Document:

Exhibit 10.3

                                                                  EXECUTION COPY

                          SECURITIES PURCHASE AGREEMENT

         This Securities  Purchase  Agreement (this  "AGREEMENT") is dated as of
January 23, 2004 by and among GuruNet  Corporation,  a Delaware corporation (the
"COMPANY"), and each purchaser identified on the signature pages hereto (each, a
"PURCHASER" and collectively, the "PURCHASERS").

         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement  and  pursuant  to  Section  4(2) of the  Securities  Act of 1933,  as
amended,  the  Company  desires  to issue and sell to each  Purchaser,  and each
Purchaser,  severally  and not  jointly,  desires to purchase  from the Company,
certain securities of the Company as more fully described in this Agreement.

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

ARTICLE I
                                   DEFINITIONS

1.1      DEFINITIONS.  In  addition  to the  terms  defined  elsewhere  in  this
Agreement, the following terms have the meanings indicated:

                  "ACTUAL MINIMUM" means, as of any date, the maximum  aggregate
         number of shares of Common Stock then issued or potentially issuable in
         the  future  pursuant  to  the  Transaction  Documents,  including  any
         Underlying  Shares,  ignoring  any  limits  on the  number of shares of
         Common  Stock  that  may be owned  by a  Purchaser  at any one time and
         assuming that (a) any previously  unconverted  Notes are held until the
         one-year  anniversary  of  the  Closing  Date  or,  if  earlier,  until
         maturity,  and all  interest  on the  Notes is paid in shares of Common
         Stock,  (b) the maximum number of Underlying  Shares is issued pursuant
         to the Warrants, and (c) the Conversion Price (as defined in the Notes)
         at all times on and after the date of determination  equals 100% of the
         actual  Conversion  Price on the Business Day immediately  prior to the
         date of determination.

                  "AFFILIATE"  means any Person  that,  directly  or  indirectly
         through one or more intermediaries,  controls or is controlled by or is
         under  common  control  with a  Person,  as such  terms are used in and
         construed  under Rule 144. With respect to a Purchaser,  any investment
         fund or managed account that is managed on a discretionary basis by the
         same  investment  manager  as such  Purchaser  will be  deemed to be an
         Affiliate of such Purchaser.

                  "BANKRUPTCY  EVENT" means any of the following events: (a) the
         Company or any Subsidiary  commences a case or other  proceeding  under
         any bankruptcy, reorganization, arrangement, adjustment of debt, relief
         of debtors,  dissolution,  insolvency or  liquidation or similar law of
         any jurisdiction relating to the Company or any Subsidiary thereof; (b)
         there is commenced  against the Company or any Subsidiary any such case
         or proceeding that is not dismissed within 60 days after  commencement;
         (c) the Company or

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         any  Subsidiary  is  adjudicated  insolvent or bankrupt or any order of
         relief or other order approving any such case or proceeding is entered;
         (d) the  Company  or any  Subsidiary  suffers  any  appointment  of any
         custodian  or the like for it or any  substantial  part of its property
         that is not discharged or stayed within 60 days; (e) the Company or any
         Subsidiary makes a general assignment for the benefit of creditors; (f)
         the Company or any Subsidiary fails to pay, or states that it is unable
         to pay or is unable to pay, its debts  generally as they become due; or
         (g)  the  Company  or any  Subsidiary,  by any act or  failure  to act,
         expressly  indicates its consent to, approval of or acquiescence in any
         of the foregoing or takes any corporate or other action for the purpose
         of effecting any of the foregoing.

                  "BUSINESS  DAY" means any day other than  Saturday,  Sunday or
         other  day on  which  commercial  banks  in The  City of New  York  are
         authorized or required by law to remain closed.

                   "CHANGE  OF  CONTROL"  means  the  occurrence  of  any of the
         following  in  one  or  a  series  of  related  transactions:   (i)  an
         acquisition  after the date hereof by an  individual or legal entity or
         "group" (as  described in Rule  13d-5(b)(1)  under the Exchange Act) of
         more than  one-third  of the voting  rights or equity  interests in the
         Company;  (ii) a replacement  of more than  one-third of the members of
         the  Company's  board  of  directors  that  is not  approved  by  those
         individuals  who are  members  of the  board of  directors  on the date
         hereof (or other directors  previously  approved by such  individuals);
         (iii) a merger or  consolidation  of the Company or any Subsidiary or a
         sale of more than  one-third  of the assets of the  Company in one or a
         series of related  transactions,  unless  following such transaction or
         series of transactions,  the holders of the Company's  securities prior
         to the first such  transaction  continue to hold at least two-thirds of
         the voting rights and equity  interests in of the  surviving  entity or
         acquirer of such assets;  (iv) a  recapitalization,  reorganization  or
         other  transaction   involving  the  Company  or  any  Subsidiary  that
         constitutes  or  results in a transfer  of more than  one-third  of the
         voting rights or equity interests in the Company; (v) consummation of a
         "Rule 13e-3  transaction"  as defined in Rule 13e-3 under the  Exchange
         Act with respect to the Company,  or (vi) the  execution by the Company
         or  its  controlling  stockholders  of an  agreement  providing  for or
         reasonably likely to result in any of the foregoing events.

