Document:

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            SERIES B PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT

                                     BETWEEN

                            INTERACTIVE TELESIS INC.

                                       AND

                         THE INVESTORS SIGNATORY HERETO

          THIS CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT is
entered into effective as of April ____, 2001 (the "Agreement"), between the
Investors signatory hereto (each an "Investor" and together the "Investors"),
and Interactive Telesis Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company").

          WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate (a) 50,000 shares of Series B
Preferred Stock of the Company and (b) warrants to purchase 15,000 shares of the
Series B Preferred Stock of the Company, all for aggregate consideration of
$250,000;

          WHEREAS, such investments will be made in reliance upon the provisions
of Regulation S and/or Section 4(2) ("Section 4(2)") and/or 4(6) of the United
States Securities Act and/or Regulation D ("Regulation D") and the other rules
and regulations promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in securities to be
made hereunder.

         NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties hereto agree as follows:

                                    ARTICLE I

                               CERTAIN DEFINITIONS

Section 1.1.      Definitions

         The following capitalized terms shall have the meanings ascribed to
them below:

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

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         "CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for purchase or otherwise acquire Capital Shares or
any such convertible or exchangeable securities.

         "CLOSING" shall mean the closing of the purchase and sale of the
Purchased Shares and Warrants pursuant to Section 2.1.

         "CLOSING DATE" shall mean 10:00 a.m. on the date hereof, or such other
time as the Company and the Investors may mutually agree, provided all the
conditions thereto have been satisfied or waived on such date.

         "COMMON STOCK" shall mean the Company's common stock, $0.001 par value
per share.

         "CONVERSION SHARES" shall mean the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock (including the Series B Preferred
Stock issuable upon exercise of the Warrants) purchased hereunder.

         "DAMAGES" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs or expenses (including, without limitation,
reasonable attorneys' fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).

         "DISCLOSURE SCHEDULE" shall mean the written disclosure schedule, if
any, delivered on or prior to the date hereof by the Company to the Investors
that is arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Agreement.

         "EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable
Securities as set forth in the Registration Rights Agreement.

         "ENVIRONMENTAL LAWS" shall mean foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants.

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

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

         "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

         "GAAP" shall mean United States generally accepted accounting
principles as shall be in effect from time to time.

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         "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS" shall mean the Irrevocable
Transfer Agent Instructions, in the form of Exhibit B attached hereto, from the
Company to the Company's transfer agent.

         "ISSUE DATE" shall mean the date on which Purchased Shares and Warrants
are issued pursuant to Article II.

         "LEGEND" shall mean the legend set forth in Section 9. 1.

         "MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under the Transaction Documents in
any material respect.

         "PREFERRED STOCK" shall mean the preferred stock, par value $0.001 per
share, of the Company.

         "PRINCIPAL MARKET" shall mean the American Stock Exchange, the New York
Stock Exchange, the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume, or if the Common Stock is not traded on an
exchange or market, the OTC Bulletin Board.

         "PURCHASE PRICE" with respect to the issuance and sale of the shares of
Series B Preferred Stock purchased at the Closing shall mean $5.00 per share.

         "PURCHASED SHARES" shall mean the Series B Preferred Stock purchased
pursuant to this Agreement.

         "REGISTRABLE SECURITIES" shall mean the Conversion Shares until (i) all
Registration Statements have been declared effective by the SEC, and all
Conversion Shares have been disposed of pursuant to the Registration Statements,
(ii) all Conversion Shares have been sold under circumstances under which all of
the applicable conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") are met, (iii) all Conversion Shares have
been otherwise transferred to holders who may trade such shares without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares may be sold within a three-month period pursuant
to Rule 144 (or any similar provision then in effect) under the Securities Act.

         "REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement by and among the Investors, the Company and the other signatories
thereto regarding the filing of Registration Statements for the resale of the
Registrable Securities, substantially in the form attached hereto as Exhibit C.

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         "REGISTRATION STATEMENT" shall mean any registration statement on Form
S-3 (if use of such form is then available to the Company pursuant to the rules
of the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and which form shall be available for the resale by the Investors of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investors under the Securities Act of
Registrable Securities.

         "REGULATION D" shall have the meaning set forth in the recitals of this
Agreement.

         "SEC" shall mean the Securities and Exchange Commission.

         "SEC DOCUMENTS" shall mean each report, proxy statement and
registration statement filed by the Company with the SEC pursuant to the
Exchange Act or the Securities Act from the initial filing with the SEC through
the date hereof.

         "SECTION 4(2)" AND "SECTION 4(6)" shall have the meanings set forth in
the recitals of this Agreement.

         "SECURITIES" shall mean the Purchased Shares, the Warrants, the Warrant
Shares and the Conversion Shares.

         "SECURITIES ACT" shall have the meaning set forth in the recitals of
this Agreement.

         "SERIES B CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations relating to the Series B Preferred Stock attached hereto as
Exhibit D.

         "SERIES B PREFERRED STOCK" shall mean the Company's Series B Preferred
Stock, par value $0.001 per share, having the rights, terms, and privileges set
forth in the Company's Series B Certificate of Designations.

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

         "TRANSACTION DOCUMENTS" shall mean this Agreement, the Registration
Rights Agreement, the Series B Certificate of Designations, the Escrow
Agreement, the Irrevocable Transfer Agent Instructions and each of the other
agreements, documents and instruments entered into and delivered by the parties
hereto in connection with the transactions contemplated by this Agreement.

         "WARRANTS" shall mean the Warrants to purchase Series B Preferred Stock
to be issued to the Investors hereunder, in substantially the form attached
hereto as Exhibit E.

         "WARRANT SHARES" shall mean all shares of Series B Preferred Stock or
other securities

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issued or issuable pursuant to exercise of the Warrants.

                                  ARTICLE II

               PURCHASE AND SALE OF PURCHASED SHARES AND WARRANTS

Section 2.1.  INVESTMENT.

         (a) Upon the terms and subject to the conditions set forth herein,
on the Closing Date, the Company shall sell, and the Investors shall
purchase, (x) an aggregate of 50,000 Purchased Shares at an aggregate
Purchase Price of $250,000 and (y) Warrants in an amount and with an exercise
price as provided in Section 2.1(c), allocated among the Investors as set
forth on the signature pages hereto.

         (b) The Closing shall occur on the Closing Date at the Escrow Agent's
offices, at which time the Escrow Agent (x) shall release to the Investors
certificates representing the Purchased Shares and Warrants to be issued on such
Closing Date and (y) shall release to the Company the entire amount of the
aggregate Purchase Price in immediately available funds (after all fees have
been paid as set forth in the Escrow Agreement), in accordance with the terms of
the Escrow Agreement.

         (c) The aggregate number of Warrants to be issued at the Closing shall
be 15,000, and the initial exercise price of the Warrants to be issued at the
Closing shall be $5.50. Each Warrant, upon issuance, will be exercisable for one
(1) share of Series B Preferred Stock.

         (d) The Closing shall be subject to the parties' satisfaction of the
conditions to Closing set forth below:

             (i) The obligation of the Company hereunder to issue and sell the
             Purchased Shares and Warrants to each Investor at the Closing is
             subject to the satisfaction, at or before the Closing Date, of each
             of the following conditions, provided that these conditions are for
             the Company's sole benefit and may be waived by the Company at any
             time in its sole discretion by providing each Investor with prior
             written notice thereof:

                     (A) The Investors shall have executed each of the
                     Transaction Documents to be executed by them and delivered
                     the same to the Company.

                     (B) The Escrow Agent shall have delivered to the Company
                     the Purchase Price for the Purchased Shares and Warrants
                     being purchased by the Investors at the Closing (less any
                     amounts withheld pursuant to the Escrow Agreement) by wire
                     transfer of immediately available funds pursuant to the
                     written wire instructions provided by the Company.

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

                     (D) The Series B Certificate of Designations shall have
                     been filed in Delaware and shall have become effective
                     under the Delaware General Corporation Law.

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

                     (A) The Company and each other Investor shall have executed
                     each of the Transaction Documents to be executed by it and
                     delivered the same to such Investor.

                     (B) The Common Stock shall be authorized for quotation on
                     the Principal Market, trading in the Common Stock shall not
                     have been suspended by the Principal Market or the SEC at
                     any time beginning on the date hereof and through and
                     including the Closing Date, and the Company shall not have
                     been notified of any pending or threatened proceeding or
                     other action to delist or suspend the Common Stock.

                     (C) The representations and warranties of the Company shall
                     be true and correct as of the date when made and as of the
                     Closing Date as though made at that time (except for
                     representations and warranties that speak as of a specific
                     date), and the Company shall have performed, satisfied and
                     complied with the covenants, agreements and conditions
                     required by the Transaction Documents to be performed,
                     satisfied or complied with by the Company at or prior to
                     the Closing Date. Such Investor shall have received a
                     certificate, executed by the Company's Chief Executive
                     Officer, dated as of the Closing Date, to the foregoing
                     effect and as to such other matters as may be reasonably
                     requested by such Investor, including, without limitation,
                     an update as of the Closing Date regarding the
                     representation contained in Section 4.3 below.

                     (D) Such Investor shall have received the opinion of the
                     Company's counsel dated as of the Closing Date, in form,
                     scope and substance

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                     reasonably satisfactory to such Investor and in
                     substantially the form of Exhibit F attached hereto.

