,  (f) any gain or loss arising from the acquisition of
any securities of the Person or any of its  consolidated  Subsidiaries,  and (g)
any  extraordinary  gain  or  loss  realized  by  such  Person  or  any  of  its
consolidated Subsidiaries during such period.

      "Obligation"  shall  mean:  (i)  all  present  and  future   Indebtedness,
obligations and  liabilities of Borrower to the Lender arising  pursuant to this
Agreement, regardless of whether such Indebtedness,  obligations and liabilities
are direct, indirect,  fixed, contingent,  joint, several, or joint and several;
(ii) all  present  and  future  Indebtedness,  obligations  and  liabilities  of
Borrower to the Lender  arising  pursuant to or represented by the Debenture and
all interest  accruing thereon,  and reasonable  attorneys' fees incurred in the
enforcement or collection  thereof;  (iii) all present and future  Indebtedness,
obligations and liabilities of Borrower  evidenced by or arising pursuant to any
of the Loan  Documents;  (iv) all  costs  incurred  by the  Lender  or the Agent
including,  but not limited to,  reasonable  attorneys'  fees and legal expenses
related to this transaction; and (v) all renewals,  extensions and modifications
of the indebtedness referred to in the foregoing clauses, or any part thereof.

      "Permits" shall have the meaning set forth in Section 4.16.

                                       4
<PAGE>

      "Permitted  Indebtedness"  shall mean  Indebtedness  outstanding as of the
date hereof or incurred in  compliance  with Section 6.01 and the other terms of
this Agreement that  constitutes  (i)  obligations  under Capital  Leases,  (ii)
letters of credit, (iii) debt associated with Permitted Liens, (iv) Subordinated
Debt, (v) purchase money Indebtedness, (vi) Indebtedness under this Agreement or
the Debenture,  and (vii) any refunding,  refinancing or extension of any of the
above.

      "Permitted  Liens" shall mean:  (i) Liens (if any) granted for the benefit
of the Lender; (ii) Liens to secure the Permitted Indebtedness; (iii) pledges or
deposits  made to secure  payment  of  worker's  compensation  insurance  (or to
participate  in any fund in connection  with worker's  compensation  insurance),
unemployment insurance, pensions or social security programs; (iv) Liens imposed
by mandatory provisions of law such as for carriers', landlord's, materialmen's,
mechanics',  warehousemen's,  vendors'  and  other  like  Liens  arising  in the
ordinary course of business,  securing Indebtedness whose payment is made within
30 days of the date such Lien arises,  or that are being contested in good faith
by appropriate  proceedings as to which adequate  reserves have been established
to  the  extent  required  by  GAAP;  (v)  Liens  for  taxes,   assessments  and
governmental  charges  or levies  imposed  upon a Person  or upon such  Person's
income or profits or property, if the same are not yet due and payable or if the
same are being  contested in good faith and as to which  adequate  cash reserves
have been  provided or if an extension is obtained  with respect  thereto;  (vi)
Liens arising from good faith deposits in connection with tenders,  leases, bids
or contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure public or statutory obligations and deposits to secure (or in
lieu of)  surety,  stay,  appeal or  customs  bonds and  deposits  to secure the
payment of taxes,  assessments,  customs duties or other similar charges;  (vii)
encumbrances  consisting  of  zoning  restrictions,   easements,   reservations,
licenses,   covenants  and  other  minor   irregularities   of  title  or  other
restrictions  on the use of real property  (whether  owned or leased),  provided
that such items do not materially impair the intended use of such property,  and
none of which is violated by  Borrower's  existing  structures  or land use; and
(viii) mortgages,  financing statements,  equipment leases or other encumbrances
incurred in  connection  with the  acquisition  of property or  equipment or the
replacement of existing property or equipment, provided that such liens shall be
limited to the property or equipment then being acquired.

      "Person" shall include an individual,  a corporation,  a joint venture,  a
general or limited  partnership,  a trust, an  unincorporated  organization or a
government or any agency or political subdivision thereof.

      "Plan"  shall mean an employee  benefit plan or other plan  maintained  by
Borrower for employees of Borrower and covered by Title IV of ERISA,  or subject
to the minimum funding standards under Section 412 of the IRS Code.

      "Principal  Amount"  shall  mean,  as of any  time,  the then  outstanding
principal  amount of the Debenture as may be due and owing after any conversions
or redemptions  and after any  installment  principal  payments  received by the
Lender.

      "Registrable  Securities"  shall mean (a) the Common Stock  issuable  upon
Conversion of the Debenture and (b) any Common Stock issued upon the exercise of
any warrant,  right or other  security that is issued with respect to the Common
Stock by way of (i) a stock dividend;  (ii) any other  distribution with respect
to, or in exchange for, or in replacement of Common Stock;  (iii) a stock split;
and (iv) in connection with a combination of shares, recapitalization, merger or
consolidation  excluding in all cases,  however,  any Common Stock that is not a
Restricted  Security and any  Registrable  Securities  sold or  transferred by a
Person in a  transaction  in which  the  rights  under  this  Agreement  are not
assigned.

                                       5
<PAGE>

      "Registrable  Securities  Then  Outstanding"  shall  mean the  Registrable
Securities then outstanding.

      "Renaissance  Group" shall mean Renaissance  Capital Group,  Inc., a Texas
corporation.

      "Restricted  Security"  shall  mean a  security  that  has  not  been  (i)
registered under the 1933 Act or (ii) distributed to the public pursuant to Rule
144 (or any similar provisions that are in force) under the 1933 Act.

      "SEC" shall mean the  Securities  and  Exchange  Commission,  or any other
federal agency at the time administering the 1933 Act and the 1934 Act.

      "1933 Act" shall refer to the Securities  Act of 1933, as amended,  or any
similar federal statute and rules and regulations promulgated thereunder, all as
the same may be in effect from time to time.

      "1934 Act" shall refer to the Securities Exchange Act of 1934, as amended,
or any similar federal statute and rules and regulations promulgated thereunder,
all as the same may be in effect from time to time.

      "1940 Act" shall refer to the Investment  Company Act of 1940, as amended,
or any similar federal statute and rules and regulations promulgated thereunder,
all as the same may be in effect from time to time.

      "Senior  Documents"  shall mean all loan  documents  evidencing the Senior
Obligations,  as each may now or hereafter be amended,  modified,  supplemented,
renewed or extended from time to time.

      "Senior  Obligations"  shall  mean  one or  more  senior  debt  facilities
(including loans and other extensions of credit under the Senior Documents) with
banks or other  lenders  providing  for  revolving  credit  loans,  term  loans,
asset-based  secured loans,  capital expenditure loans, or letters of credit, or
any  other  indebtedness  senior  to the  Loan,  as now  existing  or  hereafter
incurred, and, in each case, as amended, restated, modified, renewed or extended
from time to time.

      "Solvent"  shall mean,  with respect to any Person on a  particular  date,
that on such date:  (i) the fair  value of the assets of such  Person is greater
than the total amount of liabilities of such Person;  (ii) the estimated present
fair salable value,  in the ordinary  course of business,  of the assets of such
Person is not less than the amount  that will be  required  to pay the  probable
liability of such Person on its debts as they become absolute and matured; (iii)
such  Person  is able to  realize  upon its  assets  and pay its debts and other
liabilities,  contingent obligations and other commitments as they mature in the
normal  course of  business;  (iv) such  Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities  mature; and (v) such Person is not engaged in
business  or a  transaction,  and  is not  about  to  engage  in  business  or a
transaction,  for which such Person's assets would constitute unreasonably small
capital  after  giving  due  consideration  to the  prevailing  practice  in the
industry in which such Person is engaged.  In computing the amount of contingent
liabilities at any time, it is intended that such  liabilities  will be computed
at the amount  which,  in light of all the facts and  circumstances  existing at
such time,  represents  the amount that can  reasonably be expected to become an
actual or matured liability.

      "Subordinated Debt" shall mean any indebtedness of Borrower,  now existing
or hereafter  incurred,  which indebtedness is, by its terms, junior in right of
repayment to the payment of the Debenture.

                                       6
<PAGE>

      "Subsidiary"  or  "Subsidiaries"  shall  mean any or all  corporations  or
entities,  whether now  existing or  hereafter  acquired,  of which over 50% the
Voting  Shares or  equity  interests  are  owned,  directly  or  indirectly,  by
Borrower.

      "Voting  Shares"  of any  corporation  shall  mean  shares of any class or
classes (however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of  Directors  (or other  governing
bodies) of such corporation,  other than shares having such power only by reason
of the happening of a contingency.

      SECTION 1.02 OTHER DEFINITION PROVISIONS.

      (a) All terms  defined  in this  Agreement  shall  have the  above-defined
meanings  when used in the Debenture or any other Loan  Documents,  certificate,
report or other document made or delivered  pursuant to this  Agreement,  unless
the context therein shall otherwise require.

      (b) Defined terms used herein in the singular  shall import the plural and
vice versa.

      (c) The words "hereof," "herein," "hereunder" and similar terms, when used
in this  Agreement,  shall  refer to this  Agreement  as a whole  and not to any
particular provision of this Agreement.

      (d) References to financial statements and reports shall be deemed to be a
reference to such statements and reports prepared in accordance with GAAP.

      (e)  Accounting  terms not  specifically  defined above in this  Agreement
shall be construed in accordance with GAAP.

                         ARTICLE II. - LOAN PROVISIONS

SECTION 2.01 THE LOAN.

      Subject to the terms and conditions of this Agreement,  and the compliance
with such terms and  conditions  by all  parties,  the Lender  agrees to lend to
Borrower,  and Borrower  agrees to borrow from the Lender,  the total  Principal
Amount of up to One Million Dollars ($1,000,000) as follows:

      (a) The Loan will be  disbursed in  increments  within five (5) days after
receipt by the Agent of a certified cash flow statement from Borrower  delivered
to the Agent within fifteen (15) days of the end of the month.  The Disbursement
will be in the amount of the negative cash flow from  operations of Borrower for
the month, as shown in the certificate or such lesser amount as may be requested
by Borrower. No Disbursement will be made, unless Borrower's cash balance at the
end of the month, as shown on its certificate, is below $300.000 and the Section
7.01  Financial  Ratios  and  Requirements  are  satisfied,  as  stated  in  the
certificate.

      (b) The Debenture shall rank pari passu with all Indebtedness of Borrower,
other than the Subordinated Debt.

      (c)  Unless  otherwise  mutually  agreed,  Disbursements  shall  be at the
offices of Renaissance  Group,  8080 N. Central  Expressway,  Suite 210, Dallas,
Texas.

                                       7
<PAGE>

      (d) If,  within  thirty  (30)  days of the  date  of this  Agreement,  (i)
Borrower  has  failed to comply  with the  conditions  precedent  to the Loan as
specified in Article III hereof (unless compliance with such conditions in whole
or in part has been waived or modified by the Lender in its sole  discretion) or
(ii) requested  Disbursements  have not occurred,  other than as a result of any
failure  of the  Lender to comply  with the terms of this  Agreement,  then,  in
either such case,  the  obligations  of the Lender  under this  Agreement  shall
terminate;  provided,  however,  that Borrower shall be obligated for payment of
the fees and  expenses  provided in Section 2.07 due and payable as of such date
of termination.

SECTION 2.02 USE OF PROCEEDS.

      (a) Borrower intends to use the Loan proceeds for working capital.

      (b) Borrower hereby  acknowledges that the proceeds from the Loan shall be
of benefit to Borrower for the growth of its business by providing capital which
will provide additional opportunities for Borrower.

SECTION 2.03 INTEREST RATE AND INTEREST PAYMENTS.

      Interest on the outstanding  Principal  Amount shall accrue at the rate of
6.00% per annum,  with the first  installment of accrued,  unpaid interest being
due and payable on February 1, 2003, and subsequent payments of accrued,  unpaid
interest  being  due and  payable  on the first  day of each  month  thereafter.
Overdue  principal  and  interest on the  Debenture  shall bear  interest at the
maximum rate permitted by applicable  law.  Interest on the Principal  Amount of
the Debenture shall be calculated, from time to time, on the basis of the actual
days elapsed in a year consisting of 365 days.

SECTION 2.04 MATURITY.

      If not  sooner  redeemed  or  converted,  the  Debenture  shall  mature on
November  27,  2005,  at which time all the unpaid  principal,  interest and any
other charges,  fees and payments then due under this Agreement shall be due and
payable in full.  Notwithstanding the foregoing, the Debentures shall be prepaid
pro rata with any prepayments of Indebtedness.

SECTION 2.05 REDEMPTION.

      The Debenture shall be subject to redemption as provided in the Debenture.

SECTION 2.06 CONVERSION.

      The Debenture shall be subject to conversion as provided in the Debenture.

SECTION 2.07 FEES AND EXPENSES.

      On  the  Agreement  Date,  Borrower  shall  pay to  the  Agent,  or at its
direction,  the Commitment Fee, the Closing Fee and the Closing Expense Fee, all
as set forth in the  Preliminary  Outline of Terms,  dated  November  13,  2002,
between Borrower and Renaissance Group.

                                       8
<PAGE>

SECTION 2.08 FINDER'S FEES.

      Borrower  represents  to the Lender that no placement  fees,  commissions,
brokerage or finder's  fees were  incurred by Borrower in  connection  with this
Agreement or the Debenture. Borrower shall be responsible for the payment of all
such placement fees, commissions, brokerage or finder's fees.

SECTION 2.09 TAXES.

      (a) The Debenture shall be convertible  into shares of Common Stock and on
such terms as are stated in the Debenture. Such conversion shall be made without
deduction  for any  present or future  taxes,  duties,  charges or  withholdings
(excluding,  in the case of the Lender, any foreign taxes, any federal, state or
local  income  taxes and any  franchise  taxes or taxes  imposed  upon it by the
jurisdiction,  or any political  subdivision thereof,  under which the Lender is
organized or are qualified to do  business),  and all  liabilities  with respect
thereto  (herein  "Taxes")  shall  be paid by  Borrower.  If  Borrower  shall be
required by law to deduct any Taxes for which Borrower is responsible  under the
preceding  sentence  from any sum payable  hereunder to the Lender:  (i) the sum
payable  shall be increased so that after  making all required  deductions,  the
Lender shall  receive an amount  equal to the sum it would have  received had no
such deductions been made; (ii) Borrower shall make such  deductions;  and (iii)
Borrower shall pay the full amount deducted to the relevant taxing  authority or
other authority in accordance with applicable law. Borrower shall be entitled to
any refunds or returns from any such taxing authority.

      (b)  Except as  otherwise  set forth in this  Agreement  or the other Loan
Documents,  Borrower shall pay any present or future stamp or documentary  taxes
or any other  excise or property  taxes,  charges or similar  levies which arise
from any  payment  made  hereunder  or  under  the  Loan  Documents  or from the
execution,  delivery or  registration  of, or  otherwise  with  respect to, this
Agreement  or the  other  Loan  Documents  (hereinafter  referred  to as  "Other
Taxes").

      (c) Borrower  shall  indemnify the Lender for the full amount of Taxes and
Other  Taxes  reasonably  paid by the  Lender or any  liability  (including  any
penalties or interest assessed because of Borrower's defaults) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted.  This indemnification shall be made within thirty (30) days
from the date the  Lender  makes  written  demand  therefor.  The  Lender  shall
subrogate  any and all rights and claims  relating to such Taxes and Other Taxes
to Borrower upon payment of said indemnification.

      (d) Without  prejudice to the survival of any other  agreement of Borrower
hereunder, the agreements and obligations of Borrower in this Section 2.09 shall
survive the payment in full of the Obligation.

      (e) Borrower  shall have no liability or obligation  with respect to taxes
on income recognized by the Lender with respect to the Debenture.

SECTION 2.10 SECURITY AGREEMENTS.

      The due and prompt  performance  of the  obligations  of  Borrower  to the
Lender  under the Loan  Agreement  and the  Debenture  shall be  secured  by all
tangible  and  intangible  assets of Borrower  (exclusive  of  mortgages on real
property) and shall be evidenced by a Security Agreement executed by and between
the Lender and Borrower.  Financing statements shall be executed in favor of the
Lender by Borrower.

                                       9
<PAGE>

                      ARTICLE III. - CONDITIONS PRECEDENT

SECTION 3.01 PRE-DISBURSEMENT CONDITIONS.