                  "CLOSING"  means the closing of the  purchase  and sale of the
         Notes and the Warrants pursuant to Section 2.1.

                  "CLOSING DATE" means the date of the Closing.

                  "CLOSING PRICE" means,  for any date, the price  determined by
         the first of the  following  clauses  that  applies:  (a) if the Common
         Stock is then  listed  or  quoted  on an  Eligible  Market or any other
         national  securities  exchange,  the closing bid price per share of the
         Common  Stock  for such  date (or the  nearest  preceding  date) on the
         primary  Eligible  Market or exchange on which the Common Stock is then
         listed or quoted; (b) if prices for the Common Stock are then quoted on
         the OTC Bulletin  Board,  the closing bid price per share of the Common
         Stock for such date (or the nearest  preceding date) so quoted;  (c) if
         prices  for the Common  Stock are then  reported  in the "Pink  Sheets"

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         published by the National  Quotation Bureau  Incorporated (or a similar
         organization  or  agency  succeeding  to  its  functions  of  reporting
         prices),  the most  recent  closing  bid price per share of the  Common
         Stock so reported;  or (d) in all other cases, the fair market value of
         a share of  Common  Stock as  determined  by an  independent  appraiser
         selected in good faith by the Company and the Lead Purchaser.

                  "COMMISSION" means the Securities and Exchange Commission.

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

                  "COMMON STOCK EQUIVALENTS"  means,  collectively,  Options and
         Convertible Securities.

                  "COMPANY  COUNSEL"  means  Morrison  Cohen Singer & Weinstein,
         LLP.

                  "CONVERTIBLE  SECURITIES" means any stock or securities (other
         than Options)  convertible  into or  exercisable  or  exchangeable  for
         Common Stock.

                  "EFFECTIVE   DATE"  means  the  date  that  the   Registration
         Statement filed pursuant to Section 6.1 is first declared  effective by
         the Commission.

                  "ELIGIBLE  MARKET"  means any of the New York Stock  Exchange,
         the American Stock  Exchange,  the Nasdaq National  Market,  the Nasdaq
         Small Cap Market or the OTC Bulletin Board.

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

                  "EXCLUDED  STOCK"  means (a) the issuance of Common Stock upon
         exercise or conversion of any options or other securities  described in
         SCHEDULE  3.1(F)  (provided that such exercise or conversion  occurs in
         accordance with the terms thereof,  without  amendment or modification,
         and  that  the  applicable  exercise  or  conversion  price or ratio is
         described  in such  schedule),  (b) any options  granted to  directors,
         officers,  employees or other service providers of the Company pursuant
         to any  Company  option  plan then in effect  and any  shares of Common
         Stock or other  securities  issuable in connection with the exercise of
         any such options,  or (c) any Common Stock or Common Stock  Equivalents
         issued by the Company in connection  with a bona fide  acquisition of a
         Person or any assets  thereof,  as approved by the  Company's  Board of
         Directors and not for the principal purpose of raising cash.

                  "FILING  DATE" means the fifth day following the IPO Event Due
         Date.

                  "IPO EVENT" means the occurrence of an initial public offering
         of the  Company's  Common  Stock  (including  all  of  the  Registrable
         Securities for resale) with a recognized  underwriter  (it being agreed
         that EarlyBird Capital, Inc. is a recognized underwriter).

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                  "IPO  EVENT DUE DATE"  means the later to occur of the 180 day
         anniversary of the date of the Closing and June 30, 2004.

                  "LEAD PURCHASER" means Vertical Ventures, LLC or its successor
         or assign.

                  "LIEN"  means  any lien,  charge,  claim,  security  interest,
         encumbrance, right of first refusal or other restriction.

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

                  "NOTES" means  $[_______] in aggregate  principal amount of 8%
         senior secured  convertible  notes due  January___,  2005 issued by the
         Company  to the  Purchasers  hereunder  substantially  in the  form  of
         EXHIBIT B hereto.

                  "OPTIONS"  means any rights,  warrants or options to subscribe
         for or purchase Common Stock or Convertible Securities.

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

                  "PLEDGE  AGREEMENT"  means the Pledge  Agreement to be entered
         into among the Company, Vertical Ventures, as agent, and the Purchasers
         substantially in the form of EXHIBIT H.

                  "POST-EFFECTIVE AMENDMENT" means a post-effective amendment to
         the Registration Statement.

                  "POST-EFFECTIVE  AMENDMENT  FILING  DEADLINE"  means the fifth
         Business Day after the  Registration  Statement  ceases to be effective
         pursuant to  applicable  securities  laws due to the passage of time or
         the   occurrence   of  an  event   requiring  the  Company  to  file  a
         Post-Effective Amendment.

                  "PREFERRED  STOCK"  means  each  of  the  Company's  Series  A
         Preferred Stock,  par value $0.01 per share,  Series B Preferred Stock,
         par value $0.01 per share,  Series C Preferred  Stock,  par value $0.01
         per share and Series D Preferred Stock, par value $0.01 per share.