                     (E) The Company shall have executed and delivered (or shall
                     have caused the Escrow Agent to deliver to such Investor
                     the stock certificates (in such denominations as such
                     Investor shall request) representing the Purchased Shares
                     being purchased by such Investor at the Closing.

                     (F) The Company shall have executed and delivered (or shall
                     have caused the Escrow Agent to deliver) to such Investor
                     the Warrants (in such denominations as such Investor shall
                     request) being purchased by such Investor at the Closing.

                     (G) The Board of Directors of the Company shall have
                     adopted resolutions consistent with Section 4.2 below and
                     in a form reasonably acceptable to such Investor (the
                     "RESOLUTIONS").

                     (H) As of the Closing Date, the Company shall have reserved
                     out of its authorized and unissued Common Stock, solely for
                     the purpose of effecting the issuance of the shares of
                     Common Stock issuable in connection with this Agreement, a
                     number of shares of Common Stock equal to at least 200% of
                     the number of Conversion Shares issuable on the Closing
                     Date (assuming all Warrants were fully exercisable on such
                     date regardless of any limitation on the timing or amount
                     of such exercises).

                     (I) The Company shall have delivered the Irrevocable
                     Transfer Agent Instructions to its transfer agent, and such
                     Transfer Agent shall have acknowledged receipt thereof in
                     writing.

                     (J) The Company shall have delivered to such Investor a
                     certificate evidencing the due incorporation and good
                     standing of the Company and each Subsidiary in such
                     corporation's state of incorporation (and in any states
                     where such entities are required to be qualified to do
                     business) issued by the Secretary of State of such states
                     as of a date within ten (10) days of the Closing Date.

                     (K) The Company shall have amended its Series A Preferred
                     Stock Certificate of Designations in substantially the form
                     attached hereto as Exhibit G and shall have delivered to
                     such Investor a certified copy of its Certificate of
                     Incorporation (including all Certificates of Designations
                     and amendments thereto) as certified by the Secretary of
                     State of the State of Delaware within ten (10) days of the
                     Closing Date.

                     (L) The Investors shall have received evidence
                     satisfactory to the Investors of the concurrent closing of
                     the Company's financing with Hambrecht & Quist Guaranty
                     Finance ("H&QGF"), pursuant to which the

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                     Company shall be receiving $250,000 in gross proceeds from
                     H&QGF in exchange for Series A Preferred Stock of the
                     Company.

                     (M) The Company shall have delivered to such Investor a
                     certificate, executed by the Company's Secretary dated the
                     Closing Date, as to (i) the Resolutions described in
                     Section 4.2, (ii) the Certificate of Incorporation, and
                     (iii) the Bylaws, each as in effect on the Closing Date.

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

                     (O) Each other Investor shall have purchased its pro rata
                     share of the Purchased Shares and Warrants to be purchased
                     by it at such Closing.

                     (P) Such Investor shall have received a certificate,
                     executed by the Company's Chief Executive Officer, dated as
                     of the Closing Date to the effect that since June 12, 2000
                     (i) no Material Adverse Effect has occurred or exists with
                     respect to the Company, except as disclosed in any SEC
                     Documents filed at least five (5) days prior to the Closing
                     Date, and available on EDGAR, and (ii) the Company has not
                     taken any steps, and does not currently expect to take any
                     steps, to seek protection pursuant to 11 U.S.C.
                     Sections 101 et seq. (the "BANKRUPTCY CODE") or any similar
                     state bankruptcy law nor does the Company have any
                     knowledge or reason to believe that its creditors intend to
                     an initiate involuntary proceeding under the Bankruptcy
                     Code or any such state law.

                     (Q) The Company shall have issued to each of Ira Terk
                     and Next Millennium Capital Holdings, LLC, as payment
                     of a finders' fee related to the transactions contemplated
                     herein, (i) 18,750 shares of Common Stock, and
                     (ii) warrants to purchase 2,500 shares of Common Stock at
                     an exercise price of $0.60 per share.

                     (R) The original Registration Statement required to be
                     filed under the Securities Purchase Agreement dated
                     June 12, 2000, as amended, among the parties hereto shall
                     be effective and the Company shall not be in default under
                     any of its obligations under the such purchase agreement or
                     the agreements referenced therein.

                     (S) The Series B Certificate of Designations shall have
                     been filed in Delaware and shall have become effective
                     under the Delaware General Corporation Law.

                     (T) Don Cameron shall have resigned from his positions as a
                     director and Chief Executive Officer of the Company, and
                     the Company shall have delivered written evidence thereof
                     to the Investors.

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                     (U) The number of authorized directors of the Company shall
                     be a total of five, comprised of Andrew Schachter, Cindy
                     Mersky, Lee McVey, Albert Staerkel and a fifth member to be
                     chosen by those four Board members in their sole discretion
                     following the Closing.

         (e) anything to the contrary notwithstanding, in the event the
Closing does not occur by April 30, 2001, the Investors shall have no further
obligation to purchase and the Company shall have no further obligation to
sell the Securities and this Agreement shall be terminated (provided,
however, the Company shall remain responsible for the payment of all expenses
of the Investors, including legal fees).

Section 2.2 LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that
the sums payable pursuant to this Agreement and the Registration Rights
Agreement shall constitute liquidated damages and not penalties. The parties
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amounts specified in
such sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investors in
connection with the failure by the Company to timely effect the registration of
the Registrable Securities or otherwise perform hereunder and (c) the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.

                                   ARTICLE III

                 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

Each Investor, severally and not jointly, represents and warrants to the Company
that:

Section 3.1. INTENT. Such Investor is entering into this Agreement for its own
account and not with a view to, or for sale in connection with, any distribution
of the Securities. Such Investor has no present arrangement (whether or not
legally binding) at any time to sell the Securities to or through any person or
entity; provided, however, that by making the representations herein, such
Investor does not agree to hold such Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with federal and state securities laws applicable to such
disposition.

Section 3.2. SOPHISTICATED INVESTOR. Such Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and such Investor has such experience
in business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Securities. Such Investor acknowledges
that an investment in the Securities is speculative and involves a high degree
of risk. The Investor has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the sale of the
Securities.

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Section 3.3. DUE EXECUTION, POWER AND AUTHORITY. This Agreement and each of the
Transaction Documents that is required to be executed by such Investor has been
duly authorized and validly executed and delivered by such Investor and is a
valid and binding agreement of such Investor enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application. The
Investor has the requisite power and authority to enter into the Agreement, to
purchase the Securities and perform its obligations under the terms of the
Agreement.

Section 3.4. NOT AN AFFILIATE. Such Investor is not an officer, director or
"AFFILIATE" (as that term is defined in Rule 405 of the Securities Act) of the
Company.

Section 3.5. DISCLOSURE; ACCESS TO INFORMATION. Such Investor has received all
documents, records, books and other publicly available information pertaining to
such Investor's investment in the Company as such Investor has requested. Such
Investor acknowledges that the Company is subject to the periodic reporting
requirements of the Exchange Act, and such Investor has reviewed copies of all
SEC Documents deemed relevant by such Investor.

Section 3.6. MANNER OF SALE. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company represents and warrants to the Investors that, except as
set forth on the Disclosure Schedule prepared by the Company and attached
hereto:

Section 4.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as now being
conducted and as presently proposed to be conducted. The Company's Subsidiaries
are corporations duly organized, validly existing and in good standing under the
laws of the jurisdictions in which they are incorporated and have the requisite
corporate power and authority to own and operate their properties and assets and
to carry on their business as now being conducted. The Company does not have any
Subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company and
each of its Subsidiaries is duly qualified and is in good standing as a foreign
corporation to do business in every jurisdiction in which the nature of the
business conducted or property owned or leased by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.

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Section 4.2. AUTHORITY. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under the
Transaction Documents and to issue the Securities pursuant to their respective
terms; (ii) the execution, issuance and delivery of the Transaction Documents,
the Series B Preferred Stock certificates and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) the Transaction Documents, when executed and delivered by
the Company and the parties hereto, shall constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the issuance of
Common Stock upon conversion of the Purchased Shares into Common Stock and
exercise and conversion of the Warrants into Common Stock. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Securities. The Company further acknowledges that its
obligation to issue Common Stock under this Agreement is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under the Bankruptcy Code.

Section 4.3. CAPITALIZATION. The authorized capital stock of the Company
immediately prior to the Closing will consist of (i) [50,000,000] shares of
Common Stock, $0.001 par value per share, of which [32,828,824] shares were
issued and outstanding as of March 30, 2001, and (ii) 25,000,000 shares of
Preferred Stock, $0.001 par value per share, of which 10,000,000 have been
designated "Series A Preferred Stock," [none] of which are issued and
outstanding as of the Closing Date, and [200,000] of which have been designated
"Series B Preferred Stock," none of which were issued and outstanding
immediately prior to the Closing. The Company has no authorized or outstanding
shares of preferred stock or other equity securities except as disclosed herein.
Except for (i) outstanding options and warrants as set forth in the SEC
Documents, (ii) [2,711,500] stock options awarded under the Company's 1996 ITI
Stock Option Plan and (iii) as set forth in the Disclosure Schedule, there are
no outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting preemptive, registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable and were issued in compliance with all applicable federal and
state securities laws.

Section 4.4. COMMON STOCK. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the OTC Bulletin Board,
and except as set forth in the SEC Documents, the Company has not received

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any notice regarding, and to its knowledge there is no threat of, the
termination or discontinuance of the eligibility of the Common Stock for such
posting or listing.