      The  obligation  of the Lender to advance  funds to Borrower is subject to
the condition  precedent that, on or before the date of each such  Disbursement,
the Lender shall have received the following:

      (a) LOAN  AGREEMENT.  Duly executed Loan Agreement  from  Borrower,  which
shall be in form and substance satisfactory to the Lender,  Borrower and each of
their counsel.

      (b) DEBENTURE.  Duly executed Debenture from Borrower evidencing the Loan,
which shall be in form and substance acceptable to the Lender and its counsel.

      (c) BORROWER'S SECURITY  AGREEMENT.  Duly executed Security Agreement from
Borrower,  which shall be in form and substance acceptable to the Lender and its
counsel.

      (d) CEO'S CERTIFICATE. A certificate signed by the chief executive officer
of Borrower, in his capacity as such, and dated as of the Agreement Date stating
that, to the best knowledge and belief of such officer, after reasonable and due
investigation  and review of matters  pertinent  to the  subject  matter of such
certificate:  (i) all of the representations and warranties contained in Article
IV hereof  and the other Loan  Documents  are true and  correct in all  material
respects  as of the  Agreement  Date;  and (ii) no  event  has  occurred  and is
continuing, or would result from the Loan, which constitutes,  or with notice or
lapse of time or both would constitute, a Default or an Event of Default.

      (e)  SECRETARY'S  CERTIFICATE.  A signed  certificate  of the Secretary of
Borrower  which shall  certify (i) copies of the Articles of  Incorporation  (or
other organizational document) of Borrower and all amendments thereto, certified
by the Secretary of State of the state of  incorporation  (or other  appropriate
authority)  and dated within ten (10) days prior to the Agreement  Date;  (ii) a
copy of the Bylaws of  Borrower  and all  amendments  thereto  certified  by the
Secretary  of Borrower  as of the date of such  certification;  (iii)  copies of
resolutions,  as  adopted  by  Borrower's  Board  of  Directors,  approving  the
execution,  delivery and  performance,  as applicable,  of this  Agreement,  the
Debenture and the other Loan Documents,  including the transactions contemplated
herein,  stating  that such  resolutions  have been duly  adopted,  are true and
correct,  have not been  altered or  repealed  and are in full force and effect;
(iv)  certificates  of good standing (or other similar  instrument) for Borrower
issued by the appropriate official of the state of incorporation of Borrower and
certificates  of  qualification  and good  standing for  Borrower  issued by the
appropriate  official of each of the states for which Borrower is required to be
qualified  to do business as a foreign  corporation,  dated within ten (10) days
prior to the  Agreement  Date;  and (v) the names of the  officers  of  Borrower
authorized to sign the Loan  Documents to be executed by such officer,  together
with the true  signatures of each such officer.  It is herewith  stipulated  and
agreed that the Lender may thereafter rely  conclusively on the validity of this
certificate as a  representation  of the officers of Borrower duly authorized to
act with  respect to the Loan  Documents  until  such time as the  Lender  shall
receive a  further  certificate  of the  Secretary  or  Assistant  Secretary  of
Borrower  canceling  or  amending  the  prior  certificate  and  submitting  the
signatures of the officers thereupon authorized in such further certificate.

      (f) LEGAL  OPINION.  A legal  opinion from counsel to Borrower in form and
substance reasonably satisfactory to the Lender and its counsel.

      (g) "LOCK-UP"  AGREEMENTS.  "Lock-Up"  Agreements from certain officers of
Borrower  named  in  Section  5.21  hereof,  in form  and  substance  reasonably
satisfactory to the Agent and its counsel.

                                       10
<PAGE>

      (h)  FILINGS,  REGISTRATIONS  AND  RECORDINGS.  Each  document  including,
without limitation,  any Uniform Commercial Code financing statement required by
this Agreement,  any related  agreement or under law or reasonably  requested by
the Agent to be filed,  registered  or recorded in order to create,  in favor of
the Agent, a perfected  security  interest in or lien upon the Collateral  shall
have been properly filed,  registered or recorded in each  jurisdiction in which
the filing, registration or recordation thereof is so required or requested, and
the  Agent  shall  have  received  an  acknowledgment  copy,  or other  evidence
reasonably satisfactory to it, of each such filing,  registration or recordation
and  satisfactory  evidence of the payment of any necessary  fee, tax or expense
relating thereto.

            (i) NO LITIGATION.

            (i) No  litigation,  investigation  or  proceeding  before or by any
arbitrator  or  Governmental  Body shall be  continuing  or  threatened  against
Borrower or against the officers or directors of Borrower (A) in connection with
this  Agreement,  the Other  Documents or any of the  transactions  contemplated
thereby and which, in the reasonable opinion of the Agent, is deemed material or
(B) which could, in the reasonable opinion of the Agent, have a Material Adverse
Effect; and

            (ii) no injunction,  writ,  restraining  order or other order of any
nature  materially  adverse  to  Borrower  or the  conduct  of its  business  or
inconsistent  with the due  consummation  of the  Transactions  shall  have been
issued by any Governmental Body.

      (j) FEES. The Agent shall have received the Commitment  Fee,  Closing Fee,
Closing  Expense Fee payable to the Agent and the Lender on or prior to the date
of Disbursement.

      (k) CONSENTS. The Agent shall have received any and all Consents necessary
to permit the  effectuation of the  transactions  contemplated by this Agreement
and the Other  Documents;  and, the Agent shall have  received such Consents and
waivers  of such  third  parties  as might  assert  claims  with  respect to the
Collateral, as the Agent and its counsel shall reasonably deem necessary.

      (l) NO ADVERSE MATERIAL  CHANGE.  Since December 31, 2001, there shall not
have  occurred any event,  condition  or state of facts at Borrower  which could
reasonably be expected to have a Material  Adverse Effect and, taken as a whole,
no representations made or information supplied to the Agent or the Lender shall
have been proven to be inaccurate or misleading in any material respect.

            ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER

      To induce the Lender to make the Loan hereunder,  Borrower  represents and
warrants to the Lender that at each Disbursement Date:

SECTION 4.01 ORGANIZATION AND GOOD STANDING.

      Borrower is duly organized and existing in good standing under the laws of
the state of its incorporation,  is duly qualified as a foreign  corporation and
in good standing in all states in which failure to qualify would have a Material
Adverse Effect,  and has the corporate power and authority to own its properties
and assets and to transact the business in which it is engaged and is or will be
qualified  in those  states  wherein it proposes to transact  material  business
operations  in the future if the  failure  to so  qualify  would have a Material
Adverse Effect.

                                       11
<PAGE>

SECTION 4.02 AUTHORIZATION AND POWER.

      Borrower  has the  corporate  power and  requisite  authority  to execute,
deliver and perform the Loan  Documents to be executed by Borrower.  Borrower is
duly authorized to, and has taken all corporate  action  necessary to authorize,
execute,  deliver and perform the Loan Documents executed by Borrower.  Borrower
is and will  continue  to be duly  authorized  to  perform  the  Loan  Documents
executed by Borrower.

SECTION 4.03 NO CONFLICTS OR CONSENTS.

      Except as disclosed on SCHEDULE  4.03,  neither the execution and delivery
of the Loan Documents,  nor the consummation of any of the transactions  therein
contemplated,  nor  compliance  with the  terms  and  provisions  thereof,  will
contravene or materially  conflict with any judgment,  license,  order or permit
applicable to Borrower,  or any indenture,  loan  agreement,  mortgage,  deed of
trust, or other agreement or instrument to which Borrower is a party or by which
Borrower is or may become bound,  or to which Borrower is or may become subject,
or violate  any  provision  of the  charter or bylaws of Borrower or trigger any
preemptive  rights or rights of first  refusal of any third  party.  No consent,
approval, authorization or order of any court or governmental authority or third
party is required in  connection  with the execution and delivery by Borrower of
the Loan  Documents or to consummate  the  transactions  contemplated  hereby or
thereby except those that have been obtained.

SECTION 4.04 ENFORCEABLE OBLIGATIONS.

      The Loan  Documents  have been duly executed and delivered by Borrower and
are the  legal,  valid and  binding  obligations  of  Borrower,  enforceable  in
accordance with their respective terms.

SECTION 4.05 NO LIENS.

      Except for  Permitted  Liens,  all of the  properties  and assets owned or
leased by Borrower are free and clear of all Liens and other  adverse  claims of
any nature,  and Borrower has good and marketable  title to such  properties and
assets.  A true and  complete  list of all known or recorded  liens for borrowed
money is disclosed on SCHEDULE 4.05.

SECTION 4.06 FINANCIAL CONDITION.

      Borrower has  delivered to the Lender the balance  sheet of Borrower as of
December 31, 2001, and the related statement of income, stockholders' equity and
statement  of cash  flow for the year then  ended,  audited  by its  independent
certified  public  accountant.  Borrower  has also  delivered  to the Lender the
unaudited  balance  sheet of Borrower as of  September  30, 2002 and the related
unaudited statement of income,  stockholders'  equity and statement of cash flow
for the  three  (3)  months  and nine (9)  months  then  ended.  Such  financial
statements  fairly present the financial  condition of Borrower as of such dates
and have been prepared in accordance with GAAP (except that unaudited  financial
statements  omit certain  footnotes);  and as of the date  hereof,  there are no
obligations,  liabilities  or  Indebtedness  (including  contingent and indirect
liabilities  and  obligations)  of  Borrower  which  are  (separately  or in the
aggregate)  material  and are not  reflected  in such  financial  statements  or
otherwise  disclosed  herein  or  in  the  Schedules.  Since  the  date  of  the
above-referenced year end financial  statements,  there have not been, except as
disclosed in SCHEDULE 4.06: (i) any Material  Adverse Change;  (ii) any Dividend
declared or paid or  distribution  made on the capital  stock of Borrower or any
capital stock thereof redeemed or repurchased; (iii) any incurrence of long-term
debt by  Borrower;  (iv) any  salary,  bonus or  compensation  increases  to any
officers, key employees or agents of Borrower, other than in the ordinary course
of  business  and  consistent  with past  practice;  or (v) any  other  material
transaction entered into by Borrower,  except in the ordinary course of business
and consistent with past practice.

                                       12
<PAGE>

SECTION 4.07 NO DEFAULT.

      No event has occurred and is continuing which constitutes, or, with notice
or lapse of time or both,  would  constitute,  a Default  or an Event of Default
under this Agreement.

SECTION 4.08 MATERIAL AGREEMENTS.

      To the best of Borrower's knowledge,  neither Borrower nor any other party
is in default, and no event has occurred and is continuing which, with notice or
lapse of time or both,  would constitute a default,  under any contract,  lease,
loan agreement,  indenture,  mortgage, security agreement,  license agreement or
other  agreement  or  obligation  to which it is a party or by which  any of its
properties  is subject  which  could  reasonably  be expected to have a Material
Adverse Effect,  except as described on SCHEDULE 4.08. To the best of Borrower's
knowledge,  it is not a party to, or bound by, any  contract or  agreement,  the
faithful  performance  of which is so  onerous  so as to  create,  or to  likely
create,  a Material  Adverse  Effect on the  business,  operations  or financial
condition of Borrower.

SECTION 4.09 NO LITIGATION.

      Except  as  disclosed  on  SCHEDULE  4.09,  there are no  actions,  suits,
investigations,  arbitrations or administrative  proceedings  pending or, to the
best knowledge of Borrower,  threatened, against Borrower, and there has been no
change in the status of any of the actions, suits, investigations, litigation or
proceedings disclosed to the Lender which could reasonably be expected to have a
Material Adverse Effect on Borrower or on any  transactions  contemplated by any
Loan  Document.  Borrower  has not received  any claim that  Borrower  currently
violates any federal, state or local law, ordinance,  rule or regulation,  which
could have an adverse  effect on its  business  and,  to the best of  Borrower's
knowledge, no such claim is or has been threatened;  and, except as disclosed on
SCHEDULE 4.09, there have been no developments  adverse to Borrower with respect
to any pending or threatened claim, action or proceeding of an administrative or
judicial nature.

SECTION 4.10 TAXES.

      All tax returns required to be filed by Borrower in any jurisdiction  have
been filed and all taxes (including mortgage recording taxes), assessments, fees
and other  governmental  charges  upon  Borrower or upon any of its  properties,
income or franchises now due have been paid, in each case, except where the same
are being  contested in good faith by appropriate  proceedings,  as disclosed on
SCHEDULE 4.10.

      Except as disclosed on SCHEDULE 4.10, Borrower has not received any notice
of deficiency or other  adjustment from any taxing  authority that is unresolved
as of the Agreement Date. No audit or examination,  claim or proposed assessment
by any  taxing  authority  is pending  or, to the best  knowledge  of  Borrower,
threatened  against Borrower or any of its properties.  All ad valorem and other
property  taxes  imposed on  Borrower,  or that may become a lien on  Borrower's
assets  and that are due and  payable,  have  been  paid in full.  Borrower  has
withheld or collected  from each payment made to each of its U.S.  employees the
amount  of  all  taxes  (including  federal  income  taxes,   Federal  Insurance
Contributions Act ("FICA") taxes, and state and local income,  payroll, and wage
taxes, among others) required to be withheld or collected.

                                       13
<PAGE>

SECTION 4.11 CAPITALIZATION.

      The authorized capital stock of Borrower consists of five thousand (5,000)
shares of Preferred  Stock,  of which zero (0) shares are issued and outstanding
as of the date hereof,  and one hundred million  (100,000,000)  shares of Common
Stock, no par value per share,  of which nine million eight hundred  thirty-five
thousand six hundred  seventy-one  (9,835,671) shares of Common Stock are issued
and outstanding as of the date hereof.  All of such outstanding shares have been
duly authorized and validly issued, are fully paid and  nonassessable,  and were
not issued in violation of the  preemptive  rights or rights of first refusal of
any person.  SCHEDULE 4.11 sets forth all stock  options,  warrants,  conversion
rights,  subscription  rights,  preemptive  rights,  rights of first refusal and
other rights or agreements to acquire securities of Borrower and any shares held
in  treasury or  reserved  for  issuance  upon  exercise of such stock  options,
warrants  or  conversion  rights,   subscription  rights  and  other  rights  or
agreements  to acquire  securities,  including the date of  termination  of such
rights and the consideration  therefor.  As of the Agreement Date, Borrower does
not have a class of  securities  with  respect  to which a member of a  national
securities exchange,  broker or dealer may extend or maintain credit to or for a
customer  pursuant to rules or regulations  adopted by the Board of Governors of
the Federal  Reserve  System under Section 7 of the 1934 Act.  Borrower has, and
will continue to have as long as the Debenture remains  outstanding,  authorized
and reserved an adequate  number of shares of Common Stock to permit  Conversion
of the Debenture.

SECTION 4.12 USE OF PROCEEDS.

      Borrower  intends to use  proceeds  from the Loan as  disclosed in Section
2.02 hereof.

SECTION 4.13 EMPLOYEE MATTERS.

      (a) Borrower is not a party to any collective  bargaining agreement and is
not aware of any  activities  of any labor  union that is  currently  seeking to
represent or organize its employees.

      (b) Borrower is in compliance  with all federal,  state and municipal laws
respecting employment and employment practices,  occupational health and safety,
and wages and hours, and is not engaged in any unfair labor practice,  and there
are no arrears in the payment of wages or social security taxes.

      (c) There is no unfair labor practice  complaint  against Borrower pending
before the National Labor Relations Board or any state or local agency.

      (d) There is no  pending  labor  strike or other  material  labor  trouble
affecting Borrower (including, without limitation, any organizational drive).

      (e) There is no material labor grievance pending against Borrower.

      (f) There is no pending  representation  question respecting the employees
of Borrower before any local, state or federal agency.

      (g)  There  are  no  pending  proceedings  arising  out  of or  under  any
collective  bargaining  agreement to which  Borrower is a party,  or to the best
knowledge  of  Borrower,  any  basis  for  which a claim  may be made  under any
collective bargaining agreement to which Borrower is a party.

                                       14
<PAGE>

      (h)  There  are no  pending  proceedings  arising  out  of any  employment
discrimination claim or any basis for which any such claim may be made.

SECTION 4.14 EMPLOYEE BENEFIT PLANS.

      SCHEDULE 4.14 lists (i) any "employee  benefit  plans" as described in the
Employee  Retirement Income Security Act of 1974, as amended,  and the rules and
regulations  promulgated thereunder ("ERISA") (other than a defined contribution
pension plan not requiring any contribution by Borrower, paid time-off policy or
vacation/holiday/sick  leave  policy,  and employee  group life and health plans
that are  fully  funded  through  commercial  insurance);  and (ii) any  defined
benefit "employee pension benefit plans" (as defined in ERISA). Neither Borrower
nor,  to the best  knowledge  of  Borrower,  any other  person has  engaged in a
transaction  with respect to any employee  benefit plan listed or required to be
listed on  SCHEDULE  4.14 which  could  subject  any such plan,  Borrower or the
Lender to a penalty  under  ERISA or a tax under the  Internal  Revenue  Code of
1986, as amended (the  "Code"),  except for those  transactions  which could not
reasonably be expected to have a Material  Adverse Effect.  Each of the employee
benefit  plans  listed,  or  required to be listed,  on  SCHEDULE  4.14 has been
operated and administered in accordance with applicable law,  including  without
limitation  ERISA,  except for any such failure which would not subject Borrower
or the Lender to any penalty or other  liability and except for any such failure
which  would  not  have  an  adverse  effect  upon  the  applicable  plan or any
participant therein.  Borrower has not incurred, nor presently expects to incur,
any  liability  under Title IV of ERISA that could  result in  liability  to the
Lender or Borrower.  Each employee  benefit plan listed or required to be listed
on  SCHEDULE  4.14 that is a group  health  plan  within the  meaning of Section
5000(b)(1) of the Code, is in compliance with the provisions of Section 4980B(f)
of the Code, except for any such non-compliance which would not subject Borrower
or the Lender to any penalty or liability  and except for any such failure which
would not have an adverse  effect upon the  applicable  plan or any  participant
therein.  There is not any  pending  or,  to the  best  knowledge  of  Borrower,
threatened  claim by or on behalf of any employee  benefit plan, by any employee
covered  under any such plan or otherwise  involving  any employee  benefit plan
(other than routine non-contested claims for benefits).

SECTION 4.15 COMPLIANCE WITH LAWS.

      Borrower has all requisite  licenses,  permits and certificates  including
without  limitation,  drug,  environmental  and health and safety  permits  from
federal,  state and local authorities  necessary to conduct its business and own
and operate its assets  (collectively,  the  "Permits").  Except as set forth on
SCHEDULE 4.15,  Borrower is not in violation of any law, regulation or ordinance
relating to its business,  operations and properties  which,  individually or in
the  aggregate,  could have a Material  Adverse  Effect,  and the  business  and
operations  of Borrower do not violate,  in any material  respect,  any federal,
state,  local or foreign  laws,  regulations  or orders.  Except as set forth on
SCHEDULE 4.15,  Borrower has not received any notice or  communication  from any
federal,  state, local or foreign governmental or regulatory authority or agency
including without limitation,  the U.S. Food and Drug Administration of any such
violation  or  noncompliance.  To the best of its  knowledge,  Borrower  has not
engaged in any  practices in violation of any antitrust law or regulation of any
federal, state, local or foreign Governmental Authority.

SECTION 4.16 LICENSES AND PERMITS.

      Borrower  has all  licenses and  franchises  relating to the  operation of
their respective businesses as are necessary and required for such ownership and
operation,  all of which are in good standing and, except as expressly set forth
on SCHEDULE 4.16, are not subject to renewal within less than one (1) year.

                                       15
<PAGE>

SECTION 4.17 CONTRACTS.

      SCHEDULE 4.17 lists all contracts to which  Borrower is a party  involving
obligations  in respect of the business for payment,  performance of services or
delivery of goods in excess of $25,000 or which require  Borrower to continue to
perform  for a  period  of  longer  than  twelve  (12)  months  (the  "Scheduled
Contracts"). Borrower has delivered to the Lender true and correct copies of all
the Scheduled  Contracts.  All of such Scheduled Contracts are valid and binding
obligations  of  Borrower,  are in full  force  and  effect,  and,  to the  best
knowledge of Borrower, are enforceable against the parties thereto in accordance
with their respective terms. Borrower has not received any notice that the other
parties  to the  Scheduled  Contracts  are (i) in default  under such  Scheduled
Contracts,  or (ii)  consider  Borrower to be in default  thereunder.  Except as
expressly noted in SCHEDULE 4.17, to the best knowledge of Borrower, no party to
any of the  Scheduled  Contracts  intends to terminate  or adversely  modify its
agreement(s)  with respect  thereto or  adversely  change the volume of business
done thereunder.

SECTION 4.18 SHARES ISSUABLE UPON CONVERSION.

      The shares of Common  Stock of  Borrower  when  issued to the Lender  upon
conversion of and in  accordance  with the  Debenture,  will be duly and validly
issued,  fully paid and  nonassessable  and in  compliance  with all  applicable
securities laws. Such issuance will not give rise to preemptive  rights,  rights
of first refusal or similar rights by any other security holder of Borrower.

SECTION 4.19 INSIDER.

      (a)  Borrower's  SEC  reports  for the 12 months  prior to the date hereof
disclose all material transactions required to be disclosed therein.

      (b) All agreements between Borrower and any of its officers, directors and
principal  shareholders,  including employment agreements,  are disclosed in the
reports and filings made with the SEC or listed on SCHEDULE 4.19.

SECTION 4.20 SUBSIDIARIES.

      Borrower has no Subsidiaries.

SECTION 4.21 CASUALTIES.

      Except as  disclosed  on  SCHEDULE  4.21,  neither  the  business  nor the
properties of Borrower is currently affected by any environmental  hazard, fire,
explosion,  accident,  strike, lockout or other labor dispute,  drought,  storm,
hail, earthquake,  embargo, act of God or other casualty (whether or not covered
by insurance).

SECTION 4.22 INVESTMENT COMPANY ACT.

      Borrower is not an  "investment  company,"  as defined in Section 3 of the
1940 Act,  nor a company  that would be an  investment  company,  except for the
exclusions  from the definition of an investment  company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.

                                       16
<PAGE>

SECTION 4.23 SUFFICIENCY OF CAPITAL.

      Borrower is, and after consummation of this Agreement and giving effect to
all Indebtedness  incurred and transactions  contemplated in connection herewith
will be, Solvent.

SECTION 4.24 CORPORATE NAMES.

      Borrower has not, during the preceding five (5) years, done business under
or used any  assumed,  fictitious  or trade  names,  in its current  businesses,
except as disclosed on SCHEDULE 4.24.

SECTION 4.25 SENIOR OBLIGATIONS.

      Borrower shall have no Senior  Obligations  outstanding and shall not have
executed any Senior Documents.

SECTION 4.26 INSURANCE.

      All of the  insurable  properties  of Borrower are insured for its benefit
under  valid  and   enforceable   policies  issued  by  insurers  of  recognized
responsibility  in amounts and against  such risks and losses as is customary in
Borrower's  industry.  SCHEDULE  4.26  sets  forth  all of  Borrower's  property
insurance policies.

SECTION 4.27 INTELLECTUAL PROPERTY.

      Borrower  owns,  or is licensed to use, all material  trademarks,  service
marks,  trade  names,  patents  and  copyrights  presently  used to conduct  its
business,  except those for which the failure to obtain could not be  reasonably
expected  to have a  Material  Adverse  Effect.  To the  best of its  knowledge,
Borrower  has  the  right  to use  such  intellectual  property  rights  without
infringing  or  violating  the  rights of any third  parties.  No claim has been
asserted  by any person to the  ownership  of or right to use any such rights or
challenging or questioning the validity or  effectiveness of any such license or
agreement.  Borrower  is not in default of any such  license  agreements  in any
material respect, and no event has occurred and is continuing which, with notice
or lapse of time or both,  would  constitute  a material  default.  Each license
agreement is enforceable in accordance with its terms and has not been canceled,
abandoned or terminated,  nor has Borrower received notice thereof. There are no
claims for trademark or copyright  infringement  pending or  threatened  against
Borrower or its  respective  officers or  directors.  Borrower is not  currently
using  copyrightable  material for which  Borrower  needs,  but does not have, a
license to conduct its existing  business.  Borrower is not currently  using any
trademarks for which  Borrower  needs,  but does not have, a valid  character or
trademark license to conduct its existing business.

SECTION 4.28 REAL PROPERTY.

      (a) Set forth on SCHEDULE  4.28 is a list of the  addresses of each parcel
of real property owned by or leased to Borrower, as indicated on the Schedule.

                                       17
<PAGE>

      (b) Borrower has delivered to the Lender true and correct copies of all of
its  leases  or  subleases   and  all  related   amendments,   supplements   and
modifications  and related  documents (the "Scheduled Lease  Documents"),  which
require  payments or  contingent  payments by  Borrower  subsequent  to the date
hereof in excess of Twenty-Five  Thousand Dollars ($25,000).  There are no other
agreements,  written or oral, between Borrower and any third parties claiming an
interest in Borrower's interest in the Scheduled Leases or otherwise relating to
Borrower's  use and occupancy of any leased real  property.  All such leases are
valid and  binding  obligations  of the parties  thereto,  are in full force and
effect and  enforceable  against the parties  thereto in  accordance  with their
terms;  and no event has occurred  including,  but not limited to, the executed,
delivery  and  performance  of  this  Agreement  and  the  consummation  of  the
transactions contemplated hereby which (whether with or without notice, lapse of
time or both) would  constitute a default  thereunder.  No property leased under
any lease  which the  Lender  has  agreed  to  assume  is  subject  to any lien,
encumbrance,  easement,  right-of-way,  building or use restriction,  exception,
variance,  reservation  or limitation as might in any respect  interfere with or
impair the present and continued use thereof in the usual and normal  conduct of
Borrower's business.

      (c) On the Loan Date,  Borrower will hold of record good,  marketable  and
insurable title to the property described in SCHEDULE 4.28 free and clear of all
title  defects,  liens,  pledges,  claims,  charges,  rights  of first  refusal,
security  interests  or  other  encumbrances  and  not,  in the case of the real
property,   subject  to  any   rights-of-way,   building  or  use  restrictions,
exceptions,  variances,  reservations  or limitations of any nature  whatsoever,
except with  respect to all such  properties,  (i) matters set forth in SCHEDULE
4.28,  and  (ii)  liens  for  current  taxes  and  assessments  not  in  default
(collectively,  the "Permitted  Encumbrances").  Notwithstanding  the foregoing,
Borrower's  representations and warranties  regarding title defects with respect
to the real  property  is  limited  to  defects  arising  by,  through  or under
Borrower, but not otherwise.  Borrower has adequate title insurance coverage for
such  properties.  All real property and structures owned or leased by Borrower,
and all equipment owned or leased by Borrower,  are in good operating  condition
and  repair  (ordinary  wear and  tear  excepted),  taking  into  account  their
respective  ages and  consistent  with their past uses, and are adequate for the
uses to which  they are being  put.  Except as set forth on  SCHEDULE  4.28,  to
Borrower's best  knowledge,  the buildings and  improvements  owned or leased by
Borrower  are  structurally  sound.  Borrower has not received any notice of any
violation  of any  building,  zoning or other law,  ordinance or  regulation  in
respect of such property or  structures or their use by Borrower.  To Borrower's
best knowledge, there is no existing, proposed or contemplated plan to modify or
realign any street or highway or any existing,  proposed or contemplated eminent
domain proceeding that would result in the taking of all or any part of the real
property or that would materially adversely affect the current or planned use of
the real  property  or any part  thereof.  The  facilities  consisting  of owned
personal  property are subject to no liens or  encumbrances  except the security
interests of record set forth on SCHEDULE  4.28,  which  Schedule is a copy of a
Uniform  Commercial  Code ("UCC")  search duly  obtained by Borrower in the last
thirty (30) days and which search shows security interests of record relating to
such  facilities  in the State of  California.  Borrower  agrees  to remove  all
security interests  reflected on such UCC search, if any, prior to the Agreement
Date  (except  those  approved by the Lender in writing) and to remove any other
security  interests  filed with respect to such  facilities  between the date of
such UCC search and the date of the Agreement Date.

SECTION 4.29 ENVIRONMENTAL.

      (a) Borrower is currently in compliance  with all  Environmental  Laws (as
defined below) which compliance includes,  but is not limited to, the possession
by Borrower of all permits and other governmental  authorization  required under
applicable  Environmental Laws, and compliance in all material respects with the
terms and  conditions  thereof,  except in any case  where the  failure to be in
compliance would not have a Material Adverse Effect.

      (b)  Except  as set  forth on  SCHEDULE  4.29,  Borrower  has not  stored,
disposed of or arranged for disposal of any Materials of  Environmental  Concern
(as  defined  below)  on any of the real  property,  except in  compliance  with
applicable Environmental Laws.

                                       18
<PAGE>

      (c) Borrower has not received any communication (written or oral), whether
from a  governmental  authority,  citizens  group,  employee or otherwise,  that
alleges that Borrower is not in full  compliance  with  Environmental  Laws, and
there  are no  circumstances  that may  prevent  or  interfere  with  such  full
compliance in the future.  There is no  Environmental  Claim (as defined  below)
pending or, to Borrower's best knowledge,  threatened against, or which has been
made known to, Borrower.

      (d) Except as set forth on SCHEDULE 4.29, during the period the facilities
have been held by Borrower, its affiliates or, to Borrower's best knowledge, its
predecessors in interest, there have been no actions, activities, circumstances,
conditions,  events or incidents including,  without limitation, the generation,
handling,  transportation,  treatment,  storage, release,  emission,  discharge,
presence or disposal of any Hazardous  Substance (as defined below),  that could
form  the  basis  of  any   Environmental   Claim  against  Borrower  under  any
Environmental Law in effect at, or at any time prior to, the Agreement Date.

      (e) Without in any way limiting  the  generality  of the  foregoing to the
best knowledge of Borrower,  (i) there are no underground  storage tanks located
on the property owned or leased by Borrower, (ii) there is no asbestos contained
in or forming  part of any  building,  building  component,  structure or office
space  owned or  leased by  Borrower,  and  (iii) no  polychlorinated  biphenyls
("PCBs") are used or stored at any property owned or leased by Borrower.

      The following terms shall have the following meanings:

            "Environmental  Claim"  means any  claim,  action,  cause of action,
investigation  or notice  (written  or oral) by any  person  or entity  alleging
potential  liability  (including,  without  limitation,  potential liability for
investigatory  costs,  cleanup  costs,   governmental  response  costs,  natural
resources damages, property damages, personal injuries or penalties) arising out
of,  based  on  or  resulting  from  (a)  the  presence,  or  release  into  the
environment,  of any Hazardous Substances at any location,  whether or not owned
or  operated  by  Borrower,  or  (b)  circumstances  forming  the  basis  of any
violation, or alleged violation, of any Environmental Law.

            "Environmental   Laws"   means   the   federal,   state   and  local
environmental,  health  or  safety  laws,  regulations,  ordinances,  rules  and
policies  and common law in effect on the date  hereof  and the  Agreement  Date
relating  to  the  use,  refinement,   handling,  treatment,  removal,  storage,
production,  manufacture,  transportation  or disposal,  emissions,  discharges,
releases or  threatened  releases of  materials  of  environmental  concern,  or
otherwise  relating  to  protection  of  the  environment  (including,   without
limitation,  ambient air, surface water, groundwater, land surface or subsurface
strata),  as the same may be  amended  or  modified  to the date  hereof and the
Agreement Date including, without limitation, the statutes listed below:

            Federal  Resources  Conservation and Recovery Act of 1976, 42 U.S.C.
            ss. 6901, ET SEQ.

            Federal  Comprehensive  Environmental  Response,   Compensation  and
            Liability Act of 1980, 42 U.S.C. ss. 9601, ET SEQ.

            Federal Clean Air Act, 42 U.S.C. ss. 7401, ET SEQ.

            Federal  Water  Pollution  Control Act,  Federal  Clean Water Act of
            1977, 33 U.S.C. ss. 1251, ET SEQ.

            Federal   Insecticide,   Fungicide  and  Rodenticide   Act,  Federal
            Pesticide Act of 1978, 7 U.S.C. ss. 136, ET SEQ.

            Federal Hazardous Materials  Transportation Act, 48 U.S.C. ss. 1801,
            ET SEQ.