Section 4.5. SEC DOCUMENTS. The Company has not provided the Investors any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder, and the SEC Documents did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the rules and regulations
of the SEC or other applicable rules and regulations with respect thereto at the
time of such inclusion. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited interim statements, to normal year-end
audit adjustments). Neither the Company nor any of its Subsidiaries has any
material indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that would
have been required to be reflected in, reserved against or otherwise described
in the financial statements or in the notes thereto in accordance with GAAP,
which were not fully reflected in, reserved against or otherwise described in
the financial statements or the notes thereto included in the SEC Documents or
were not incurred in the ordinary course of business consistent with the
Company's past practices since the last date of such financial statements. No
other information provided by or on behalf of the Company to the Investors that
is not included in the SEC Documents, including, without limitation, information
referred to in Section 3.5 of this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are or
were made, not misleading.

Section 4.6. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the
accuracy of the Investors' representations in Article III, the Company's sale of
the Purchased Shares and its issuance of the Warrants under this Agreement does
not, and the Company's issuance of (i) the Series B Preferred Stock on the
exercise of the Warrants and (ii) Common Stock upon conversion of the Purchased
Shares and the Series B Preferred Stock issuable upon exercise of the Warrants
will not, require registration under the Securities Act and/or any applicable
state securities law. When issued and paid for in accordance with the Warrants
and validly converted in accordance with the Series B Certificate of
Designations, the Conversion Shares will be duly and validly issued, fully paid,
and non-assessable. Neither the sales of the Securities pursuant to, nor the
Company's performance of its obligations under, the Transaction Documents will
(i) result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon any of the Securities or, except as
contemplated herein, any of the assets of

                                       12
<PAGE>

the Company, or (ii) be subject to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. None of
the Securities will subject the Investors to personal liability to the
Company or its creditors by reason of an Investor's possession thereof.

Section 4.7. NO DIRECTED SELLING, GENERAL SOLICITATION OR ADVERTISING IN REGARD
TO THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (i) has engaged in or will engage in any
directed selling efforts in violation of the requirements of Regulation S, (ii)
has conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale of
the Securities, or (iii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Securities under the Securities Act.

Section 4.8. NO CONFLICTS. The Company's execution, delivery and performance of
the Transaction Documents, and the Company's consummation of the transactions
contemplated hereby and thereby do not and will not (i) result in a violation of
the Company's Certificate of Incorporation or Bylaws or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the Principal
Market) applicable to the Company or by which any property or asset of the
Company is bound or affected. The Company is not otherwise in violation of any
term of or in default under its Certificate of Incorporation, or its Bylaws, or
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company, except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The Company's business is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not result in a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required by the Securities Act, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory organization, in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations that the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. Except as described in Section 4.8 of the
Disclosure Schedule, the Company is not in violation of the listing or posting
requirements of the Principal Market as in effect on the date hereof and is not
aware of any facts which would reasonably lead to delisting of the Common Stock
by the Principal Market in the foreseeable future.

Section 4.9. NO MATERIAL ADVERSE CHANGE. Since October 31, 2000, there has not
been any Material Adverse Effect has occurred or exists with respect to the
Company, except as disclosed

                                       13
<PAGE>

in any SEC Documents filed at least five (5) days prior to the date hereof
and available on EDGAR.

Section 4.10. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.

Section 4.11. NO INTEGRATED OFFERING. The Company has not, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the Securities Act or cause this offering of Securities to
be integrated with prior offerings of securities by the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Principal Market; nor
will the Company or any of its Subsidiaries take any action or steps that would
require registration of the Securities under the Securities Act or cause the
offering of the Securities to be integrated with other offerings.

Section 4.12. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any Subsidiary or any of their
officers or directors in their capacities as such, nor has the Company received
any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect. There is no action, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.

Section 4.13. NO MISLEADING OR UNTRUE COMMUNICATION. Neither Company nor any
person representing the Company, or any other person selling or offering to sell
the Securities in connection with the transaction contemplated by this
Agreement, has made, at any time, any oral communication in connection with the
offer or sale of the same which contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading.

Section 4.14. MATERIAL NON-PUBLIC INFORMATION. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof, but which has not
been so disclosed.

Section 4.15. INSURANCE. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar

                                       14
<PAGE>

types of insurance with financially sound and reputable insurers that is
adequate, consistent with industry standards and the Company's historical
claims experience. Neither the Company nor any Subsidiary has been refused
any insurance coverage sought or applied for, and neither the Company nor any
such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.

Section 4.16. TAX MATTERS. The Company has accurately prepared and timely filed
all United States income tax returns and all state and municipal tax returns
that are required to be filed by it, if any, and has paid or made provision for
the payment of all taxes, if any, that have become due pursuant to such returns.
No deficiency assessment or proposed adjustment of the Company's United States
income tax or state or municipal taxes is pending and there is no liability as
of the date hereof for any tax for which there is not an adequate reserve
reflected in the Company's publicly filed financial statements. All federal,
state, local and foreign franchise, sales, use, occupancy, excise, withholding
and other taxes and assessments (including interest and penalties) payable by,
or due from, the Company have been fully paid or adequately disclosed and fully
provided for in the books and financial statements of the Company, except where
the failure to provide for or pay such taxes and assessments would not have a
Material Adverse Effect on the Company. No examination of any tax return of the
Company is currently in progress, except where such examinations would not have
a Material Adverse Effect on the Company. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of the Company.

Section 4.17. PROPERTY. Neither the Company nor any of its Subsidiaries owns any
real property. Each of the Company and its Subsidiaries has good and marketable
title to all personal property that it owns, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge, any
real property, mineral or water rights, and buildings that the Company holds
under lease as a tenant are held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and intended to be made of such property, mineral or water rights, and
buildings by the Company and its Subsidiaries.

Section 4.18. INTELLECTUAL PROPERTY RIGHTS. The Company has sufficient title and
ownership of or is licensed under all patents, patent applications, trademarks,
service marks, trade names, copyrights, and all registrations and applications
for registration of any of the foregoing, and all trade secrets, information,
inventions, computer programs owned or licensed by the Company, documentation,
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business as now conducted and as currently proposed to be
conducted without any conflict with and without infringement of the rights of
others. The Company has not received any communications alleging that it has
violated or, by conducting its businesses as currently proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. Except as
disclosed on the Disclosure Schedule, the Company does not believe it is or will
be necessary to use any

                                       15
<PAGE>

inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company (unless made prior to
employment as an independent contractor to the Company).

Section 4.19      PROPRIETARY INFORMATION; NONCOMPETITION COVENANTS.

         (a) The Company has done nothing to compromise the secrecy,
confidentiality or value of any of its trade secrets, know-how, inventions,
prototypes, designs, processes or technical data required to conduct its
business as now conducted or as proposed to be conducted. The Company has taken
in the past and will take in the future reasonable security measures to protect
the secrecy, confidentiality and value of all its trade secrets, know-how,
inventions, prototypes, designs, processes, and technical data important to the
conduct of its business.

         (b) Each current employee of the Company has executed a nondisclosure
and assignment of inventions agreement at least as restrictive as the form
previously provided to the Investors as an exhibit to the Securities Purchase
Agreement, dated June 12, 2000, as amended, by and among the Company and the
Investors. Each consultant to the Company has executed a confidentiality and
assignment agreement restricting the disclosure of proprietary information of
the Company and assigning to the Company all inventions made by such consultant
in the course of consulting for the Company. The Company is not aware that any
of the employees, officers or consultants of the Company, past or present, is in
violation of such agreements, and the Company will use its best efforts to
prevent any such violation.

4.20.    COMPANY SOFTWARE.

         (a) The Disclosure Schedule sets forth a true and complete list of all
software used in connection with the business of the Company other than
off-the-shelf software acquired for less than $10,000 per application (the
"Company Software"). The Company has all technical and descriptive materials for
the Company Software as is necessary to run its business in accordance with its
historical practices, except as would not have a Material Adverse Effect.

         (b) The use of the Company Software does not breach any terms of any
contract or agreement. The Company either owns or has been granted under license
agreements relating to the Company Software (the "Company License Agreements")
valid and subsisting rights with respect to all software comprising the Company
Software and such rights may be exercised anywhere in the world. The Company is
in compliance with each of the terms and conditions of each of the Company
License Agreements except to the extent failure to so comply, individually or in
the aggregate, would not have a Material Adverse Effect. In the case of any
commercially available "shrink-wrap" software programs (such as Lotus 1-2-3 or
Microsoft Word), the Company has not made and is not using any unauthorized
copies of any such software programs and, to the knowledge of the Company, none
of the employees, agents or representatives of the Company have made or are
using any such unauthorized copies in the conduct of the Company's business,
except as would not have a material adverse effect on the Company.

         (c) The Company Software and the related computer hardware used by the
Company in its operations (the "Company Hardware") are adequate in all material
respects, when taken

                                       16
<PAGE>

together with the other assets, resources and personnel of the Company, to
run the business of the Company in the same manner as such business has
operated since inception. The Disclosure Schedule contains a summary
description of any unusual problems experienced by the Company in the past
twelve months with respect to the Company Software or Company Hardware that
would result in a Material Adverse Effect.