                                       19
<PAGE>

            Federal Toxic Substances Control Act, 15 U.S.C. ss. 2601, ET SEQ.

            Federal Safe Drinking Water Act, 42 U.S.C. ss. 300f, ET SEQ.

            "Hazardous   Substances"   means  any  toxic  or  hazardous   waste,
pollutants  or  substances  including,   without  limitation,   asbestos,  PCBs,
petroleum  products and byproducts,  substances  defined or listed as "hazardous
substance,"  "toxic  substance,"  "toxic  pollutant"  or  similarly   identified
substance or mixture, in or pursuant to any Environmental Law.

SECTION 4.30 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

      All  representations  and warranties of Borrower  herein shall survive the
Agreement Date and the delivery of the Debenture,  and any  investigation at any
time made by or on behalf of the Lender shall not diminish the Lender's right to
rely on Borrower's representations and warranties as herein set forth.

SECTION 4.31 FULL DISCLOSURE.

      Neither the  representations  or warranties of Borrower,  the schedules to
this Agreement, the financial statements referenced in Section 4.06, nor any SEC
registration  statement,  report or proxy statement filed by Borrower within the
past  twenty-four  (24)  months  contains,  as of the date  thereof,  any untrue
statement of a material  fact or omits or will omit to state any  material  fact
necessary  to keep  the  statements  contained  herein  or  therein  from  being
misleading in any material respect.

                 ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER

      So long as any  part  of the  Debenture  remains  unpaid  or has not  been
redeemed  or  converted  hereunder,  and  until  such  payment,   redemption  or
conversion  in full,  unless  the Lender  shall  otherwise  consent in  writing,
Borrower agrees that:

SECTION 5.01 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.

      (a) Borrower shall  accurately and fairly maintain its books of account in
accordance with GAAP, retain a firm of independent  certified public accountants
requested by Borrower and approved by the Lender,  to make annual  audits of its
accounts in accordance with generally accepted auditing standards.

      (b) Borrower  shall provide the following  reports and  information to the
Lender:

            (i) As soon as  available,  and in any event within ninety (90) days
after the close of each fiscal  year,  Borrower's  annual  report on Form 10-KSB
with exhibits for said period.

            (ii)  Each  fiscal  quarter,  concurrent  with the  periodic  report
required above, a certificate  executed by the Chief Financial  Officer or Chief
Executive  Officer of Borrower  (A) stating that a review of the  activities  of
Borrower  during such fiscal period has been made under his supervision and that
Borrower has observed,  performed and fulfilled  each and every  obligation  and
covenant contained herein and is not in Default under any of the same or, if any
such Default shall have occurred,  specifying the nature and status thereof, and
(B) stating that Borrower is in compliance as of the end of such fiscal  quarter
with the agreed  minimum  financial  ratios and  standards set forth in SCHEDULE
7.01 to this Agreement.

                                       20
<PAGE>

            (iii) Promptly (but in any event within ten (10) business days) upon
becoming  aware of the existence of any  condition or event which  constitutes a
Default or which,  with  notice or the  passage  of time or both would  become a
Default or an Event of Default,  written notice specifying the nature and period
of existence thereof and the action which Borrower is taking or proposes to take
with respect thereto.

            (iv) Promptly (but in any event within ten (10) business  days) upon
the receipt thereof by Borrower or the Board of Directors of Borrower, copies of
all reports, all management letters and other detailed information  submitted to
Borrower or the Board by independent  accountants in connection with each annual
or interim  audit or review of the accounts or affairs of Borrower  made by such
accountants.

            (v) Promptly (but in any event within ten (10) business days),  such
other information relating to the finances,  budgets,  properties,  business and
affairs of Borrower, as the Lender or the Agent may reasonably request from time
to time.

            (vi)  Promptly  upon  its  becoming  available,  one  copy  of  each
financial statement,  report,  press release,  notice or proxy statement sent by
Borrower to  stockholders  generally,  and of each  regular or periodic  report,
registration  statement  or  prospectus  filed by Borrower  with any  securities
exchange  or the SEC or any  successor  agency,  and of any order  issued by any
Governmental Authority in any proceeding to which Borrower is a party.

            (vii) As soon as  available,  and in any event  within  fifteen (15)
days after the close of each fiscal  quarter,  a report setting forth the number
of stock  options,  and their  respective  prices and terms,  issued during such
quarter and cumulatively.

SECTION 5.02 ANNUAL FINANCIAL STATEMENTS.

      Furnish  the Agent  within  ninety  (90) days after the end of each fiscal
year of Borrower,  audited financial  statements of Borrower including,  but not
limited to, statements of income and stockholders' equity and cash flow from the
beginning  of the  current  fiscal  year to the end of such  fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in accordance with
GAAP  applied on a basis  consistent  with prior  practices,  and in  reasonable
detail and  reported  upon without  qualification  by an  independent  certified
public  accounting firm selected by Borrower and  satisfactory to the Agent (the
"Accountants").  The report of the  Accountants  shall  contain or have appended
thereto calculations which set forth Borrower's compliance with the requirements
or restrictions imposed by Article VII hereof. In addition, the reports shall be
accompanied by a certificate of Borrower's  Chief Financial  Officer which shall
state that, based on an examination sufficient to permit him to make an informed
statement,  no Default or Event of Default exists,  or, if such is not the case,
specifying  such  Default or Event of  Default,  its nature,  when it  occurred,
whether it is  continuing  and the steps being taken by Borrower with respect to
such event, and such certificate shall have appended thereto  calculations which
set forth Borrower's compliance with the requirements or restrictions imposed by
Article VII.

SECTION 5.03 QUARTERLY FINANCIAL STATEMENTS.

      Furnish the Agent within forty-five (45) days after the end of each fiscal
quarter,  an unaudited  balance  sheet of Borrower and  unaudited  statements of
income and stockholders'  equity and cash flow of Borrower reflecting results of
operations  from the beginning of the fiscal year to the end of such quarter and
for such  quarter,  prepared  on a basis  consistent  with prior  practices  and
complete and correct in all material  respects,  subject to normal and recurring
year end adjustments that  individually and in the aggregate are not material to
Borrower's business. The reports shall be accompanied by a certificate signed by
the Chief  Financial  Officer of Borrower,  which shall state that,  based on an
examination  sufficient to permit him to make an informed statement,  no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default, its nature, when it occurred,  whether it is continuing and
the steps  being  taken by  Borrower  with  respect to such  default  and,  such
certificate shall have appended thereto  calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by Article VII.

                                       21
<PAGE>

SECTION 5.04 MONTHLY FINANCIAL STATEMENTS.

      Furnish the Agent within fifteen (15) days after the end of each month, an
unaudited  balance  sheet of Borrower  and  unaudited  statements  of income and
stockholders'  equity and cash flow of Borrower reflecting results of operations
from the  beginning  of the  fiscal  year to the end of such  month and for such
month,  prepared on a basis  consistent  with prior  practices  and complete and
correct in all  material  respects,  subject to normal  and  recurring  year end
adjustments  that  individually  and  in  the  aggregate  are  not  material  to
Borrower's  business.  The reports  shall be  accompanied  by a  certificate  of
Borrower's  Chief  Financial  Officer,  which  shall  state  that,  based  on an
examination  sufficient to permit him to make an informed statement,  no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default, its nature, when it occurred,  whether it is continuing and
the  steps  being  taken by  Borrower  with  respect  to such  event  and,  such
certificate shall have appended thereto  calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by Article VII.

SECTION 5.05 PREPARATION OF BUDGETS.

      (a) Prior to the  beginning of Borrower's  fiscal year Borrower  agrees to
prepare  and  submit to the Board and  furnish to the Lender a copy of an annual
plan for such year which shall include, without limitation, plans for expansion,
if any, plans for  incurrences of Indebtedness  and projections  regarding other
sources of funds,  quarterly  projected  capital and operating  expense budgets,
cash flow statements,  profit and loss statements and balance sheet projections,
itemized in such detail as the Board may request.

      (b)  Borrower  shall  furnish to the  Lender  monthly  financial  reports,
including  budgets (as currently  used by management in the conduct of business)
within 30 days of the end of each month thereafter.

      (c)  Borrower  agrees that it will review its  operations  with the Agent.
Such  operations  reviews  will be in such depth and  detail as the Agent  shall
reasonably  request and will be held as reasonably  necessary,  generally once a
fiscal quarter.

SECTION 5.06 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.

      Borrower  shall  pay  and  discharge  (i)  all  taxes,   assessments   and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any property  belonging to it,  before  delinquent,  (ii) all lawful claims
(including claims for labor, materials and supplies) which, if unpaid, will give
rise to a Lien upon any of its property,  other than a Permitted Lien, and (iii)
all of its other Indebtedness in accordance with their respective terms,  except
as prohibited hereunder;  provided, however, that Borrower shall not be required
to pay any such tax,  assessment,  charge, levy or other claim if and so long as
the amount,  applicability  or validity  thereof shall currently be contested in
good faith by  appropriate  proceedings  and  appropriate  accruals and reserves
therefor have been established in accordance with GAAP.

                                       22
<PAGE>

SECTION 5.07 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.

      Subject to Section  6.13,  Borrower  shall  preserve  and  maintain  their
respective  corporate  existence and all of their respective material rights and
privileges necessary in the normal conduct of their respective  businesses,  and
to conduct  their  respective  businesses  in an orderly  and  efficient  manner
consistent  with  good  business  practices  and in  accordance  with all  valid
regulations and orders of any  Governmental  Authority.  Borrower shall keep its
principal place of business within the United States.

SECTION 5.08 SEC FILINGS.

      So long as  Borrower  has a class of  securities  registered  pursuant  to
Section 12 of the 1934 Act,  Borrower shall duly file, when due, all reports and
proxy  statements  required of a company whose  securities  are  registered  for
public  trading under and pursuant to the 1934 Act, the  Sarbanes-Oxley  Act and
the rules thereunder.

SECTION 5.09 NOTICE.

      Borrower  shall  promptly  notify the Lender of (i) any  Material  Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness having
an  aggregate  principal  amount  in  excess  of  Twenty-Five  Thousand  Dollars
($25,000),  material  agreement,  contract or other  instrument to which it is a
party or by which any of its properties are bound,  or any  acceleration  of the
maturity of any Indebtedness  having an aggregate  principal amount in excess of
Twenty-Five Thousand Dollars ($25,000), if any, (iii) any material adverse claim
against or affecting  Borrower,  if any, or any of its properties,  and (iv) the
commencement  of, and any  determination  in, any material  litigation  with any
third party or any proceeding before any Governmental Authority.

SECTION 5.10 COMPLIANCE WITH LOAN DOCUMENTS.

      Borrower shall  promptly  comply with any and all covenants and provisions
of the Loan Documents.

SECTION 5.11 COMPLIANCE WITH MATERIAL AGREEMENTS.

      Borrower shall comply in all material  respects with all Senior Documents,
material  agreements,  indentures,  mortgages  or  documents  binding  on  it or
affecting its properties or business.

SECTION 5.12 OPERATIONS AND PROPERTIES.

      Borrower  shall act prudently and in accordance  with  customary  industry
standards  in  managing  or  operating  its  assets,  properties,  business  and
investments.  Borrower shall keep in good working order and condition,  ordinary
wear and tear excepted,  all of its assets and properties which are necessary to
the conduct of its business.

                                       23
<PAGE>

SECTION 5.13 BOOKS AND RECORDS; ACCESS.

      Borrower  shall  maintain  complete and accurate  books and records of its
transactions in accordance with good accounting  practices.  Borrower shall give
each duly  authorized  representative  of the  Lender  access  during all normal
business hours, upon reasonable notice, to, and shall permit such representative
to examine, copy or make excerpts from, any and all books, records and documents
in the possession of Borrower and relating to its affairs, and to inspect any of
the  properties  of  Borrower;  provided  that the Lender  agrees  that any such
inspection  will be  performed  so as not to interfere  with  Borrower's  normal
business  operations.  Borrower shall make a copy of this Agreement,  along with
any waivers, consents,  modifications or amendments, available for review at its
principal office by the Lender or the Lender's representatives.

SECTION 5.14 COMPLIANCE WITH LAW.

      Borrower shall comply in all material  respects with all applicable  laws,
rules,  regulations,  ordinances and all orders and decrees of any  Governmental
Authority applicable to it or any of its properties, businesses or operations.

SECTION 5.15 INSURANCE.

      Borrower shall maintain such worker's  compensation  insurance,  liability
insurance and  insurance on its  properties,  assets and business,  now owned or
hereafter  acquired,  against such casualties,  risks and contingencies,  and in
such types and amounts, as are consistent with customary practices and standards
of companies engaged in similar businesses.

SECTION 5.16 AUTHORIZATIONS AND APPROVALS.

      Borrower shall promptly obtain,  from time to time and at its own expense,
all such governmental licenses, authorizations,  consents, permits and approvals
as may be  required to enable it to comply with its  obligations  hereunder  and
under the other Loan Documents.

SECTION 5.17 ERISA COMPLIANCE.

      Borrower shall, at all times, (i) make prompt payment of all contributions
required under all Plans, if any, and shall meet the minimum  funding  standards
set forth in ERISA with  respect to its Plans  subject  to ERISA,  if any,  (ii)
notify the Lender  immediately of any fact in connection  with any of its Plans,
which might  constitute  grounds for termination  thereof by the Pension Benefit
Guaranty  Corporation or for the appointment,  by the appropriate  United States
District Court, of a trustee to administer such Plan, together with a statement,
if requested by the Lender,  as to the reason  therefor and the action,  if any,
proposed to be taken with respect thereto, and (iii) furnish to the Lender, upon
its request, such additional  information  concerning any of its Plans as may be
reasonably requested.

SECTION 5.18 FURTHER ASSURANCES.

      Borrower shall make,  execute or endorse,  and  acknowledge and deliver or
file or  cause  the  same to be  done,  all  such  notices,  certifications  and
additional agreements, undertakings, transfers, assignments or other assurances,
and take any and all such  other  action as the Lender  may,  from time to time,
deem  reasonably  necessary  or  proper  in  connection  with  any of  the  Loan
Documents,  or the  obligations  of  Borrower  thereunder,  which the Lender may
request from time to time.

                                       24
<PAGE>

SECTION 5.19 INDEMNITY BY BORROWER.

      Borrower  shall  indemnify,  save and hold  harmless  the  Lender  and its
directors,  officers,  lenders,  attorneys and employees (the "Indemnitee") from
and against (i) any and all  claims,  demands,  actions or causes of action that
are asserted  against any  Indemnitee if the claim,  demand,  action or cause of
action,  directly or  indirectly,  relates to this  Agreement and the other Loan
Documents,  the Loan,  the use of  proceeds of the Loan or the  relationship  of
Borrower and the Lender under this  Agreement  or any  transaction  contemplated
pursuant to this Agreement,  (ii) any administrative or investigative proceeding
by any  Governmental  Authority,  directly  or  indirectly,  related to a claim,
demand,  action or cause of action  described in clause (i) above, and (iii) any
and all liabilities,  losses, costs or expenses (including reasonable attorneys'
fees and disbursements) that any Indemnitee suffers or incurs as a result of any
of the  foregoing;  PROVIDED,  HOWEVER,  that Borrower  shall have no obligation
under this  Section  5.19 to the  Lender  with  respect to any of the  foregoing
arising out of the gross  negligence or willful  misconduct of the Lender or its
assignees or the breach by the Lender or its assignees of this  Agreement or any
other Loan Document or other  document  executed in  connection  with any of the
aforesaid,  the breach by the Lender or its  assignees of any  intercreditor  or
participation  agreement or  commitment  with other  parties,  the  violation or
alleged violation of any law, rule or regulation by the Lender or its assignees,
or from the transfer or disposition by the Lender of any Debenture or the Common
Stock issued upon conversion of the Debenture.  If any claim, demand,  action or
cause of action is  asserted  against  any  Indemnitee,  such  Indemnitee  shall
promptly notify  Borrower,  but the failure to so promptly notify Borrower shall
not  affect  Borrower's  obligations  under this  Section  unless  such  failure
materially  prejudices Borrower's right or ability to participate in the contest
of such claim, demand,  action or cause of action, as hereinafter  provided.  In
the event that such Indemnitee's  failure to properly notify Borrower materially
prejudices  Borrower's  right or ability to  participate  in the contest of such
claim,  demand  action or cause of action,  then said  Indemnitee  shall have no
right  to  receive,   and  Borrower   shall  have  no  obligation  to  pay,  any
indemnification amounts hereunder.  Borrower may elect to defend any such claim,
demand,  action or cause of action (at its own  expense)  asserted  against said
Indemnitee and, if requested by Borrower in writing and so long as no Default or
Event of Default  shall have occurred and be  continuing,  such  Indemnitee  (at
Borrower's  expense) shall, in good faith,  contest the validity,  applicability
and amount of such  claim,  demand,  action or cause of action and shall  permit
Borrower to participate in such contest.  Any Indemnitee that proposes to settle
or compromise  any claim or  proceeding  for which  Borrower may be liable,  for
payment to or on behalf of an Indemnitee hereunder,  shall give Borrower written
notice of the terms of such  proposed  settlement  or  compromise  reasonably in
advance of settling or  compromising  such claim or proceeding  and shall obtain
Borrower's written concurrence  thereto. In the event that said Indemnitee fails
to obtain Borrower's prior written consent to any such settlement or compromise,
said  Indemnitee  shall have no right to  receive,  and  Borrower  shall have no
obligation to pay, any  indemnification  amounts hereunder.  Each Indemnitee may
employ  counsel,  which counsel shall be reasonably  acceptable to Borrower,  in
enforcing  its rights  hereunder  and in  defending  against any claim,  demand,
action or cause of action covered by this Section 5.19; PROVIDED,  HOWEVER, that
each  Indemnitee  shall  endeavor in connection  with any matter covered by this
Section 5.19 which also involves any other Indemnitee, use reasonable efforts to
avoid  unnecessary  duplication  of  effort  by  counsel  for  all  Indemnitees,
including allowing Borrower to select one lawyer for all parties, such selection
to be subject to the  approval  of such  parties,  which  approval  shall not be
unreasonably withheld. Any obligation or liability of Borrower to any Indemnitee
under this Section 5.19 shall  survive the  expiration  or  termination  of this
Agreement and the repayment of the Debenture.

                                       25
<PAGE>

SECTION 5.20 RESERVATION OF SHARES.

      Borrower  shall,  at all  times,  reserve  and keep  available  sufficient
authorized  and unissued  shares of Common Stock to effect the conversion of the
Debenture.  Borrower has obtained any necessary  approval of its shareholders to
issue to the Lender upon conversion of the Debenture all of the shares of Common
Stock to which it is then entitled.

SECTION 5.21 RETENTION OF STOCK OWNERSHIP.

      Walter  Kornbluh  and Stephen  Crosson  will  execute and deliver  Lock-Up
Agreements on the  Agreement  Date which shall provide that they will not offer,
sell or otherwise  dispose of the shares of Common Stock  beneficially  owned or
controlled  by  them  (including  subsequently  acquired  shares  or  securities
exercisable  or  convertible  into  shares)  for a period of twelve  (12) months
following  the  Agreement  Date,  except for  intra-family  transfers  or estate
planning  purposes,  without the consent of the  Lender.  Thereafter,  each such
person shall only sell such shares pursuant to Rule 144,  without the consent of
the Lender, until the Debenture have been paid in full.

SECTION 5.22 SUBSEQUENTLY FORMED SUBSIDIARIES.

      Borrower shall cause all  subsequently  formed  Subsidiaries  to execute a
Subsidiaries' Guaranty and Security Agreement and shall pledge all their capital
stock to the Lender and the Agent  pursuant to a Pledge  Agreement,  all in form
and substance satisfactory to the Agent and its counsel.

                  ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER

      So long as any part of the  Debenture  has not been  redeemed or converted
hereunder,  and until such  redemption or conversion in full,  unless the Lender
shall otherwise consent in writing, Borrower agrees that:

SECTION 6.01 LIMITATION ON INDEBTEDNESS.

      On  the  Agreement   Date,   Borrower  shall  not  have  any   outstanding
Indebtedness,  except Indebtedness arising under this Agreement or the Debenture
or  Permitted   Indebtedness.   Borrower  may  not  incur  or  guarantee  Senior
Obligations or any Indebtedness which is pari passu with the Debenture,  without
the prior written consent of the Lender.

SECTION 6.02 LIMITATION ON LIENS.

      Borrower  shall not create,  cause,  incur,  permit or suffer to exist any
Lien upon any of its properties or assets, other than Permitted Liens.

SECTION 6.03 LIMITATION ON INVESTMENTS.

      Borrower shall not make or have outstanding any Investments in any Person,
except  short term bank  deposits,  money market  investments,  investment-grade
commercial  paper,  government  securities  and  such  other  "cash  equivalent"
investments  as the  Lender  may,  from  time to  time,  approve,  and  customer
obligations and receivables arising out of sales or leases made or the rendering
of services in the ordinary course of business.

                                       26
<PAGE>

SECTION 6.04 ALTERATION OF MATERIAL AGREEMENTS.

      Borrower  shall  not  consent  to or  permit  any  alteration,  amendment,
modification,  release,  waiver or  termination of any Senior  Documentation  or
material  agreement to which it is a party, other than in the ordinary course of
business.

SECTION 6.05 TRANSACTIONS WITH AFFILIATES.

      Borrower shall not enter into any  transaction  not in the ordinary course
of business  with,  or pay any  management  fees to, any  Affiliate,  except for
intercompany  transactions,  without the consent of the Lender, unless the terms
thereof (i) are no less  favorable to Borrower than those that could be obtained
at the time of such  transaction in  arm's-length  dealings with a Person who is
not an Affiliate,  or (ii) if such transaction  involves an amount less than Ten
Thousand Dollars ($10,000), are set forth in writing and have been approved by a
majority of the members of the Board of  Directors  having no personal  stake in
the transaction.  Notwithstanding  the foregoing,  Borrower may grant options to
employees or directors if otherwise permitted under this Agreement.

SECTION 6.06 LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.

      Borrower  shall not engage in any line of  business,  or  acquire  any new
product lines or business, or acquire any companies unless such new product line
or business  acquired is  primarily  involved  in, or  substantially  similar or
related to, Borrower's current lines of business or extensions thereof.

SECTION 6.07 LIMITATION ON SALE OF PROPERTIES.

      Borrower shall not (i) sell, assign, convey,  exchange, lease or otherwise
dispose of any of its properties,  rights, assets or business, whether now owned
or hereafter acquired, without the consent of the Lender, except in the ordinary
course of business,  or (ii) sell,  assign or discount any accounts  receivable,
except in the  ordinary  course of  business  (which  shall  include  receivable
financing  or  securitization),  in each case without the consent of the Lender;
provided,  however,  that Borrower may sell its securities to unaffiliated third
parties at the current trading price, but not less than the conversion price and
to employees under its existing stock option plan.

SECTION 6.08 FISCAL YEAR AND ACCOUNTING METHOD.

      Borrower shall not change its fiscal year or method of accounting,  except
as permitted by GAAP.

SECTION 6.09 LIQUIDATION.

      Borrower shall not (i) dissolve or liquidate, or (ii) enter into any other
transaction that has a similar effect.

SECTION 6.10 MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.

      Borrower shall not amend its Certificate or Articles of Incorporation  (or
other charter document) or bylaws in any material  respect,  without the consent
of the Lender.

                                       27
<PAGE>

SECTION 6.11 EXECUTIVE COMPENSATION.

      (a) Borrower will not increase the salary,  bonus,  or other  compensation
programs (whether in cash, securities or other property,  and whether payment is
deferred  or  current)  of its  chairman,  chief  executive  officer  and  chief
financial officer,  unless such compensation  increase is approved by a majority
of the Board or a Compensation  Committee of the Board, a majority of whom shall
be  nonemployee  Directors.  Compensation  to other senior  executive  officers,
including  division  managers,  shall be  consistent  with the  policies  of the
Compensation Committee.

      (b)  Borrower  shall not  implement  any  bonus,  profit  sharing or other
incentive  plans,  until such plans are formally  adopted by the majority of the
Board or a  Compensation  Committee  of the Board,  a  majority  of who shall be
nonemployee  Directors.  Borrower's  executive  compensation shall be consistent
with the general compensation policies adopted by the Compensation  Committee of
the Board.

      (c) Any management  salary reductions agreed and satisfactory to the Agent
shall stay in effect until  Borrower  achieves a sustainable  positive cash flow
position as agreed by the independent members of the Board and the Lender.

SECTION 6.12 RESTRICTED PAYMENTS.

      Borrower  shall not (i) without the consent of the Lender,  declare or pay
any Dividend (other than stock dividends) or make any other cash distribution on
(a)  any  Common  Stock,  (b)  any  Preferred  Stock,  if at the  time  of  such
declaration  or payment,  Borrower is in Default with respect to the Loan,  (ii)
purchase,  redeem or otherwise  acquire any shares of Common Stock or any shares
of Preferred Stock,  without the consent of the Lender,  (iii) make any payments
of Indebtedness which are pari passu or subordinated to the Debenture, if at the
time of such  payment,  Borrower is in Default with respect to the Loan, or (iv)
make any prepayments of Indebtedness which are pari passu or subordinated to the
Debenture,  unless the  Debenture  is prepaid on a pro rata  basis,  without the
consent of the Lender.

SECTION 6.13 CONSOLIDATION OR MERGER.

      Borrower shall not consolidate  with or merge into any other  corporation,
unless the surviving corporation,  after such merger or consolidation,  will not
be in Default and the surviving corporation becomes a party to this Agreement.

         ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS

SECTION 7.01 FINANCIAL RATIOS AND REQUIREMENTS.

      So long as the Debenture has not been redeemed or converted hereunder, and
until such  redemption or conversion has been made in full, or unless the Lender
shall otherwise consent in writing,  Borrower, on a consolidated basis, shall be
in compliance  with the minimum cash  requirement and total debt to equity ratio
provided in  SCHEDULE  7.01,  as of the end of each  fiscal  quarter of Borrower
subsequent to the date hereof,  and the Agent and Borrower  shall agree upon the
current  ratio  and the  interest  coverage  ratio as of the end of each  fiscal
quarter of Borrower  commencing  July 1, 2003, and all to be as set forth in its
quarterly compliance certificates delivered pursuant to Section 5.01.

                                       28
<PAGE>

                       ARTICLE VIII. - EVENTS OF DEFAULT

SECTION 8.01 EVENTS OF DEFAULT.

      An  "Event of  Default"  shall  exist if any one or more of the  following
events  (herein  collectively  called  "Events of  Default")  shall occur and be
continuing:

      (a)  Borrower  shall  fail to pay when due (or shall  state in  writing an
intention  not to pay or its  inability to pay) any  interest on or  outstanding
principal of the Debenture or any fee,  expense or other payment  required which
shall continue unpaid for a period of five (5) days;

      (b) Any  representation  or warranty made under this Agreement,  or any of
the other Loan Documents,  or in any certificate or statement  furnished or made
to the  Agent  pursuant  hereto  or in  connection  herewith  or with the  Loans
hereunder  shall prove to be untrue or inaccurate in any material  respect as of
the date on which such representation or warranty was made;

      (c) Default  shall occur in the  performance  of any of the  covenants  or
agreements of Borrower  contained  herein, or in any of the other Loan Documents
and the Company shall remain in default for a period of ten (10) days;

      (d) Any of the Loan Documents  shall cease to be legal,  valid and binding
agreements enforceable against Borrower in accordance with the respective terms,
or shall,  in any way, be terminated or become or be declared by any court or by
Borrower in any legal  proceeding to be ineffective or inoperative,  or shall in
any way  whatsoever  cease to give or provide  the  respective  rights,  titles,
interests, remedies, powers or privileges stated therein to be created thereby;

      (e)  Borrower  shall (i)  apply for or  consent  to the  appointment  of a
receiver, trustee,  custodian,  intervener or liquidator of itself, or of all or
substantially  all of such Person's  assets,  (ii) file a voluntary  petition in
bankruptcy,  admit in writing  that such  Person is unable to pay such  Person's
debts as they become due or generally not pay such Person's debts as they become
due, (iii) make a general  assignment for the benefit of creditors,  (iv) file a
petition or answer seeking reorganization or an arrangement with creditors or to
take  advantage  of any  bankruptcy  or  insolvency  laws,  (v)  file an  answer
admitting the material allegations of, or consent to, or default in answering, a
petition  filed  against  such  Person  in  any  bankruptcy,  reorganization  or
insolvency  proceeding,  or  (vi)  take  corporate  action  for the  purpose  of
effecting any of the foregoing;

      (f) An involuntary  petition or complaint shall be filed against  Borrower
seeking  bankruptcy or  reorganization  of such Person or the  appointment  of a
receiver, custodian, trustee, intervener or liquidator of such Person, or all or
substantially all of such Person's assets,  and such petition or complaint shall
not have been  dismissed  within  thirty  (30) days of the filing  thereof or an
order,  order for relief,  judgment  or decree  shall be entered by any court of
competent  jurisdiction  or other  competent  authority  approving a petition or
complaint   seeking   reorganization  of  Borrower  or  appointing  a  receiver,
custodian,  trustee,  intervener  or  liquidator  of such  Person,  or of all or
substantially all of such Person's assets;

      (g) Any final judgment(s) for the payment of money in excess of the sum of
Ten  Thousand  Dollars  ($10,000)  in the  aggregate  shall be rendered  against
Borrower  and such  judgment or judgments  shall not be satisfied or  discharged
prior to the date on which any of its assets  could be lawfully  sold to satisfy
such judgment; or

      (h)  Borrower  shall fail to issue and deliver  shares of Common  Stock as
provided herein upon conversion of the Debenture.

                                       29
<PAGE>

SECTION 8.02 REMEDIES UPON EVENT OF DEFAULT.

      (a) If an Event of Default shall have occurred and be continuing, then the
Lender may exercise any one or more of the following  rights and  remedies,  and
any other remedies  provided in any of the Loan Documents,  as the Lender in its
sole discretion may deem necessary or appropriate:

            (i) declare the unpaid  Principal  Amount (after  application of any
payments or  installments  received by the  Lender)  of, and all  interest  then
accrued but unpaid on, the Debenture and any other  liabilities  hereunder to be
forthwith  due and payable,  whereupon the same shall  forthwith  become due and
payable  without  presentment,  demand,  protest,  notice of default,  notice of
acceleration  or of intention to accelerate or other notice of any kind,  all of
which Borrower hereby  expressly  waives,  anything  contained  herein or in the
Debenture to the contrary notwithstanding;

            (ii) reduce any claim to judgment; and

            (iii) without notice of default or demand, pursue and enforce any of
the Lender's rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement, all of which rights may be
specifically enforced.

      (b) In the event of a violation by Borrower of the negative  covenants set
forth in  Article  VI,  the  Lender  may,  in its  sole  discretion,  (i)  waive
compliance with the covenants,  provided  Borrower is in compliance with Section
7.01 hereof;  or (ii) require  Borrower to redeem the Debenture at the higher of
market value or the unpaid principal  amount of the Debenture,  together with an
amount  equal  to an 18%  annual  yield  on the  principal  amount  through  the
Redemption Date, whichever is greater.

SECTION 8.03 PERFORMANCE BY THE LENDER.

      Should Borrower fail to perform any covenant,  duty or agreement contained
herein  or in any of the  other  Loan  Documents,  the  Lender  or the Agent may
perform or attempt to perform  such  covenant,  duty or  agreement  on behalf of
Borrower.  In such event,  Borrower  shall,  at the request of the Lender or the
Agent, promptly pay any amount reasonably expended by the Lender or the Agent in
such  performance  or  attempted  performance  to the Lender or the Agent at its
principal office, together with interest thereon, at the interest rate specified
in the Debenture, from the date of such expenditure until paid.  Notwithstanding
the foregoing,  it is expressly  understood that the Lender or the Agent assumes
no liability or  responsibility  for the  performance  of any duties of Borrower
hereunder or under any of the other Loan Documents.

SECTION 8.04 PAYMENT OF EXPENSES INCURRED BY THE LENDER.

      Upon the occurrence of a Default or an Event of Default,  which occurrence
is not cured within the notice  provisions,  if any,  provided herein,  Borrower
agrees  to pay and  shall  pay all  costs  and  expenses  (including  reasonable
attorneys' fees and expenses)  incurred by the Lender or the Agent in connection
with  the  preservation  and  enforcement  of the  Lender's  rights  under  this
Agreement, the Debenture or any other Loan Document.