Section 4.21. INTERNAL CONTROLS AND PROCEDURES. The Company maintains books and
records and internal accounting controls that provide reasonable assurance that
(i) all transactions to which the Company or any Subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any Subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
GAAP.

Section 4.22. PAYMENTS AND CONTRIBUTIONS. Neither the Company, nor any
Subsidiary, nor any of their directors, officers or, to the Company's knowledge,
other employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.

Section 4.23. ACKNOWLEDGMENT REGARDING INVESTORS' PURCHASE OF THE SECURITIES.
The Company acknowledges and agrees that each of the Investors is acting solely
in the capacity of arm's-length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Investor is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
of the Investors or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to such Investor's purchase of the Securities. The
Company further represents to each Investor that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.

Section 4.24. EMPLOYEES. To the best of the Company's knowledge, no employee of
the Company is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would conflict with
such employee's obligation to use his best efforts to promote the interests of
the Company or that would conflict with the Company's business as conducted or
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as currently proposed, will,
to the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default

                                       17
<PAGE>

under, any contract, covenant or instrument under which any of such employees
is now obligated. To the best of the Company's knowledge, no employee or
consultant of the Company is in violation of any term of any employment
contract, proprietary information and inventions agreement, noncompetition
agreement or any other contract or agreement relating to the relationship of
any such employee or consultant with the Company or any previous employer. To
the best of the Company's knowledge, no officer of the Company nor any Key
Employee (as hereinafter defined) of the Company, the termination of whose
employment, either individually or in the aggregate, would have a materially
adverse effect on the Company, has any intention of terminating his or her
employment with the Company. The Company has no collective bargaining
agreements with any of its employees and to the best of the Company's
knowledge there is no labor-union-organizing activity pending or threatened
with respect to the Company. For purposes of this Agreement, "Key Employee"
means and includes each officer of the Company and each employee who
contributes to the invention, design or authorship of the Company's
Intellectual Property.

Section 4.25. ENVIRONMENTAL MATTERS.

         (a) The Company has duly complied with, and, to the best knowledge of
the Company, all the real estate leased by it either currently or in the past
(hereinafter referred to collectively as the "Premises") are in compliance in
all material respects with, the provisions of all federal, state and local
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder.

         (b) The Company has been issued, and will maintain, all federal, state
and local permits, licenses, certificates and approvals known to the Company to
be required relating to (i) air emissions, (ii) discharges to surface water or
ground water, (iii) noise emissions, (iv) solid or liquid waste disposal, (v)
the use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (intended hereby and hereafter to include any and all such
materials listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder, as hazardous or potentially
hazardous), or (vi) other environmental, health and safety matters.

         (c) The Company has not received notice of, nor does the Company know
of any facts that might constitute, any violation of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder, that relate to the use, ownership or
occupancy of any of the Premises, and the Company is not in violation of any
covenants, conditions, easements, rights-of-way or restrictions affecting any of
the Premises or any rights appurtenant thereto.

         (d) Except in accordance with a valid governmental permit, license,
certificate or approval, the Company has not caused any emission, spill, release
or discharge into or upon (i) the air, (ii) soils or any improvements located
thereon, (iii) surface water or ground water, or (iv) the sewer, septic system
or waste treatment, storage or disposal system servicing any of the Premises, of
any toxic or hazardous substances or wastes at or from any of the Premises.

                                       18
<PAGE>

         (e) There has been no complaint, order, directive (other than
directives applicable to the general public), claim, citation or notice by any
governmental authority or any other person or entity with respect to (i) air
emissions, (ii) spills, releases or discharges to soils or any improvements
located thereon, surface water, ground water or the sewer, septic system or
waste treatment, storage or disposal systems servicing any of the Premises,
(iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use,
generation, storage, transportation or disposal of toxic or hazardous substances
or wastes or (vi) other environmental, health or safety matters affecting the
Company, any of the Premises or any improvements located thereon, or the
businesses thereon conducted.

Section 4.26. REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such items would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

Section 4.27. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement that
in the reasonable judgment of the Company's officers has or is expected to have
a Material Adverse Effect.

Section 4.28. CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents
filed at least ten (10) days prior to the date hereof and except for
arm's-length transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than the Company could
obtain from third parties and other than the grant of stock options disclosed in
the Disclosure Schedule, none of the officers or directors of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer or director or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer or director has a substantial interest or is an officer,
director, trustee or partner.

Section 4.29. APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its incorporation
which is or could become applicable to the Investors as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and the Investor's ownership of the
Securities.

Section 4.30. NO OTHER AGREEMENTS. The Company has not, directly or indirectly,
made any agreements with any Investors relating to the terms or conditions of
the transactions contemplated by the Transaction Documents, except as set forth
in the Transaction Documents.

                                       19
<PAGE>

Section 4.31. NO MISREPRESENTATION. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

Section 4.32 REGISTRATION RIGHTS. Except as provided in the Registration Rights
Agreement and except for the Company's obligation to register shares issued or
issuable to H&QGF as disclosed in the SEC Documents, the Company is not under
any obligation to register any of its presently outstanding securities or any of
its securities that may hereafter be issued.

Section 4.33 FINDERS' FEES. Except as disclosed in the Disclosure Schedule, the
Company (a) represents and warrants that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement. The Company
hereby agrees to indemnify and to hold the Investors harmless of and from any
liability for any commission or compensation in the nature of a finder's fee
(including any fee listed on the Disclosure Schedule) to any broker or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its employees or
representatives is responsible.

Section 4.34 ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change of control of the Company.

                                    ARTICLE V

                           COVENANTS OF THE INVESTORS

Each Investor, severally and not jointly, covenants as follows.

Section 5.1 BEST EFFORTS. Each Investor shall use its best efforts to timely
satisfy each of the conditions to be established by it as provided in Article II
of this Agreement.

Section 5.2 REGULATION S COMPLIANCE. Each Investor agrees that any hedging
transactions with respect to the Common Stock will only be conducted in
compliance with Regulation S. Each investor certifies that it is not a U.S.
Person (as defined for purposes of Regulation S) and is not acquiring the
Securities for the account or benefit of a U.S. Person. The Investors understand
and acknowledge that the Company may refuse to register the transfer of any
Securities unless made in accordance with the registration or exemption
provisions of the Securities Act.

                                   ARTICLE VI

                            COVENANTS OF THE COMPANY

                                       20
<PAGE>

Section 6.1. BEST EFFORTS. The Company shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Article II
of this Agreement.

Section 6.2. REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect, and the Company shall
comply with the terms thereof.

Section 6.3. RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock in an amount not less
than 150% of the number of shares of Common Stock needed to provide for the
issuance of the Conversion Shares (as may be adjusted from time to time). The
Company further agrees at if at any time 150% of the number of shares of Common
Stock issuable under the Agreement would cause the Company to be obligated to
issue a number of shares of Common Stock in excess of its authorized capital
(after taking into account all other Capital Shares Equivalents then existing),
it shall promptly commence and effect all necessary corporate and shareholder
action necessary to increase its authorized capital so as to eliminate the
aforesaid condition.

Section 6.4. LISTING OF COMMON STOCK. The Company shall maintain the listing of
the Common Stock on a Principal Market and, as soon as required by the rules of
the Principal Market and any other national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are listed, shall
list the Conversion Shares on the Principal Market and each such other exchange
or system. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Conversion Shares, and will take such other action as is necessary or
desirable in the opinion of the Investors to cause the Conversion Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action necessary to continue the listing and trading of its Common
Stock on a Principal Market (including, without limitation, maintaining
sufficient net tangible assets) and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market and shall provide Investors with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) trading days of the Company's
receipt thereof, until the Investors have disposed of all of their Registrable
Securities. The Company agrees to apply for listing on the Nasdaq National
Market and/or the Nasdaq SmallCap Market as soon as practicable following the
Company's eligibility for listing thereon.

Section 6.5. EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act until the Investors
have disposed of all of their Registrable Securities.

                                       21
<PAGE>

Section 6.6. LEGENDS. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.

Section 6.7. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will take
all steps necessary to preserve and continue its corporate existence. The
Company shall not enter into any agreement, the terms of which agreement would
restrict or impair the right or ability of the Company to perform any of its
obligations under this Agreement or any of the other Transaction Documents.

Section 6.8. CONSOLIDATION; MERGER. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument or by operation of law the obligation to deliver
to the Investors such shares of stock and/or securities as the Investors are
entitled to receive pursuant to this Agreement.

Section 6.9. ISSUANCE OF PURCHASED SHARES, WARRANTS, WARRANT SHARES AND
CONVERSION SHARES. The sale of the Purchased Shares and the Warrants and the
issuance of the Warrant Shares and Conversion Shares shall be made in accordance
with the provisions and requirements of Regulation S (or if that exemption shall
fail for any reason, then in accordance with Section 4(2), Section 4(6) or
Regulation D). The Company shall take such actions as necessary to qualify the
sales made hereunder to the Investors under Regulation S. If requested by the
Investors, the Company shall file a Form D with respect to the Securities as
required under Regulation D and provide a copy thereof to each Investor promptly
after such filing.

Section 6.10. RELIEF IN BANKRUPTCY. The Company shall not seek judicial relief
from its obligations hereunder except pursuant to the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. Section 362 in respect of the exercise of the Warrants. The Company
agrees, without cost or expense to the Investors, to take or consent to any and
all action necessary to effectuate relief under 11 U.S.C. Section 362.