                                       30
<PAGE>

                        ARTICLE IX. - REGISTRATION RIGHTS

SECTION 9.01 "PIGGY-BACK" REGISTRATION.

      If Borrower  proposes to register any of its capital  stock under the 1933
Act in  connection  with the  public  offering  of such  securities  for its own
account  or for the  account of its  security  holders,  other  than  Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration  Statement"),
except  for (i) a  registration  relating  solely to the sale of  securities  to
participants in Borrower's stock or stock option plans or employee benefit plans
or (ii) a registration  relating  solely to a transaction for which Form S-4 may
be used, then:

      (a)  Borrower  shall give  written  notice of such  determination  to each
Holder of Registrable  Securities,  and each such Holder shall have the right to
request,  by written  notice given to Borrower  within  fifteen (15) days of the
date that such  written  notice was mailed by  Borrower to such  Holder,  that a
specific number of Registrable Securities held by such Holder be included in the
Piggy-Back  Registration  Statement (and related underwritten  offering, if any)
and the states in which such Registrable Securities are to be sold;

      (b) If the Piggy-Back  Registration  Statement  relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of the
managing underwriter or underwriters for such offering. In addition, such notice
shall also specify the number of securities to be registered  for the account of
Borrower  and for the  account of its  shareholders  (other  than the Holders of
Registrable Securities), if any;

      (c) If the Piggy-Back  Registration  Statement  relates to an underwritten
offering,  each Holder of  Registrable  Securities  to be included  therein must
agree (i) to sell such  Holder's  Registrable  Securities  on the same  basis as
provided  in the  underwriting  arrangement  approved by  Borrower,  and (ii) to
timely complete and execute all questionnaires, powers of attorney, indemnities,
hold-back  agreements,  lock-up  agreements,  underwriting  agreements and other
documents  required under the terms of such underwriting  arrangements or by the
SEC or by any state securities regulatory body;

      (d) If the  managing  underwriter  or  underwriters  for the  underwritten
offering under the Piggy-Back  Registration  Statement determines that inclusion
of all or any  portion of the  Registrable  Securities  in such  offering  would
materially adversely affect the ability of the underwriters for such offering to
sell all of the securities requested to be included for sale in such offering at
the  best  price  obtainable  therefor,  the  aggregate  number  of  Registrable
Securities  that may be sold by the  Holders  shall be limited to such number of
Registrable  Securities,  if any, that the managing  underwriter or underwriters
determine may be included therein without such adverse effect as provided below.
If the number of securities  proposed to be sold in such  underwritten  offering
exceeds the number of securities that may be sold in such offering,  there shall
be included in the offering, first, up to the maximum number of securities to be
sold by Borrower  for its own account and for the account of other  stockholders
(other  than  Holders  of  Registrable  Securities),  as they  may  agree  among
themselves,  and  second,  as to the  balance,  if any,  Registrable  Securities
requested  to be included  therein by the Holders  thereof  (pro rata as between
such Holders based upon the number of Registrable  Securities initially proposed
to be  registered  by  each),  or in  such  other  proportions  as the  managing
underwriter or  underwriters  for the offering may require;  PROVIDED,  HOWEVER,
that in the event  that the  number of  securities  proposed  to be sold in such
underwritten  offering exceeds the number of securities that may be sold in such
offering pursuant to the terms and conditions set forth above and the Piggy-Back
Registration  Statement  is a result  of  public  offering  by  Borrower  of its
securities for its own account, there shall be included in the offering,  first,
up to the  maximum  number  of  securities  to be sold by  Borrower  for its own
account and second,  as to the balance,  if any,  securities  to be sold for the
account of Borrower's  stockholders (both the Holders of Registrable  Securities
requested  and such other  stockholders  of  Borrower  requested  to be included
therein) on a pro rata basis;

                                       31
<PAGE>

      (e)  Holders of  Registrable  Securities  shall have the right to withdraw
their Registrable Securities from the Piggy-Back Registration Statement,  but if
the same  relates to an  underwritten  offering,  they may only do so during the
time  period  and on the  terms  agreed  upon  among the  underwriters  for such
underwritten offering and the Holders of Registrable Securities;

      (f) The exercise of the registration rights of the Holders with respect to
any specific  underwritten  offering shall be subject to a ninety (90)-day delay
at the request of the managing underwriter;

      (g) All piggyback  registration rights of the Holders shall terminate when
all of the Registrable  Securities Then Outstanding may be sold pursuant to Rule
144(k).

SECTION 9.02 SHELF REGISTRATION.

      Borrower  shall file a  registration  statement on Form S-3 under the 1933
Act (the "Shelf Registration") covering all of the Registrable Securities within
the later of one hundred  eighty (180) days of the date of the  Debenture or the
Company  becomes  eligible to file a  registration  statement  on Form S-3,  and
Borrower  shall  use its best  efforts  to cause the  Shelf  Registration  to be
declared  effective and to keep the Shelf  Registration  continuously  effective
until  all  of  the  Registrable  Securities  registered  therein  cease  to  be
Registrable Securities.  The securities shall cease to be Registrable Securities
(a) when the Shelf  Registration  shall have become effective under the 1933 Act
and such  securities  shall have been  disposed of  pursuant  to a  registration
statement,  or (b) such securities shall have been sold as permitted by Rule 144
under the 1933 Act or the date on which the  Registrable  Securities may be sold
pursuant to Rule 144(k),  whichever is the first to occur.  Borrower agrees,  if
necessary,  to  supplement or amend the Shelf  Registration,  as required by the
registration form utilized by Borrower or by the instructions applicable to such
registration  form or by the 1933 Act,  and  Borrower  agrees to  furnish to the
holders of the Registrable Securities copies of any such supplement or amendment
prior to its being used.

SECTION 9.03 OBLIGATIONS OF BORROWER.

      Whenever required to effect the registration of any Registrable Securities
pursuant to this  Agreement,  Borrower  shall,  as  expeditiously  as reasonably
possible:

      (a) Prepare and file with the SEC a registration statement with respect to
such  Registrable  Securities  and use all  reasonable  efforts  to  cause  such
registration  statement  to become  effective,  subject  to the  receipt  of all
required  information  from the Holders,  and keep such  registration  statement
effective  until  the  sooner of all such  Registrable  Securities  having  been
distributed,  or until 120 days have elapsed since such  registration  statement
became effective (subject to an extension of this period as provided below);

      (b) Prepare and file with the SEC such  amendments and supplements to such
registration   statement  and  the  prospectus  used  in  connection  with  such
registration  statement as may be necessary to comply with the provisions of the
1933 Act with  respect  to the  disposition  of all  securities  covered by such
registration  statement,  or 120  days  have  elapsed  since  such  registration
statement became effective  (subject to the extension of this period as provided
below);

                                       32
<PAGE>

      (c)  Furnish  to the  Holders  such  numbers  of copies  of a  prospectus,
including a preliminary  prospectus,  in conformity with the requirements of the
1933 Act, and such other  documents as they may  reasonably  request in order to
facilitate the disposition of Registrable Securities owned by them;

      (d) Use all  reasonable  efforts to register  and  qualify the  securities
covered by such  registration  statement under such other securities or Blue Sky
laws of such  jurisdictions  as shall be  reasonably  requested  by the Holders,
provided that Borrower  shall not be required,  in connection  therewith or as a
condition thereto,  to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any such
states or jurisdictions;

      (e) In the  event of any  underwritten  public  offering,  enter  into and
perform  its  obligations  under an  underwriting  agreement  with the  managing
underwriter   of  such  offering,   in  usual  and  customary  form   reasonably
satisfactory  to  Borrower  and the  Holders  of a majority  of the  Registrable
Securities to be included in such offering.  Each Holder  participating  in such
underwriting  shall also enter into and  perform its  obligations  under such an
agreement;

      (f)  Notify  each  Holder  of  Registrable   Securities  covered  by  such
registration  statement,  at any time when a  prospectus  relating  thereto  and
covered by such  registration  statement is required to be  delivered  under the
1933 Act,  of the  happening  of any  event as a result of which the  prospectus
included in such registration  statement,  as then in effect, includes an untrue
statement of a material  fact or omits to state a material  fact  required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and

      (g) In the  event of the  notification  provided  for in  Section  9.03(f)
above, Borrower shall use its best efforts to prepare and file with the SEC (and
to provide  copies  thereof to the  Holders) as soon as  reasonably  possible an
amended prospectus  complying with the 1933 Act, and the period during which the
prospectus  referred  to in the notice  provided  for in Section  9.03(f)  above
cannot be used and the time period  prior to the use of the  amended  prospectus
referred to in this Section  9.03(g)  shall not be counted in the 120 day period
of this Section 9.03.

SECTION 9.04 FURNISH INFORMATION.

      (a) It shall be a condition  precedent to the  obligations  of Borrower to
take any action  pursuant  to this  Article IX that the  selling  Holders  shall
furnish to Borrower any and all  information  reasonably  requested by Borrower,
its officers,  directors,  employees,  counsel,  agents or representatives,  the
underwriter  or  underwriters,  if any,  and the SEC or any  other  Governmental
Authority,  including,  but not  limited  to:  (i)  such  information  regarding
themselves,  the Registrable Securities held by them, and the intended method of
disposition of such securities,  as shall be required to effect the registration
of their Registrable Securities; and (ii) the identity of and compensation to be
paid to any proposed  underwriter or  broker-dealer to be employed in connection
therewith.

      (b) In connection  with the  preparation  and filing of each  registration
statement registering  Registrable Securities under the 1933 Act, Borrower shall
give the Holders of  Registrable  Securities  on whose  behalf such  Registrable
Securities  are to be  registered  and  their  underwriters,  if any,  and their
respective  counsel  and  accountants,  at such  Holders'  sole cost and expense
(except as  otherwise  set forth  herein),  such access to copies of  Borrower's
records and documents and such opportunities to discuss the business of Borrower
with its officers and the independent  public accountants who have certified its
financial  statements  as shall be  reasonably  necessary in the opinion of such
Holders  and such  underwriters  or  their  respective  counsel,  to  conduct  a
reasonable investigation within the meaning of the 1933 Act.

                                       33
<PAGE>

SECTION 9.05 EXPENSES OF REGISTRATION.

      All expenses, other than underwriting discounts and commissions applicable
to the Registrable  Securities sold by selling  Holders,  incurred in connection
with the  registration of the Registrable  Securities  pursuant to this Article,
including, without limitation, all registration,  filing and qualification fees,
printer's  expenses,  and accounting and legal fees and expenses of Borrower and
selling Holders, shall be borne by Borrower.

SECTION 9.06 INDEMNIFICATION REGARDING REGISTRATION RIGHTS.

      If any  Registrable  Securities are included in a  registration  statement
under this Article:

      (a) To the extent  permitted  by law,  Borrower  will  indemnify  and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as  defined  in the 1933 Act) for such  Holder  and each  person,  if any,  who
controls  such Holder or  underwriter  within the meaning of the 1933 Act or the
1934 Act, against any losses, claims, damages, liabilities (joint or several) or
any legal or other costs and expenses  reasonably incurred by them in connection
with  investigating  or defending  any such loss,  claim,  damage,  liability or
action to which  they may  become  subject  under the 1933 Act,  the 1934 Act or
state  law,  insofar  as  such  losses,  claims,  damages,  costs,  expenses  or
liabilities  (or actions in respect  thereof) arise out of or are based upon any
of the following statements,  omissions or violations (each a "Violation"):  (i)
any untrue statement or alleged untrue statement of a material fact with respect
to  Borrower  or  its  securities  contained  in  such  registration  statement,
including any preliminary  prospectus or final prospectus  contained  therein or
any amendments or supplements therein;  (ii) the omission or alleged omission to
state  therein a  material  fact with  respect  to  Borrower  or its  securities
required to be stated  therein or necessary to make the  statements  therein not
misleading;  or (iii) any violation or alleged violation by Borrower of the 1933
Act,  the  1934  Act,  any  state  securities  law or  any  rule  or  regulation
promulgated  under  the 1933  Act,  the 1934 Act or any  state  securities  law.
Notwithstanding the foregoing, the indemnity agreement contained in this Section
9.06(a)  shall not apply and  Borrower  shall not be liable (i) in any such case
for any such loss, claim, damage,  costs,  expenses,  liability or action to the
extent  that it  arises  out of or is based  upon a  Violation  which  occurs in
reliance upon, and in conformity with, written  information  furnished expressly
for  use in  connection  with  such  registration  by  any  such  Holder  or its
authorized agent, underwriter or controlling person, or (ii) for amounts paid in
settlement  of any  such  loss,  claim,  damage,  liability  or  action  if such
settlement  is effected  without the prior  written  consent of Borrower,  which
consent shall not be unreasonably withheld.

      (b) To the extent  permitted  by law,  each Holder who  participates  in a
registration  pursuant  to the  terms and  conditions  of this  Agreement  shall
indemnify  and hold  harmless  Borrower,  each of its directors and officers who
have signed the  registration  statement,  each  Person,  if any,  who  controls
Borrower within the meaning of the 1933 Act, the 1934 Act, any state  securities
law or any rule or  regulation  promulgated  under the 1933 Act, the 1934 Act or
any state  securities  law, each of Borrower's  employees,  agents,  counsel and
representatives, any underwriter and any other Holder selling securities in such
registration  statement,  or any of its directors or officers, or any person who
controls such Holder,  against any losses, claims,  damages,  costs, expenses or
liabilities (joint or several) to which Borrower or any such director,  officer,
controlling person, employee, agent,  representative,  underwriter or other such
Holder, or director,  officer or controlling person thereof, may become subject,
under the 1933 Act, the 1934 Act or other  federal or state law, only insofar as
such losses,  claims,  damages,  costs,  expenses or  liabilities  or actions in
respect  thereto arise out of or are based upon any  Violation,  in each case to
the extent, and only to the extent,  that such Violation occurs in reliance upon
and in conformity with written  information  furnished by such Holder  expressly
for use in connection  with such  Registration.  Each such Holder will indemnify
any  legal  or  other  expenses  reasonably  incurred  by  Borrower  or any such
director,   officer,  employee,  agent,   representative,   controlling  person,
underwriter  or other Holder,  or officer,  director or any  controlling  person
thereof,  in connection with  investigating  or defending any such loss,  claim,
damage,  liability or action;  PROVIDED,  HOWEVER,  that the indemnity agreement
contained in this Section  9.06(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage,  costs,  expenses,  liability or action if such
settlement is effected  without the prior written  consent of the Holder,  which
consent shall not be unreasonably withheld.

                                       34
<PAGE>

      (c) Promptly after receipt by an indemnified party under this Section 9.06
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any  indemnifying  party under this Section  9.06,  deliver to the  indemnifying
party a written notice of the commencement  thereof and the  indemnifying  party
shall have the right to  participate  in,  and,  to the extent the  indemnifying
party so desires,  jointly with any other  indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
PROVIDED,  HOWEVER, that an indemnified party shall have the right to retain its
own counsel, with the reasonable fees and expenses of such counsel to be paid by
the  indemnifying  party, if  representation  of such  indemnified  party by the
counsel retained by the indemnifying  party would be inappropriate due to actual
or potential  conflict of interests between such indemnified party and any other
party  represented  by such counsel in such  proceeding.  The failure to deliver
written  notice  to the  indemnifying  party  within  a  reasonable  time of the
commencement of any such action shall not relieve the indemnifying  party of its
obligations  under this  Section  9.06,  except to the extent  that the  failure
results  in a  failure  of  actual  notice  to the  indemnifying  party and such
indemnifying party is materially prejudiced in its ability to defend such action
solely as a result of the failure to give such notice.