Section 6.11. USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Securities for working capital and general corporate purposes, but not
for the repayment of any debt.

Section 6.12. AGREEMENTS REGARDING ANDREW SCHACHTER. From and after the Closing
Date, the Company agrees to

                  (i) make monthly payments to Andrew Schachter of $5,000 per
month (inclusive of all disbursements) for a period of one year, with the first
installment retroactive to February 1, 2001 and each subsequent installment due
and payable on the first day of each month thereafter; and

                  (ii) Not incur any expenses above $1,000 without prior
approval of both Andrew Schachter and the Company's Chief Financial Officer
(provided, however, that in the event of any dispute regarding approval for such
payments, the Board shall have authority to resolve the dispute and make the
final decision).

                                       22
<PAGE>

NEW EMPLOYMENT AGREEMENTS. After Closing, the Company shall in good faith
evaluate the advisability and viability of entering into employment agreements
with members of management in an effort to provide incentives for key employees
to remain with the Company. Any decisions regarding these employment
arrangements shall be determined by the Board in its sole discretion.

                                   ARTICLE VII

                            SURVIVAL; INDEMNIFICATION

Section 7.1. SURVIVAL. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date.

Section 7.2. INDEMNITY.

         (a) The Company shall indemnify and hold harmless the Investors, their
respective Affiliates and their respective officers, directors, partners and
members (each an "Indemnified Party"), from and against any and all Damages, and
shall reimburse the Indemnified Parties for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of legal counsel), in each
case promptly as incurred by such Indemnified Party and to the extent arising
out of or in connection with:

                  (i)      any misrepresentation, omission of fact or breach of
                           any of the Company's representations or warranties
                           contained in any of the Transaction Documents, the
                           annexes, schedules or exhibits thereto or any
                           instrument, agreement or certificate entered into or
                           delivered by the Company pursuant hereto or thereto;
                           or

                  (ii)     any failure by the Company to perform in any material
                           respect any of its covenants, agreements,
                           undertakings or obligations set forth in any of the
                           Transaction Documents, the annexes, schedules or
                           exhibits thereto or any instrument, agreement or
                           certificate entered into or delivered by the Company
                           pursuant hereto or thereto; or

                  (iii)    any action instituted against the Investors, or any
                           of them, by any stockholder of the Company who is not
                           an affiliate of an Investor, with

                                       23
<PAGE>

                           respect to any of the transactions contemplated by
                           the Transaction Documents.

         (b) Each Investor, severally but not jointly, shall indemnify and hold
harmless the Company, its Affiliates, directors and officers (each an
"Indemnified Party"), from and against any and all Damages, and shall reimburse
the Indemnified Parties for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by such Indemnified Party and to the extent arising out of or in
connection with:

                  (i)      any misrepresentation, omission of fact or breach of
                           any of such Investor's representations or warranties
                           contained in any of the Transaction Documents, the
                           annexes, schedules or exhibits thereto or any
                           instrument, agreement or certificate entered into or
                           delivered by the Investor pursuant hereto or thereto;
                           or

                  (ii)     any failure by the Investor to perform in any
                           material respect any of its covenants, agreements,
                           undertakings or obligations set forth in any of the
                           Transaction Documents, the annexes, schedules or
                           exhibits thereto or any instrument, agreement or
                           certificate entered into or delivered by the Investor
                           pursuant hereto or thereto.

Section 7.3. NOTICE. Promptly after receipt by an Indemnified Party seeking
indemnification pursuant to Section 7.2 of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being
sought (each, a "Claim"), the Indemnified Party promptly shall notify the other
party hereto (the "Indemnifying Party") of the commencement thereof; but the
omission so to notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnified Party and
the Indemnifying Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying

                                       24
<PAGE>

Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for
the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all
liabilities with respect to such Claim or judgment.

Section 7.4. DIRECT CLAIMS. In the event an Indemnified Party should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party, the Indemnified Party promptly shall deliver notice of such
claim to the Indemnifying Party. If the Indemnifying Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified Party and
the Indemnifying Party or by binding arbitration conducted in accordance with
the procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.

                                  ARTICLE VIII

         DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

Section 8.1. DUE DILIGENCE REVIEW. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.

Section 8.2.      NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

         (a) The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received

                                       25
<PAGE>

from the SEC staff with respect to the Registration Statement, the Company
may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.

         (b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.

                                   ARTICLE IX

                      LEGENDS; TRANSFER AGENT INSTRUCTIONS

Section 9.1. LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legends or
equivalent (the "LEGEND"):

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT IN ACCORDANCE WITH REGULATION S, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM SUCH REGISTRATION.

                                       26
<PAGE>

Section 9.2. TRANSFER AGENT INSTRUCTIONS. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
shall issue to any substitute or replacement transfer agent for its Common Stock
upon the Company's appointment of any such substitute or replacement transfer
agent) Irrevocable Transfer Agent Instructions substantially in the form of
EXHIBIT B hereto. Such Irrevocable Transfer Agent Instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be.

Section 9.3. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX. After the Effective Date,
upon request of the Investor the Company will substitute certificates without
restrictive legend for certificates for any Conversion Shares issued prior to
the Effective Date which bear restrictive legends and remove any stop-transfer
restriction relating thereto promptly, but in no event later than three trading
days after request for removal.

Section 9.4. INVESTORS' COMPLIANCE. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock.

Section 9.5. TRANSFERS WITHOUT REGISTRATION. If an Investor provides the Company
with an opinion of counsel, in generally acceptable form, that registration of a
resale by such Investor of any Securities is not required under the Securities
Act, the Company shall permit the transfer and, in the case of the Conversion
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by such Investor and, if
such opinion provides that such legends can be removed, without any restrictive
legends.

Section 9.6. INJUNCTIVE RELIEF. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Investors by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article IX will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Article
IX, that the Investors shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.

                                    ARTICLE X

                           CHOICE OF LAW; ARBITRATION

Section 10.1. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made in Delaware by

                                       27
<PAGE>

persons domiciled in Delaware and without regard to its principles of
conflicts of laws. The corporate laws of the State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.

Section 10.2. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules. In the event of any conflict between those Rules and this
Agreement, this Agreement will govern.

         Arbitration will be conducted by a panel of three (3) arbitrators (the
"Panel"). Within fifteen (15) days after the commencement of arbitration, each
party shall select one person to act as arbitrator and the two selected shall
select a third arbitrator within ten (10) days of their appointment. The members
of the Panel shall decide on one member to act as Chair. If the arbitrators
selected by the parties are unable or fail to agree on a third arbitrator, the
third arbitrator shall be selected by the American Arbitration Association.

         The place of arbitration shall be New York, New York. This Agreement
shall be governed by and interpreted in accordance with the laws of the State of
Delaware unless the matter at issue is the corporation law of the company's
state of incorporation, in which event the corporation law of that jurisdiction
shall govern that particular issue. Either party may, without waiving any remedy
under this Agreement, seek from any Court having jurisdiction any interim or
provisional relief that is necessary to protect the rights or property of that
party, pending the Panel's determination of the merits of the controversy. If
any such provisional relief is sought, the non-prevailing party shall pay the
expenses of the prevailing party, including reasonable attorney's fees, in
connection with that proceeding.

         Consistent with the expedited nature of arbitration, each party will,
upon the written request of the other party, promptly provide the other with
copies of documents relevant to the issues raised by any claim or counterclaim.
Any dispute regarding discovery, or the relevance or scope thereof, shall be
determined by the Chair of the Panel, which determination shall be conclusive.
Document exchange shall be completed within forty-five (45) days following
selection of the last member of the Panel. At the request of a party, the Panel,
through its Chair, shall have the discretion to order examination by deposition
of witnesses to the extent the Panel deems such discovery relevant and
appropriate. Depositions shall be limited to a maximum of three per party and
shall be held within thirty (30) days of authorization by the Panel. Additional
depositions may be scheduled only with the permission of the Chair of the Panel
for good cause shown. Each deposition shall be limited to one day's duration.
All objections are reserved for the arbitration hearing except for objections
based on privilege.

         The award of the arbitrators shall be accompanied by a written reasoned
opinion, which, to the extent practical, shall be rendered no more than thirty
(30) calendar days following the close of the Panel's adjudicatory hearing on
the issues submitted for arbitration. The decision of the Panel will be final,
binding, conclusive and non-appealable. The decision of the Panel will be
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. The Panel (or the sole arbitrator selected,
if there is no timely response by the responding party) is authorized and
directed to enter a default judgment against a party

                                       28
<PAGE>

who fails to take action or to participate in any proceeding hereunder within
the time periods prescribed by this Agreement, and by the AAA Rules and/or
the Panel.

         The Panel shall award to the prevailing party, as determined by the
Panel, all that party's costs and expenses. "Costs and expenses" means all
reasonable pre-award expenses of arbitration, including discovery and deposition
expenses, witness fees, costs and expenses, and attorneys' fees. If the Panel is
unable to determine which party is the "prevailing party," the Panel shall
apportion the costs and expenses as it deems appropriate.

                                   ARTICLE XI

                                   ASSIGNMENT

Neither this Agreement nor any rights of the Investors or the Company hereunder
may be assigned by either party to any other person. Notwithstanding the
foregoing, the provisions of this Agreement shall inure to the benefit of, and
be enforceable by, any permitted transferee of any Securities; provided,
however, each Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any Affiliate of the Investor, or to not more than a
total of three (3) accredited investors, who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the terms
of this Agreement.

                                   ARTICLE XII

                                     NOTICES

All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:

If to the Company:                    Interactive Telesis Inc.
                                      535 Encinitas Boulevard, Suite 116
                                      Encinitas, California 92024
                                      Attn: Chief Executive Officer

                                       29
<PAGE>

                                      Tel: (760) 632-1700
                                      Fax: (760) 632-1790

with a copy to
(shall not constitute notice):
                                      Rushall & McGeever
                                      1903 Wright Place, Suite 250
                                      Carlsbad, California 29008
                                      Attn: Bruce Rushall, Esq.
                                      Tel: (760) 438-6855
                                      Fax: (760) 438-1790

if to the Investors:                  As set forth on the signature pages hereto

with a copy to:                       Kevin A. Prakke, Esq.
(shall not constitute notice)         Wyrick Robbins Yates & Ponton LLP
                                      4101 Lake Boone Trail, Suite 300
                                      Raleigh, North Carolina 27607
                                      Telephone: (919) 781-4000
                                      Facsimile: (919) 781-4865

Either party hereto may from time to time change its address or facsimile number
for notices under this Article XII by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Article XII.

                                  ARTICLE XIII

                                  MISCELLANEOUS

Section 13.1. COUNTERPARTS/ FACSIMILE/ AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be executed by fewer than
all of the parties and shall be deemed to be an original instrument that shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.

Section 13.2. ENTIRE AGREEMENT. This Agreement, the other Transaction Documents,
which include, but are not limited to, the Warrants, the Series B Certificate of
Designations, the Registration Rights Agreement, the Escrow Agreement and the
Irrevocable Transfer Agent Instructions set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and supersede
all prior and contemporaneous agreements, negotiations and understandings
between the parties, both oral and written, relating to the subject matter
hereof. The terms and conditions of all Exhibits to this Agreement are
incorporated herein by this reference and shall constitute part of this
Agreement as is fully set forth herein. Nothing in this

                                       30
<PAGE>

Agreement, express or implied, is intended to confer upon any third party any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.

Section 13.3. SEVERABILITY. Any invalidity, illegality or limitation of the
enforceability with respect to any one or more of the provisions of this
Agreement, or any part thereof, shall in no way affect or impair the validity,
legality or enforceability of any other provisions of this Agreement. In case
any provision of this Agreement shall be invalid, illegal or unenforceable, it
shall, to the extent practicable, be modified so as to make it valid, legal and
enforceable and to retain as nearly as practicable the intent of the parties,
and the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.

Section 13.4. HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.

Section 13.5. NUMBER AND GENDER. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.

Section 13.6. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given trading day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written agreement of the Investors
and the Company shall be required to employ any other reporting entity.

Section 13.7. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing any Securities and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.

Section 13.8. FEES AND EXPENSES. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of Wyrick
Robbins Yates & Ponton LLP, the Investors' counsel, pursuant to the terms of the
Escrow Agreement. [The Company shall also reimburse the Investors for up to
$5,000 of their due diligence related expenses with respect to the Company.] The
Company shall reimburse the Investors for any expenses and legal fees incurred
enforcing its rights under the Agreement or in connection with any modification
or waiver with respect thereto. The Company's obligations under this Section
13.8 shall arise and remain in force whether or not any closing occurs
hereunder, unless such failure to close is solely the result of default by the
Investors.

Section 13.9. PUBLICITY. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior

                                       31
<PAGE>

consent of the Investors, which shall not be unreasonably withheld nor
delayed by more than two (2) trading days from their receipt of such proposed
release. No release shall name the Investors without their express consent.

Section 13.10. FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

Section 13.11. TERMINATION. If the Closing shall not have occurred on or before
April 30, 2001 due to the Company's or an Investor's failure to satisfy the
conditions set forth in Article II above (and the nonbreaching party's failure
to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 13.11, the Company shall remain obligated to reimburse the non-breaching
Investors for the expenses described in Section 13.8 above.

Section 13.12. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

Section 13.13. PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to the Investors hereunder or the Investors enforce or exercise
their rights hereunder or thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person or entity under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

Section 13.14 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to the Company or the Investors or any subsequent
holder of any Securities upon any breach, default or noncompliance of the
Investors, any subsequent holder of any Securities or the Company under this
Agreement, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investors of
any breach, default or noncompliance under this Agreement or any waiver on the
Company's or the Investors' part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing and that all remedies, either under this
Agreement, by law, or otherwise afforded to the Company and the Investors, shall
be cumulative and not alternative.

                                       32
<PAGE>

Section 13.15 AMENDMENTS AND WAIVERS. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely) with the written consent of the Company and the Investors or
their transferees holding at least sixty percent (60%) of the outstanding
Conversion Shares (assuming the exercise of all Warrants and the conversion of
all Series B Preferred Stock or other securities into Common Stock), voting
together as a single group; provided, however, that no such amendment or waiver
shall reduce the aforesaid percentage of Conversion Shares required under this
Section 13.15. Any amendment or waiver effected in accordance with this Section
13.15 shall be binding upon the Investors and each transferee of the Securities.
Upon the effectuation of each such amendment or waiver, the Company shall
promptly give written notice thereof to the Investors (or their transferees) who
have not previously consented thereto in writing.

                                   * * * * * *

                                       33
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Series B
Preferred Stock and Warrants Purchase Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
                                      COMPANY:

                                      INTERACTIVE TELESIS INC.

                                      By:  _________________________
                                      Name:  _______________________
                                      Title:  ________________________

                                      INVESTORS:

Address: 175 Bloor Street East        Investor: BH Capital Investments, L.P.
South Tower, 7th Floor                By: HB and Co., Inc., its General Partner
Toronto, Ontario, Canada M4W 3R8
Fax: 416-929-5314                     By:  _____________________________
                                      Name: Henry Brachfeld, President
Purchased Shares and
Warrants Purchased
At Closing:
Purchased Shares:  25,000
Warrants:  7,500

Address: 33 Prince Arthur Avenue      Investor: Excalibur Limited Partnership
Toronto, Ontario, Canada M5R I B2     By: Excalibur Capital Management, Inc.
Fax: 416-964-8868

                                      By:  _____________________________
                                      Name: William Hechter, President
Purchased Shares and
Warrants Purchased
At Closing:
Purchased Shares:  25,000
Warrants:  7,500<PAGE>

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April
___, 2001, by and among Interactive Telesis Inc., a Delaware corporation, with
headquarters located at 535 Encinitas Boulevard, Suite 116, Encinitas,
California 92024 (the "COMPANY"), the undersigned buyers (each, a "BUYER" and
collectively, the "BUYERS") and the Finders (as defined below).

         WHEREAS:

         A. In connection with the Series B Preferred Stock and Warrants
Purchase Agreement by and among the parties hereto of even date herewith (the
"SERIES B PURCHASE AGREEMENT"), the Company has agreed, upon the terms and
subject to the conditions of the Series B Purchase Agreement, to issue and sell
to the Buyers (i) shares of the Company's Series B Convertible Preferred Stock,
$0.001 par value per share (the "SERIES B PREFERRED STOCK"), convertible into
shares of the Company's Common Stock, $0.001 par value per share ("COMMON
STOCK") and (ii) warrants (the "WARRANTS") to purchase shares of Series B
Preferred Stock (the "WARRANT SHARES"), convertible into shares of Common Stock;

         B. In connection with the transactions contemplated under the
Securities Purchase Agreement, the Company has agreed to issue to each of Ira
Terk and Next Millennium Capital Holdings, LLC (each, a "FINDER" and
collectively, the "FINDERS"), as payment of a finders' fee, (i) shares of Common
Stock (the "FINDERS SHARES"), and (ii) warrants to purchase shares of Common
Stock (the "FINDERS WARRANTS"), as set forth on the Schedule of Investors
attached hereto.

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

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

         1.       DEFINITIONS.

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

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

<PAGE>

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

                  b. "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.

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

                  d. "REGISTRABLE SECURITIES" means (i) the Finders Shares, the
Common Stock issued or issuable upon exercise of the Finders Warrants, the
Common Stock issued or issuable pursuant to the Series B Purchase Agreement,
including the Common Stock issued or issuable upon conversion of the Series B
Preferred Stock (including the Warrant Shares issued or issuable on exercise of
the Warrants) and (ii) any shares of capital stock issued or issuable with
respect to Registrable Securities, Series B Preferred Stock (including the
Warrant Shares issued or issuable on exercise of the Warrants), Finders Warrants
or Warrants as a result of any stock split, stock dividend, recapitalization,
anti-dilution adjustment, exchange or similar event or otherwise, without regard
to any limitation on exercise or conversion of the Series B Preferred Stock
(including the Warrant Shares issued or issuable on exercise of the Warrants),
Finders Warrants or Warrants.

                  e. "REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act.