      (d)  If  the  indemnification   provided  for  in  this  Section  9.06  is
unavailable to an indemnified party under this Section in respect of any losses,
claims,  damages,  costs,  expenses,  liabilities or actions referred to herein,
then each indemnifying  party, in lieu of indemnifying  such indemnified  party,
shall  contribute to the amount paid or payable by such  indemnified  party as a
result of such losses, claims, damages, costs, expenses,  liabilities or actions
in such  proportion as is appropriate to reflect the relative fault of Borrower,
on the one  hand  and of the  Holder,  on the  other,  in  connection  with  the
Violation  that  resulted in such  losses,  claims,  damages,  costs,  expenses,
liabilities or actions. The relative fault of Borrower,  on the one hand, and of
the Holder,  on the other,  shall be  determined  by  reference  to, among other
things,  whether the untrue or alleged untrue  statement of the material fact or
the  omission  to state a material  fact  relates  to  information  supplied  by
Borrower or by the Holder, and the parties' relative intent,  knowledge,  access
to information and opportunity to correct or prevent such statement or omission.

      (e) Borrower,  on the one hand, and the Holders,  on the other, agree that
it would not be just and equitable if contribution pursuant to this Section 9.06
were  determined  by a pro rata  allocation or by any other method of allocation
which does not take account of the equitable  considerations  referred to in the
immediately  preceding  paragraph.  The amount paid or payable by an indemnified
party as a result of losses, claims, damages,  costs, expenses,  liabilities and
actions  referred to in the immediately  preceding  paragraph shall be deemed to
include,  subject to the  limitations set forth above,  any reasonable  legal or
other expenses  incurred by such indemnified  party in connection with defending
any such action or claim.  Notwithstanding  the provisions of this Section 9.06,
neither  Borrower nor the Holders shall be required to contribute  any amount in
excess  of the  amount by which the  total  price at which the  securities  were
offered to the public  exceeds the amount of any damages which  Borrower or each
such Holder has otherwise been required to pay by reason of such  Violation.  No
person  guilty of fraudulent  misrepresentations  (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution  from any person who is
not guilty of such fraudulent misrepresentation.

                                       35
<PAGE>

SECTION 9.07 REPORTS UNDER THE 1934 ACT.

      So long as  Borrower  has a class of  securities  registered  pursuant  to
Section 12 of the 1934 Act,  with a view to making  available to the Holders the
benefits of Rule 144  promulgated  under the 1933 Act ("Rule 144") and any other
rule or  regulation  of the SEC  that may at any  time  permit a Holder  to sell
securities  of  Borrower  to the public  without  registration  or pursuant to a
registration  on Form S-3, if applicable,  Borrower agrees to use its reasonable
efforts to:

      (a)  Make and keep  public  information  available,  as  those  terms  are
understood and defined in Rule 144, at all times;

      (b) File with the SEC, in a timely manner, all reports and other documents
required of Borrower under the 1933 Act and the 1934 Act;

      (c) Use its best  efforts to  include  all  Common  Stock  covered by such
registration  statement  on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list  all  Common  Stock  covered  by  such  registration  statement  on such
securities  exchange or bulletin  board on which any of the Common Stock is then
listed;  or, if the Common  Stock is not then  quoted on NASDAQ or listed on any
national  securities  exchange or bulletin  board,  use its best efforts to have
such Common Stock covered by such registration statement quoted on NASDAQ or, at
the option of  Borrower,  listed on a national  securities  exchange or bulletin
board if eligible for listing; and

      (d)  Furnish to any  Holder,  so long as the Holder  owns any  Registrable
Securities,  (i)  forthwith  upon  request,  a copy of the most recent annual or
quarterly  report of Borrower and such other SEC reports and  documents so filed
by Borrower, and (ii) such other information (but not any opinion of counsel) as
may be reasonably  requested by any Holder  seeking to avail himself of any rule
or  regulation  of the SEC which  permits  the  selling  of any such  securities
without registration or pursuant to such form.

SECTION 9.08 ASSIGNMENT OF REGISTRATION RIGHTS.

      Subject to the terms and conditions of this Agreement,  and the Debenture,
the right to cause Borrower to register Registrable  Securities pursuant to this
Agreement  may be  assigned  by Holder to any  transferee  or  assignee  of such
securities;  provided  that (i) such  transferee  or assignee is a transferee or
assignee of at least ten percent (10%) of the Registrable Securities,  (ii) such
transferee or assignee is not a Person who is a direct,  material  competitor of
Borrower,  (iii)  Borrower  is,  within a reasonable  time after such  transfer,
furnished  with  written  notice of the name and address of such  transferee  or
assignee and the securities with respect to which such  registration  rights are
being  assigned;   and,  (iv)  such  assignment  shall  be  effective  only  if,
immediately following such transfer,  the further disposition of such securities
by the  transferee  or assignee is  restricted  under the 1933 Act; it being the
intention  that, so long as Holder holds any Registrable  Securities  hereunder,
either Holder or its transferee or assignee of at least ten percent may exercise
the piggy-back registration rights hereunder. Other than as set forth above, the
parties hereto hereby agree that the registration  rights hereunder shall not be
transferable  or  assigned  and  any  contemplated  transfer  or  assignment  in
contravention  of this Agreement  shall be deemed null and void and of no effect
whatsoever.

                                       36
<PAGE>

SECTION 9.09 OTHER MATTERS.

      (a) Each Holder of Registrable  Securities hereby agrees by acquisition of
such  Registrable  Securities  that,  with  respect  to  each  offering  of  the
Registrable  Securities,  whether  each  Holder  is  offering  such  Registrable
Securities in an  underwritten  or  nonunderwritten  offering,  such Holder will
comply with  Regulation M or such other or  additional  anti-manipulation  rules
then in effect  until such  offering has been  completed,  and in respect of any
nonunderwritten offering, in writing will inform Borrower, any other Holders who
are selling  shareholders,  and any national  securities exchange upon which the
securities of Borrower are listed,  that the  Registrable  Securities  have been
sold and will, upon Borrower's  request,  furnish the  distribution  list of the
Registrable  Securities.  In addition, upon the request of Borrower, each Holder
will supply  Borrower  with such  documents  and  information  as  Borrower  may
reasonably request with respect to the subject matter set forth and described in
this Section 9.09.

      (b) Each Holder of Registrable  Securities hereby agrees by acquisition of
such  Registrable  Securities  that, upon receipt of any notice from Borrower of
the  happening of any event which makes any statement  made in the  registration
statement,  the  prospectus or any document  incorporated  therein by reference,
untrue in any  material  respect or which  requires the making of any changes in
the registration statement,  the prospectus or any document incorporated therein
by  reference,  in order to make the  statements  therein not  misleading in any
material  respect,  such  Holder  will  forthwith  discontinue   disposition  of
Registrable   Securities   under  the  prospectus   related  to  the  applicable
registration  statement  until  such  Holder's  receipt  of  the  copies  of the
supplemented  or  amended  prospectus,  or until it is  advised  in  writing  by
Borrower that the use of the prospectus may be resumed,  and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus.

                         ARTICLE X. - BOARD OF DIRECTORS

SECTION 10.01 BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.

      (a)  Borrower  herewith  agrees that the Agent shall have the right,  from
time to time,  to  designate  a  nominee  to serve as a member  of the  Board of
Directors of Borrower.  (This right is presently  satisfied.)  In the event of a
monetary  Default under  Section 8.01 hereof,  the Agent shall have the right to
designate  one (1)  additional  nominee  to serve as a  member  of the  Board of
Directors of Borrower. Borrower will nominate and use its best efforts to secure
the election of such  designee(s) as  Director(s) of Borrower.  If the number of
directors  equals the  maximum  number of  directors  authorized  by  Borrower's
Articles of Incorporation  or Bylaws,  one (1) director who is also an executive
officer of Borrower must resign. During such time as the Agent has not exercised
such rights, the Agent shall have the right to designate an observer,  who shall
be  entitled  to attend and  participate  (but not vote) in all  meetings of the
Board  of  Directors   and  to  receive  all  notices,   reports,   information,
correspondence  and  communications  sent by Borrower to members of the Board of
Directors.  All costs and expenses  incurred by any such designated  Director or
observer,  or by the Agent on  behalf of such  Director  or  observer,  shall be
promptly reimbursed by Borrower.

      (b) Any such  Director or observer  shall,  if requested to do so,  absent
himself  or  herself  from the  meeting  in the  event of,  and so long as,  the
Directors  are  considering  and acting on matters  pertaining  to any rights or
obligations of Borrower or the Lender under this Agreement,  the Debenture,  the
other Loan Documents.

SECTION  10.02  LIMITATION  OF  AUTHORITY  OF PERSONS  DESIGNATED  AS A DIRECTOR
NOMINEE.

      It is provided  and agreed that the actions and advice of any person while
serving  pursuant  to Section  10.01 as a Director or an observer at meetings of
the Board of  Directors  shall be construed to be the actions and advice of that
person  alone and not be  construed as actions of the Lender as to any notice of
requirements  or rights of the Lender under this Agreement,  the Debenture,  the
other Loan  Documents  nor as  actions  of the Lender to approve  modifications,
consents,  amendments or waivers thereof;  and all such actions or notices shall
be deemed  actions or notices of the Lender  only when duly  provided in writing
and given in accordance with the provisions of this Agreement.

                                       37
<PAGE>

SECTION 10.03 NONLIABILITY OF THE LENDER.

      The  relationship  between  Borrower  and the  Lender is, and shall at all
times remain,  solely that of borrower and lender. The Lender neither undertakes
nor  assumes  any  responsibility  or  duty  to  Borrower  to  review,  inspect,
supervise,  pass  judgment  upon or inform  Borrower of any matter in connection
with any phase of Borrower's  business,  operations  or condition,  financial or
otherwise.  Borrower  shall rely  entirely upon its own judgment with respect to
such matters, and any review, inspection,  supervision,  exercise of judgment or
information  supplied to Borrower by the Lender, or any  representative or agent
of the Lender,  in connection  with any such matter is for the protection of the
Lender, and neither Borrower nor any third party is entitled to rely thereon.

                         ARTICLE XI. - AGENCY PROVISIONS

SECTION 11.01 THE LENDER'S REPRESENTATIONS AND WARRANTIES TO THE AGENT.

      The Lender represents and warrants to the Agent:

      (a) It is legal  for it to make the  Loan,  and the  making  of such  Loan
complies with laws applicable to it;

      (b) It has  made,  its  own  independent  review  (including  any  desired
investigations and inspections) of, and it accepts and approves,  the Loan, this
Agreement and the  associated  documents  and all other matters and  information
which it deems pertinent. It acknowledges that the Loan Documents are a complete
statement of all  understandings  and respective rights and obligations  between
and among the Lender and Borrower regarding the Loan;

      (c) The Lender  has not made any  express  or  implied  representation  or
warranty to any other lender with respect to this transaction;

      (d) It will, independently and without reliance upon any other lender, and
based upon such documents and  information  as it shall deem  appropriate at the
time,  continue to make its own credit  analysis,  appraisals  and  decisions in
taking  or  not  taking  action  under  this  Agreement,   and  will  make  such
investigation  as it deems  necessary to inform itself as to the Loan,  the Loan
Documents, Borrower and any collateral;  PROVIDED, HOWEVER, nothing contained in
this Section  shall limit the Agent's  obligation to provide the Lender with the
information and documents the Agent is expressly  required to deliver under this
Agreement;

      (e) The Loan  Documents  executed  by the  Lender  are valid  and  binding
obligations of the Lender.

SECTION 11.02 WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS.

      A waiver of an interest or principal  payment,  a declaration of a Default
or any amendment, modification or waiver of this Agreement or the Debenture will
require the consent of the Lender.

                                       38
<PAGE>

SECTION 11.03 AGENCY.

      (a) The Lender hereby  designates  and appoints  Renaissance  Group as its
Agent under this  Agreement and  authorizes the Agent to take such action on its
behalf under the  provisions of this  Agreement and the other Loan Documents and
to exercise  such powers as are set forth herein or therein,  together with such
other powers as are reasonably  incidental  thereto. In performing its functions
and duties  under  this  Agreement,  the Agent  shall act solely as agent of the
Lender  and does not  assume,  and  shall not be  deemed  to have  assumed,  any
obligation  toward or relationship of agency or trust with or for Borrower.  The
Agent may perform  any of its duties  under this  Agreement,  or under the other
Loan Documents, by or through its agents or employees.

      (b) The  Agent  shall  have no  duties or  responsibilities  except  those
expressly set forth in this Agreement,  in the other Loan  Documents.  Except as
expressly  provided  herein,  the duties of the Agent  shall be  mechanical  and
administrative in nature. The Agent shall have, and may use, its sole discretion
with respect to exercising or refraining from taking any actions which the Agent
is  expressly  entitled to take or assert under this  Agreement,  the other Loan
Documents.  The Agent shall not have, by reason of this  Agreement,  a fiduciary
relationship with respect to the Lender.  Nothing in this Agreement,  any of the
other Loan Documents,  express or implied,  is intended to or shall be construed
to impose upon the Agent any  obligations in respect of this  Agreement,  any of
the other Loan Documents except as expressly set forth herein or therein. If the
Agent seeks the  consent or  approval of the Lender to the taking or  refraining
from taking any action  hereunder,  the Agent  shall send notice  thereof to the
Lender. The Agent may employ agents,  co-agents and  attorneys-in-fact and shall
not be responsible  to the Lender or Borrower,  except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care.

      (c) Neither the Agent nor any of its  officers,  directors,  employees  or
agents  shall be liable to the Lender  for any action  taken or omitted by it or
any of them  under  this  Agreement,  any of the  other  Loan  Documents,  or in
connection herewith or therewith, except that no Person shall be relieved of any
liability imposed by law, intentional tort or gross negligence.  The Agent shall
not be responsible to the Lender for any recitals,  statements,  representations
or warranties  contained in this Agreement or for the execution,  effectiveness,
genuineness,  validity,  enforceability,  collectability  or sufficiency of this
Agreement,  any  of  the  other  Loan  Documents  or  any  of  the  transactions
contemplated  thereby,  or for the  financial  condition of Borrower.  The Agent
shall not be required to make any inquiry  concerning  either the performance or
observance of any of the terms, provisions or conditions of this Agreement,  any
of the other Loan  Documents or the  financial  condition  of  Borrower,  or the
existence or possible  existence  of any Default or Event of Default.  The Agent
shall  give the  Lender  notice of any  Default or Event of Default of which the
Agent has actual notice. The Agent may, at any time,  request  instructions from
the Lender with respect to any actions or approvals  which, by the terms of this
Agreement,  of any of the  other  Loan  Documents,  the  Agent is  permitted  or
required to take or to grant, and if such  instructions are promptly  requested,
the Agent shall be  absolutely  entitled to refrain from taking any action or to
withhold  any approval and shall not be under any  liability  whatsoever  to any
Person for refraining  from any action or withholding  any approval under any of
the Loan  Documents  until it shall have  received  such  instructions  from the
Lender.  Without limiting the foregoing,  the Lender shall not have any right of
action  whatsoever  against  the  Agent  as a  result  of the  Agent  acting  or
refraining from acting under this Agreement,  any of the other Loan Documents in
accordance with the instructions of the Lender.

      (d) The  Agent  shall  be  entitled  to rely  upon  any  written  notices,
statements,  certificates,  orders or other  documents or any telephone  message
believed  by it, in good  faith,  to be  genuine  and  correct  and to have been
signed,  sent or made by the proper  Person,  and with  respect  to all  matters
pertaining  to this  Agreement,  any of the other Loan  Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.

                                       39
<PAGE>

      (e) To the extent  that the Agent is not  reimbursed  and  indemnified  by
Borrower,  the Lender will reimburse and indemnify the Agent for and against any
and  all  liabilities,   obligations,   losses,  damages,  penalties,   actions,
judgments,  suits,  costs,  expenses,  advances or  disbursements of any kind or
nature  whatsoever  which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement,  any of the other
Loan  Documents,  or any  action  taken  or  omitted  by the  Agent  under  this
Agreement,  any of the other Loan Documents. The obligations of the Lender under
this  indemnification  provision  shall survive the payment in full of the Loans
and the termination of this Agreement.

                          ARTICLE XII. - MISCELLANEOUS

SECTION 12.01 STRICT COMPLIANCE.

      Any waiver by the Lender of any  breach or any term or  condition  of this
Agreement,  the other Loan  Documents  shall not be deemed a waiver of any other
breach,  nor shall any failure to enforce any provision of this  Agreement,  the
other  Loan  Documents  operate  as a waiver of such  provision  or of any other
provision,  nor  constitute  nor be deemed a waiver or release of  Borrower  for
anything arising out of, connected with or based upon this Agreement,  the other
Loan Documents.