         2. REGISTRATION.

                  a. DEMAND REGISTRATIONS. Subject to the terms of this Section
2.a and Section 5, at any time after the date hereof, after receipt of a written
request (the "INVESTOR REQUEST") from the holders of Registrable Securities
requesting that the Company effect a registration under the Securities Act
covering at least 40% of the Registrable Securities then outstanding, and
specifying the intended method of disposition thereof, the Company shall
promptly notify all Investors in writing of the receipt of such request and each
such Investor may elect (by written notice sent to the Company within ten (10)
business days from the date of such Investor's receipt of the aforementioned
notice from the Company) to have Registrable Securities included in such
registration thereof pursuant to this Section 2.a. Thereupon, the Company shall,
as expeditiously as possible (and in accordance with Section 3), use its best
efforts to effect the registration under the 1933 Act of all shares of
Registrable Securities which the Company has been so requested to register by
such Investors for sale, all to the extent required to permit the disposition of
all of the Registrable Securities so registered; provided, however, that the

<PAGE>

Company shall not be required to effect more than two (2) registrations of
Registrable Securities pursuant to this Section 2.a.

                  b. PIGGY-BACK REGISTRATIONS. If at any time the Company
proposes to file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its
securities (other than a Registration Statement on Form S-4 or Form S-8 (or
their equivalents at such time) relating to securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans), the
Company shall promptly send to each Investor written notice of the Company's
intention to file a Registration Statement and of such Investor's rights under
this Section 2.b and, if within twenty (20) days after receipt of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, subject to the priorities set forth in this
Section 2.b below. No right to registration of Registrable Securities under this
Section 2.b shall be construed to limit any registration required under Section
2.a. The obligations of the Company under this Section 2.b may be waived by
Investors holding a majority of the Registrable Securities. If an offering in
connection with which an Investor is entitled to registration under this Section
2.b is an underwritten offering, then each Investor whose Registrable Securities
are included in such Registration Statement shall, unless otherwise agreed to by
the Company, offer and sell such Registrable Securities in an underwritten
offering using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as other shares
of Common Stock included in such underwritten offering. If a registration
pursuant to this Section 2.b is to be an underwritten public offering and the
managing underwriter(s) advise the Company in writing, that in their reasonable
good faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration:

                  (1) first, all securities the Company proposes to sell for its
own account;

                  (2) second, up to the full number of securities proposed to be
registered for the account of the holders of securities entitled to inclusion of
their securities in the Registration Statement by reason of demand registration
rights; and

                  (3) third, the securities requested to be registered by the
Investors and other holders of securities entitled to participate in the
registration, as of the date hereof, drawn from them pro rata based on the
number each has requested to be included in such registration.

                  c. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable

<PAGE>

Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any shares of Common Stock included in a
Registration Statement and which remain allocated to any Person which ceases
to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held
by such Investors.

                  d. LEGAL COUNSEL. Subject to Section 5 hereof, the Investors
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee as their counsel any offering pursuant
to this Section 2 ("LEGAL COUNSEL"), which shall be Wyrick Robbins Yates &
Ponton LLP as their counsel or such other counsel as thereafter designated by
the holders of a majority of Registrable Securities. The Company shall
reasonably cooperate with Legal Counsel in performing the Company's obligations
under this Agreement.

                  e. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is
unavailable for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.

         3.       RELATED OBLIGATIONS.

         Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2.b or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2.a, the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:

                  a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the Company's receipt of the Investor Request
(the "DEMAND FILING DATE")) for the registration of Registrable Securities
pursuant to Section 2.a and use its best efforts to cause such Registration
Statements relating to the Registrable Securities to become effective as soon as
possible after such filing (but, in no event later than ninety (90) days after
the Company's receipt of the Investor Request in the event the SEC does not
review the Registration Statement and no later than one hundred twenty (120)
days after the Company's receipt of the Investor Request in the event the SEC
conducts a full review of the Registration Statement (as applicable, the "DEMAND
EFFECTIVE DATE")). The Company shall not file any other Registration Statement
with respect to its securities between the date of the Investor Request and
ninety (90) days after the Demand Effective Date (other than a Registration
Statement on Form S-8 (or its equivalent at such time) or any Registration
Statements required to be filed for securities issued or issuable to H&QGF
pursuant to the existing terms of the Company's equity line agreement with
H&QGF. The Company shall keep any Registration Statement required to be filed
hereunder effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell

<PAGE>

all of the Registrable Securities covered by such Registration Statement
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act
(or successor thereto) or (ii) the date on which (A) the Investors shall have
sold all the Registrable Securities covered by such Registration Statement
and (B) none of the Series B Preferred Stock (including the Warrant Shares
issued or issuable on exercise of the Warrants), Finders Warrants or Warrants
is outstanding (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading. The term "best efforts" shall mean, among other things, that
the Company shall submit to the SEC, within two business days after the
Company learns that no review of a particular Registration Statement will be
made by the staff of the SEC or that the staff has no further comments on the
Registration Statement, as the case may be, a request for acceleration of
effectiveness of such Registration Statement to a time and date not later
than 48 hours after the submission of such request.

                  b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3.b by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 ACT"), the Company shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement the
Registration Statement.

                  c. The Company shall (a) permit Legal Counsel to review and
comment upon (i) the Registration Statement at least seven (7) days prior to its
filing with the SEC and (ii) all other Registration Statements and all
amendments and supplements to all Registration Statements within a reasonable
number of days prior to the their filing with the SEC and (b) not file any
document in a form to which Legal Counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
Legal Counsel, which approval shall not be unreasonably withheld. The Company
shall furnish to Legal Counsel, without charge, (i) any correspondence from the
SEC or the staff of the SEC to the Company or its representatives relating to
any Registration Statement, (ii) promptly after the same is prepared and filed
with the SEC, one copy of any Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference

<PAGE>

and all exhibits and (iii) upon the effectiveness of any Registration
Statement, one copy of the prospectus included in such Registration Statement
and all amendments and supplements thereto.

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

                  e. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3.e, (y) subject itself to
general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

                  f. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering; provided, however, that the Company shall have
the right to consent to the selection of such underwriter, which consent shall
not be unreasonably withheld.

                  g. As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under

<PAGE>

which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to
Legal Counsel and each Investor (or such other number of copies as Legal
Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to
Legal Counsel and each Investor by facsimile on the same day of such
effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company's reasonable determination
that a post-effective amendment to a Registration Statement would be
appropriate.

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

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

                  j. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Records or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a

<PAGE>

final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of
this or any other agreement of which the Inspector has knowledge. Each
Investor agrees that it shall, upon learning that disclosure of such Records
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, the Records deemed confidential.

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

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

                  m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.

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

<PAGE>

                  o. If requested by the managing underwriters or an Investor,
the Company shall: (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by an Investor or any underwriter of such Registrable Securities.

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

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

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

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

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

                  u. Notwithstanding anything to the contrary in Section 3.g, at
any time after the Registration Statement has been declared effective, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a "GRACE PERIOD"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of material, non-public
information giving rise to a Grace Period and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on

<PAGE>

which the Grace Period ends; and, provided further, that during any
consecutive 365-day period, there shall be only one Grace Period, such Grace
Period not to exceed 20 days in the aggregate (an "ALLOWABLE GRACE PERIOD").
For purposes of determining the length of a Grace Period above, the Grace
Period shall begin on and include the date the Investors receive the notice
referred to in clause (i) above and shall end on and include the date the
Investors receive the notice referred to in clause (ii) above. Upon
expiration of the Allowable Grace Period, the Company shall again be bound by
the first sentence of Section 3.g with respect to the information giving rise
thereto. Notwithstanding anything to the contrary contained herein, the
Investors may exercise or convert Finders Warrants, Warrants and Series B
Preferred Stock (including the Warrant Shares issued or issuable on exercise
of the Warrants) during a Grace Period.

                  v. Each of the following events shall constitute a
"REGISTRATION DEFAULT" for purposes of this Agreement:

                     (i)   the Company's failure to file a Registration
Statement pursuant to Section 2.a by the Demand Filing Date;

                     (ii)  the SEC's failure to declare a Registration
Statement filed pursuant to Section 2.a effective on or before the Demand
Effective Date, except where the failure to meet such deadline is the result
solely of actions by the holders of Registrable Securities or Legal Counsel;

                     (iii) the Company's failure to request acceleration of
the effectiveness of a Registration Statement within two (2) business days
after the SEC has notified the Company that it may file such an acceleration
request as required by Section 3.a hereof, except where the failure to meet
such deadline is a result solely of actions by the holders of Registrable
Securities or Legal Counsel;

                     (iv)  the Investors' inability to sell all Registrable
Securities pursuant to an effective Registration Statement (whether because
of a failure to keep the Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to the Registration
Statement, to register sufficient shares of Common Stock or otherwise); or

                     (v)   the aggregate days of Grace Period exceed the
Allowable Grace Period.

Upon the occurrence of a Registration Default, the Company shall pay each
Investor an amount determined in accordance with the following formula for each
30-day period of such Registration Default:

<PAGE>

         2% x P x N for the first 30 days of the first Registration Default, and
         3% x P x N for all continuing subsequent Registration Defaults

                  where

         P =      the average closing sale price of the Company's Common Stock
                  on the Principal Market for the applicable 30 days (for
                  purposes of this Agreement, "PRINCIPAL MARKET" shall mean the
                  American Stock Exchange, the New York Stock Exchange, the
                  NASDAQ National Market, or the NASDAQ SmallCap Market,
                  whichever is at the time the principal trading exchange or
                  market for the Common Stock, based upon share volume, or if
                  the Common Stock is not traded on an exchange or market, the
                  OTC Bulletin Board); and

         N =      the number of Registrable Securities that such Investor
                  holds or may acquire pursuant to exercise or conversion of
                  Series B Preferred Stock (including the Warrant Shares issued
                  or issuable on exercise of the Warrants), Finders Warrants or
                  Warrants on the last day of the applicable 30-day period
                  (without giving effect to any limitations on conversion or
                  exercise of such Series B Preferred Stock (including the
                  Warrant Shares issued or issuable on exercise of the
                  Warrants), Finders Warrants or Warrants).

If a Registration Default is cured before the end of a 30-day period, the
applicable formula shall be pro-rated. The Company shall pay such amount in cash
on demand by an Investor made at any time during the continuance or after
termination of such Registration Default. If the Company does not remit payment
of the amount due to such Investor, the Company will pay the Investor's
reasonable costs of collection, including attorneys' fees. An Investor's right
to demand such payment shall be in addition to any other rights it may have
under this Agreement, the Series B Purchase Agreement or otherwise.

         4. OBLIGATIONS OF THE INVESTORS.

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

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

<PAGE>

notified the Company in writing of such Investor's election to exclude all of
such Investor's Registrable Securities from such Registration Statement.

                  c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2.b, each such Investor agrees
to enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.

                  d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3.h
or the first sentence of Section 3.g, such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3.h or the
first sentence of Section 3.g.

                  e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.

                  f. Each Investor agrees not to take any action to cause such
Investor to become a registered broker-dealer as defined under the 1934 Act or
to effect any change to such Investor's status that would preclude the Company
from using Form S-3 for the Registration Statement.

         5. EXPENSES OF REGISTRATION.

                  All reasonable expenses (other than expenses incurred pursuant
to Section 3.j(iv) and (v) and underwriting discounts and commissions) incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company and reasonable fees and disbursements of Legal Counsel,
shall be paid by the Company.

         6. INDEMNIFICATION.

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

<PAGE>

                  a.    To the fullest extent permitted by law, the Company
will, and hereby does, indemnify, hold harmless and defend each Investor who
holds such Registrable Securities, the directors, officers, partners,
employees, agents, representatives of, and each Person, if any, who controls
any Investor within the meaning of the 1933 Act or the 1934 Act, and any
underwriter (as defined in the 1933 Act) for the Investors, and the directors
and officers of, and each Person, if any, who controls, any such underwriter
within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, liabilities, judgments, fines,
penalties, charges, costs, attorneys' fees, amounts paid in settlement or
expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency or body or
the SEC, whether pending or threatened, whether or not an indemnified party
is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any
filing made in connection with the qualification of the offering under the
securities or other "blue sky" laws of any jurisdiction in which Registrable
Securities are offered ("BLUE SKY FILING"), or the omission or alleged
omission to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto with the
SEC) or the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the circumstances
under which the statements therein were made, not misleading, (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act,
any other law, including, without limitation, any state securities law, or
any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any
material violation of this Agreement (the matters in the foregoing clauses
(i) through (iv) being, collectively, "VIOLATIONS").

                  The Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or reasonable other expenses incurred
by them in connection with investigating or defending any such Claim.

                  Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 6.a: (i) shall not
apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person or underwriter
for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3.d; (ii) with respect to any preliminary
prospectus, shall not inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of

<PAGE>

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

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

                  c.    The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any

<PAGE>

distribution, to the same extent as provided above, with respect to
information such persons so furnished in writing expressly for inclusion in
the Registration Statement.

                  d.    Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding)
involving a Claim, such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified
Person or Indemnified Party and any other party represented by such counsel
in such proceeding. The Company shall pay reasonable fees for only one
separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding a majority of the issued or issuable
Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or
defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or
claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its written consent; provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party or Indemnified Person
of a release from all liability in respect to such claim or litigation.
Following indemnification as provided for hereunder, the indemnifying party
shall be subrogated to all rights of the Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations relating to
the matter for which indemnification has been made. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action.

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

<PAGE>

         7.       CONTRIBUTION.

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

         8.       REPORTS UNDER THE 1934 ACT.

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

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

                  b.    file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements and the filing of
such reports and other documents is required for the applicable provisions of
Rule 144; and

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

<PAGE>

         9.       ASSIGNMENT OF REGISTRATION RIGHTS.

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

         10.      AMENDMENT OF REGISTRATION RIGHTS.

                  Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who then hold or have the right to
acquire two-thirds (2/3) of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend
or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties
to this Agreement.

         11.      MISCELLANEOUS.

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

<PAGE>

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

                  If to the Company:

                        Interactive Telesis Inc
                        535 Encinitas Boulevard, Suite 116
                        Encinitas, California 92024
                        Telephone: (760) 632-1700
                        Facsimile: (760) 632-1790
                        Attention: Chief Executive Officer

                  With a copy to:

                        Rushall & McGeever
                        Carlsbad, CA 92008
                        Telephone:  (760) 438-6855
                        Facsimile:  (760) 438-1790
                        Attention:  Bruce Rushall, Esq.

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

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

                  d.    All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of Delaware, without giving effect to any choice
of law or conflict of law provision or rule that would cause the application
of the laws of any jurisdictions other than the State of Delaware. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting

<PAGE>

the City of Wilmington, Delaware, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

                  e.    This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement supersedes
all prior agreements and understandings among the parties hereto with respect
to the subject matter hereof and thereof.

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

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

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

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

<PAGE>

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

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

                                   * * * * * *

<PAGE>

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

<TABLE>
<S>                                  <C>
COMPANY:                             BUYERS:

INTERACTIVE TELESIS INC.             BH CAPITAL INVESTMENTS, L.P.
                                       By:  HB and Co., Inc. its General Partner

By:                                  By:
   -----------------------------        ----------------------------
Name:                                Name:          Henry Brachfeld
     ---------------------------
Its:                                 Its:  Authorized Signatory
    ----------------------------

                                     EXCALIBUR LIMITED PARTNERSHIP
                                       By:  Excalibur Capital Management, Inc.
                                        Its General Partner

                                     By:_____________________________
                                     Name: William Hechter, President

FINDERS:

--------------------------
Ira Terk

Next Millennium Capital Holdings, LLC.

By:
   -----------------------------
Name:
     ---------------------------
Its:
    ----------------------------
</TABLE>

<PAGE>

                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

-----------------------
-----------------------
ATTN:
     ------------------

                  Re:      INTERACTIVE TELESIS INC.

Ladies and Gentlemen:

         We are counsel to Interactive Telesis Inc., a Delaware corporation
(the "COMPANY"), which has entered into that certain Series B Preferred Stock
and Warrants Purchase Agreement (the " PURCHASE AGREEMENT") by and among the
Company, and the buyers named therein (collectively with the Finders, the
"HOLDERS") pursuant to which the Company issued to the Holders shares of its
Series B Convertible Preferred Stock, $0.001 par value per share (the "SERIES
B PREFERRED STOCK"), convertible into shares of the Company's Common Stock,
$0.001 par value per share (the "COMMON STOCK") and Warrants to purchase
Series B Preferred Stock. Pursuant to the Purchase Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders and
the Finders (as defined therein) (the "REGISTRATION RIGHTS AGREEMENT")
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement)
under the Securities Act of 1933, as amended (the "1933 ACT"). In connection
with the Company's obligations under the Registration Rights Agreement, on
____________ ___, 2001, the Company filed a Registration Statement on Form
S-___ (File No. 333-_____________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder
thereunder.

<PAGE>

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

                                     Very truly yours,

                                     [ISSUER'S COUNSEL]

                                     By:
                                        ---------------------

cc:      [LIST NAMES OF HOLDERS AND FINDERS]

<PAGE>

                              SCHEDULE OF INVESTORS

<TABLE>
<CAPTION>
------------------------------------------ --------------------------------------- -----------------------------------
NAME OF BUYER                               INITIAL NUMBER OF SHARES OF SERIES B      INITIAL NUMBER OF SHARES OF
                                                      PREFERRED STOCK                   SERIES B PREFERRED STOCK
                                                                                          UNDERLYING WARRANTS
------------------------------------------ --------------------------------------- -----------------------------------
<S>                                        <C>                                     <C>
BH CAPITAL INVESTMENTS, L.P.                               25,000                                7,500
175 Bloor Street East
South Tower, 7th Floor
Toronto, Ontario, Canada M4W 3R8
Fax: 416-929-5314
------------------------------------------ --------------------------------------- -----------------------------------
EXCALIBUR LIMITED PARTNERSHIP                              25,000                                7,500
33 Prince Arthur Avenue
Toronto, Ontario, Canada M5R I B2
Fax: 416-964-8868
------------------------------------------ --------------------------------------- -----------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------ --------------------------------------- -----------------------------------
NAME OF FINDER                              INITIAL NUMBER OF FINDERS SHARES OF       INITIAL NUMBER OF SHARES OF
                                                        COMMON STOCK                COMMON STOCK UNDERLYING FINDERS
                                                                                                WARRANTS
------------------------------------------ --------------------------------------- -----------------------------------
<S>                                        <C>                                     <C>
IRA TERK                                                   18,750                                2,500
5889 Stephen Leacock Avenue
Montreal, Quebec
Canada H4W 3H8
------------------------------------------ --------------------------------------- -----------------------------------
NEXT MILLENNIUM CAPITAL HOLDINGS, LLC.                     18,750                                2,500
2925 Eastern Blvd
Baldwin Harbor
New York, NY 11510
------------------------------------------ --------------------------------------- -----------------------------------
</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00024-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00024-of-00352.parquet"}]]