SECTION 12.02 WAIVERS AND MODIFICATIONS.

      All modifications,  consents,  amendments or waivers (herein "Waivers") of
any provision of this Agreement,  the Debenture,  any other Loan Documents,  and
any consent to departure therefrom, shall be effective only if the same shall be
in  writing  by the Lender  and then  shall be  effective  only in the  specific
instance and for the purpose for which given.  No notice or demand given, in any
case,  shall  constitute a waiver of the right to take other action in the same,
similar  or other  instances  without  such  notice or  demand.  No  failure  to
exercise,  and no delay in  exercising,  on the part of the Agent or the Lender,
any right hereunder  shall operate as a waiver thereof,  nor shall any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right. The rights of the Lender hereunder, under the other
Loan Documents shall be in addition to all other rights provided by law.

SECTION 12.03 LIMITATION ON LIABILITY.

      The duties,  warranties,  covenants  and  promises  arising  from the Loan
Documents of the Lender or the Agent to Borrower shall be several and not joint,
and Borrower shall have no legal or equitable cause of action against the Lender
or the Agent (or their successors or assigns) for any liability of the other (or
its successors or assigns).

SECTION 12.04 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.

      Any suit,  action or  proceeding  against  Borrower  with  respect to this
Agreement  or the  Debenture  or any  judgment  entered  by any court in respect
thereof,  may be brought in the courts of the State of Texas,  County of Dallas,
or in the United States  federal  courts  located in the State of Texas,  as the
Lender or the Agent,  in its sole  discretion,  may elect,  and Borrower  hereby
submits to the  nonexclusive  jurisdiction of such courts for the purpose of any
such suit,  action or  proceeding.  Borrower  hereby  agrees that service of all
writs,  process and summonses in any such suit, action or proceeding  brought in
the  State of  Texas  may be  brought  upon,  and  Borrower  hereby  irrevocably
appoints,  CT  Corporation  System,  Dallas,  Texas,  as  its  true  and  lawful
attorney-in-fact in the name, place and stead of Borrower to accept such service
of any and all such writs,  process and summonses.  Borrower hereby  irrevocably
waives any objections  which it may now or hereafter have to the laying of venue
of any suit,  action or proceeding  arising out of or relating to this Agreement
or any Debenture brought in such courts,  and hereby further  irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum.

                                       40
<PAGE>

SECTION 12.05 INVALID PROVISIONS.

      If any  provision of any Loan  Document is held to be illegal,  invalid or
unenforceable  under  present or future laws during the term of this  Agreement,
such provision shall be fully  severable;  such Loan Document shall be construed
and enforced as if such illegal,  invalid or  unenforceable  provision had never
comprised a part of such Loan  Document;  and the  remaining  provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal,  invalid or  unenforceable  provision or by its severance from such
Loan  Document.   Furthermore,   in  lieu  of  each  such  illegal,  invalid  or
unenforceable provision shall be added as part of such Loan Document a provision
mutually  agreeable  to  Borrower  and the  Lender as  similar  in terms to such
illegal,  invalid or  unenforceable  provision  as may be possible and be legal,
valid and enforceable.  In the event Borrower and the Lender are unable to agree
upon a provision  to be added to the Loan  Document  within a period of ten (10)
business  days after a  provision  of the Loan  Document  is held to be illegal,
invalid  or   unenforceable,   then  a  provision   acceptable  to   independent
arbitrators,  such to be  selected  in  accordance  with the  provisions  of the
American Arbitration Association, as similar in terms to the illegal, invalid or
unenforceable provision as is possible and be legal, valid and enforceable shall
be added automatically to such Loan Document. In either case, the effective date
of the added provision shall be the date upon which the prior provision was held
to be illegal, invalid or unenforceable.

SECTION 12.06 MAXIMUM INTEREST RATE.

      (a)  Regardless of any provision  contained in any of the Loan  Documents,
the Lender  shall never be entitled to receive,  collect or apply as interest on
the Debenture  any amount in excess of interest  calculated at the Maximum Rate,
and, in the event that the Lender ever receives, collects or applies as interest
any such excess, the amount which would be excessive interest shall be deemed to
be a partial  prepayment of principal and treated hereunder as such; and, if the
principal  amount of the Obligation is paid in full, any remaining  excess shall
forthwith be paid to Borrower.  In determining  whether or not the interest paid
or payable under any specific  contingency  exceeds  interest  calculated at the
Maximum Rate,  Borrower and the Lender shall,  to the maximum  extent  permitted
under applicable law, (i)  characterize any nonprincipal  payment as an expense,
fee or premium rather than as interest,  (ii) exclude voluntary  prepayments and
the effects thereof, and (iii) amortize, pro rate, allocate and spread, in equal
parts, the total amount of interest  throughout the entire  contemplated term of
the  Debenture;  provided  that,  if the Debenture is paid and performed in full
prior to the end of the full  contemplated  term  thereof,  and if the  interest
received for the actual period of existence thereof exceeds interest  calculated
at the Maximum  Rate,  the Lender  shall  refund to Borrower  the amount of such
excess or credit the amount of such excess  against the principal  amount of the
Debenture  and, in such event,  the Lender shall not be subject to any penalties
provided  by any  laws for  contracting  for,  charging,  taking,  reserving  or
receiving interest in excess of interest calculated at the Maximum Rate.

      (b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest  permitted by applicable law on such day that, at any time or from time
to time,  may be contracted  for,  taken,  reserved,  charged or received on the
Indebtedness  evidenced by the  Debenture  under the laws which are presently in
effect of the United  States of America  and the laws of any other  jurisdiction
which  are  or may be  applicable  to the  holder  of  the  Debenture  and  such
Indebtedness  or, to the extent  permitted by law, under such applicable laws of
the United States of America and the laws of any other jurisdiction which are or
may be  applicable  to the holder of the Debenture and which may hereafter be in
effect  and  which  allow  a  higher  maximum  nonusurious  interest  rate  than
applicable laws now allow.

                                       41
<PAGE>

SECTION 12.07 PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURE.

      (a) The  Lender  and the  Agent  shall  have the  right  to  enter  into a
participation  agreement with any other party or its Affiliates  with respect to
the  Debenture,  or  to  sell  all  or  any  part  of  the  Debenture,  but  any
participation  or sale  shall not  affect the rights and duties of the Lender or
the Agent hereunder vis-a-vis Borrower.  In the event that all or any portion of
the Loan  shall be at any  time,  assigned,  transferred  or  conveyed  to other
parties,  any action,  consent or waiver  (except for compromise or extension of
maturity),  to be given or taken by the  Lender or the Agent  hereunder  (herein
"Action"),  shall be such  action as taken by the holder of a majority in amount
of the Principal  Amount of the Debenture then  outstanding,  as such holder are
recorded on the books of Borrower and  represented  by the Agent as described in
subsection (b) below.

      (b) Assignment or sale of the Debenture shall be effective on the books of
Borrower only upon (i)  endorsement  of the Debenture,  or part thereof,  to the
proposed new holder,  along with a current notation of the amount of payments or
installments  received  and net  Principal  Amount yet  unfunded or unpaid,  and
presentment of such Debenture to Borrower for issue of a replacement  Debenture,
in the name of the new  holder;  and (ii)  delivery  of an opinion  of  counsel,
reasonably   satisfactory   to  Borrower,   that  transfer   shall  not  require
registration or qualification under applicable state or federal securities laws.

      (c) The Debenture may be sold,  transferred or assigned only to Affiliates
of the Lender or permitted  transferees  in  multiples  of Ten Thousand  Dollars
($10,000).

SECTION 12.08 CONFIDENTIALITY.

      (a) All financial  reports or information that are furnished to the Lender
or Holders,  or their respective  director  designees or other  representatives,
pursuant  to this  Agreement  or  pursuant  to the  Debenture,  the  other  Loan
Documents  shall be treated as  confidential  unless and to the extent that such
information  has been  otherwise  disclosed  by  Borrower,  but  nothing  herein
contained  shall limit or impair the Lender's or Holders' right to disclose such
reports to any appropriate Governmental Authority, or to use such information to
the  extent  pertinent  to an  evaluation  of  the  Obligation,  or  to  enforce
compliance  with the  terms and  conditions  of this  Agreement,  or to take any
lawful  action  which the  Lender or Holders  deem  necessary  to protect  their
respective interests under this Agreement.

      (b) The Lender and the Agent shall use their reasonable efforts to protect
and preserve the confidentiality of such information, except for such disclosure
as shall be required for  compliance  by the Lender or its  respective  director
designees  with SEC reporting  requirements  or any  administrative  or judicial
proceeding  or  otherwise  as a matter of law.  The  provisions  of Section 5.01
notwithstanding, Borrower may refuse to provide information as required pursuant
thereto to an assignee or successor in interest to the Lender,  unless and until
such  assignee or  successor  shall have  executed an  agreement to maintain the
confidentiality of the information as provided herein.

SECTION 12.09 BINDING EFFECT.

      The Loan  Documents  shall be  binding  upon and inure to the  benefit  of
Borrower  and the  Lender and their  respective  successors,  assigns  and legal
representatives;  PROVIDED,  HOWEVER,  that Borrower may not,  without the prior
written consent of the Lender, assign any rights,  powers, duties or obligations
thereunder.

                                       42
<PAGE>

SECTION 12.10 NO THIRD PARTY BENEFICIARY.

      The parties do not intend the  benefits of this  Agreement to inure to any
third party,  nor shall this Agreement be construed to make or render the Lender
liable to any materialman,  supplier,  contractor,  subcontractor,  purchaser or
lessee of any property owned by Borrower, or for debts or claims accruing to any
such persons against Borrower. Notwithstanding anything contained herein, in the
Debenture,  in any other Loan Document,  no conduct by any or all of the parties
hereto, before or after signing this Agreement,  any other Loan Document,  shall
be construed as creating any right, claim or cause of action against the Lender,
or any of its respective officers,  directors,  agents or employees, in favor of
any materialman, supplier, contractor, subcontractor, purchaser or lessee of any
property  owned by  Borrower,  nor to any  other  person or  entity  other  than
Borrower.

SECTION 12.11 ENTIRETY.

      This Agreement and the  Debenture,  the other Loan Documents and any other
documents  or  instruments  issued or entered into  pursuant  hereto and thereto
contain  the entire  agreement  between  the  parties  and  supersede  all prior
agreements and understandings, written or oral (if any), relating to the subject
matter hereof and thereof.

SECTION 12.12 HEADINGS.

      Section  headings are for  convenience of reference only and,  except as a
means of identification of reference,  shall in no way affect the interpretation
of this Agreement.

SECTION 12.13 SURVIVAL.

      All  representations  and warranties made by Borrower herein shall survive
delivery of the Debenture and the making of the Loans.

SECTION 12.14 MULTIPLE COUNTERPARTS.

      This Agreement may be executed in any number of counterparts, all of which
taken  together  shall  constitute  one and the same  agreement,  and any of the
parties hereto may execute this Agreement by signing any such counterpart.

SECTION 12.15 KNOWLEDGE OF BORROWER.

      As used herein or in any of the other Loan  Documents,  all  references to
"Borrower's  best  knowledge"  or "to the  knowledge  of  Borrower"  or words or
phrases of similar  import  (whether or not modified by any  additional  phrase)
shall in each case mean the  knowledge of Borrower or its  respective  executive
officers, directors and principal shareholders.

                                       43
<PAGE>

SECTION 12.16 NOTICES.

      Any notices or other  communications  required or permitted to be given by
this Agreement or any other documents and instruments referred to herein must be
(i) given in writing and personally  delivered,  mailed by prepaid  certified or
registered  mail or sent by overnight  service,  such as FedEx,  or (ii) made by
telex or facsimile  transmission  delivered or  transmitted to the party to whom
such notice or communication is directed,  with confirmation  thereupon given in
writing and  personally  delivered or mailed by prepaid  certified or registered
mail.

          If to Borrower:    CaminoSoft Corp.
                             600 N. Hampshire Road, Suite 105
                             West Lake Village, CA 91361
                             Attn:    Walter Kornbluh
                                      President
                             Telephone: (818) 707-2000
                             Telecopier: (818) 707-1627

          with a copy to:    Loeb & Loeb LLP
                             101000 Santa Monica Blvd., Suite 2200
                             Los Angeles, CA  90067-4164
                             Attn: David Ficksman, Esq.
                             Telephone:  (310) 282-2000
                             Telecopier: (310) 282-2200

          If to the Lender:  BFSUS Special Opportunities Trust PLC
                             c/o Renaissance Capital Group, Inc.
                             8080 N. Central Expressway, Suite 210-LB59
                             Dallas, TX 75206
                             Attn: Russell Cleveland
                                   Director
                             Telephone:  (214) 891-8294
                             Telecopier: (214) 891-8291

          with a copy to:    Kirkpatrick & Lockhart LLP
                             2828 N. Harwood, Suite 1800
                             Dallas, TX 75201
                             Attn: Norman R. Miller, Esq.
                             Telephone:  (214) 939-4906
                             Telecopier: (214) 939-4949

          If to the Agent:   Renaissance Capital Group, Inc.
                             8080 N. Central Expressway, Suite 210-LB59
                             Dallas, TX 75206
                             Attn: Russell Cleveland
                                   President and CEO
                             Telephone:  (214) 891-8294
                             Telecopier: (214) 891-8291

                                       44
<PAGE>

          with a copy to:    Kirkpatrick & Lockhart LLP
                             2828 N. Harwood, Suite 1800
                             Dallas, TX 75201
                             Attn: Norman R. Miller, Esq.
                             Telephone:  (214) 939-4906
                             Telecopier: (214) 939-4949

      Any notice  delivered  personally  in the manner  provided  herein will be
deemed  given to the  party to whom it is  directed  upon  the  party's  (or its
agent's) actual receipt.  Any notice addressed and mailed in the manner provided
herein will be deemed given to the party to whom it is addressed at the close of
business,  local time of the recipient, on the fourth business day after the day
it is placed in the mail, or, if earlier, the time of actual receipt.

SECTION 12.17 GOVERNING LAW.

      THIS LOAN  AGREEMENT HAS BEEN  PREPARED,  IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,  AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE  APPLICABLE  FEDERAL LAWS OF THE UNITED  STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION,  ENFORCEMENT AND INTERPRETATION OF THIS
LOAN AGREEMENT.

                            [Signature page follows.]

                                       45
<PAGE>

      IN WITNESS  WHEREOF,  this Agreement has been duly executed as of the date
and year written above.

                                BORROWER:

                                CAMINOSOFT CORP.

                                By:
                                   ---------------------------------------------
                                   Walter Kornbluh
                                   Chief Executive Officer and Chairman
                                   of the Board

                                LENDER:

                                BFSUS SPECIAL OPPORTUNITIES TRUST PLC

                                By:
                                   ---------------------------------------------
                                   Russell Cleveland
                                   Director

                                AGENT:

                                RENAISSANCE CAPITAL GROUP, INC.

                                By:
                                   ---------------------------------------------
                                   Russell Cleveland
                                   President and CEO

<PAGE>

                     SCHEDULES TO CONVERTIBLE LOAN AGREEMENT

Schedule 4.03              No Conflicts or Consents

Schedule 4.05              Permitted Liens

Schedule 4.06              Financial Condition

Schedule 4.08              Material Agreements

Schedule 4.09              Litigation

Schedule 4.10              Taxes

Schedule 4.11              Capitalization

Schedule 4.14              Employee Benefit Plans

Schedule 4.15              Compliance with Laws

Schedule 4.16              Licenses and Permits

Schedule 4.17              Contracts

Schedule 4.19              Insider Agreements not listed on SEC Filings

Schedule 4.21              Casualties

Schedule 4.24              Corporate Names

Schedule 4.26              Insurance

Schedule 4.28              Real Property

Schedule 4.29              Environmental Matters

Schedule 7.01              Financial Ratios and Requirements

<PAGE>

                                  SCHEDULE 7.01

                        FINANCIAL RATIOS AND REQUIREMENTS

      (a) Total Debt to Equity Ratio.  Borrower will not permit the ratio of its
total Indebtedness to stockholders'  equity to be less than 2:1 as of the end of
each fiscal quarter.

      (b)  Total  Minimum  Cash  Requirement.   Borrower's  total  minimum  cash
requirement shall be $150,000.

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