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

                  "PROSPECTUS" means the prospectus included in the Registration
         Statement  (including,  without limitation,  a prospectus that includes
         any information  previously  omitted from a prospectus filed as part of
         an  effective   registration  statement  in  reliance

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         upon Rule 430A  promulgated  under the  Securities  Act), as amended or
         supplemented by any prospectus supplement, with respect to the terms of
         the offering of any portion of the  Registrable  Securities  covered by
         the Registration Statement, and all other amendments and supplements to
         the Prospectus,  including post-effective  amendments, and all material
         incorporated  by reference or deemed to be incorporated by reference in
         such Prospectus.

                  "REGISTRABLE  SECURITIES"  means any Common  Stock  (including
         Underlying  Shares)  issued or  issuable  pursuant  to the  Transaction
         Documents,  together  with any  securities  issued or issuable upon any
         stock  split,  dividend  or  other  distribution,  recapitalization  or
         similar event with respect to the foregoing.

                  "REGISTRATION  STATEMENT"  means  the  registration  statement
         filed  relating to the IPO Event or required to be filed under  Section
         6.1,   including  (in  each  case)  the   Prospectus,   amendments  and
         supplements to such  registration  statement or  Prospectus,  including
         pre- and  post-effective  amendments,  all  exhibits  thereto,  and all
         material  incorporated  by  reference or deemed to be  incorporated  by
         reference in such registration statement.

                  "REQUIRED EFFECTIVENESS DATE" means the IPO Event Due Date.

                  "REQUIRED   MINIMUM"  means,  as  of  any  date,  the  maximum
         aggregate  number of shares of Common Stock then issued or  potentially
         issuable in the future pursuant to the Transaction Documents, including
         any Underlying  Shares,  ignoring any limits on the number of shares of
         Common  Stock  that  may be owned  by a  Purchaser  at any one time and
         assuming that: (a) any previously  unconverted Notes are held until the
         one-year  anniversary  of  the  Closing  Date  or,  if  earlier,  until
         maturity,  and all  interest  on the  Notes is paid in shares of Common
         Stock,  (b) the maximum number of Underlying  Shares is issued pursuant
         to the Warrants and (c) the Conversion  Price (as defined in the Notes)
         at all times on and after the date of  determination  equals 50% of the
         actual  Conversion  Price (as defined in the Notes) on the Business Day
         immediately prior to the date of determination.

                  "RESTRICTED  PERSONS"  means any directors and officers of the
         Company and any Person that is or shall become,  after giving effect to
         any or all of the transactions  contemplated hereby including,  without
         limitation, the IPO Event, a "beneficial owner" (as determined pursuant
         to Rule  13d-3  under the  Exchange  Act) of 1% or more of the  capital
         stock of the Company and any  immediate  family  member or Affiliate of
         any of the foregoing Persons.

                  "RULE 144,"  "RULE  415," and "RULE 424" means Rule 144,  Rule
         415 and Rule 424, respectively,  promulgated by the Commission pursuant
         to the Securities  Act, as such Rules may be amended from time to time,
         or any similar rule or regulation  hereafter  adopted by the Commission
         having substantially the same effect as such Rule.

                  "SECURITIES"  means the Notes, the Warrants and the Underlying
         Shares.

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

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                  "SECURITY  AGREEMENT" means the Security Agreement dated as of
         the Closing Date, among the Company,  Vertical Ventures, LLC, as agent,
         and the Purchasers substantially in the form of EXHIBIT I.

                  "SUBSIDIARY"  means any Person in which the Company,  directly
         or  indirectly,  owns  capital  stock  or holds an  equity  or  similar
         interest that are required to be listed in Schedule 3.1(a).

                  "TRADING  MARKET"  means the OTC  Bulletin  Board or any other
         Eligible Market on which the Common Stock is then listed or quoted.

                  "TRANSACTION  DOCUMENTS" means this Agreement,  the Notes, the
         Warrants,  the Transfer Agent  Instructions  and any other documents or
         agreements  executed or delivered in connection  with the  transactions
         contemplated hereunder.

                  "TRANSFER  AGENT"  means any  transfer  agent  selected by the
         Company.

                  "TRANSFER AGENT INSTRUCTIONS"  means the Irrevocable  Transfer
         Agent  Instructions,  in the form of EXHIBIT E, executed by the Company
         and delivered to and acknowledged in writing by the Transfer Agent.

                  "UNDERLYING  SHARES" means the shares of Common Stock issuable
         upon  conversion of the Notes,  upon exercise of the Warrants,  and any
         securities issued in exchange for or in respect of such shares.

                  "WARRANTS" means, (i) collectively,  the Common Stock purchase
         warrants issued and sold under this  Agreement,  in the form of EXHIBIT
         A-1, and any replacement  warrants issued upon partial exercise of such
         warrants, and (ii) with respect to the Lead Purchaser, the Common Stock
         purchase  warrant  issued  and sold under  this  Agreement  to the Lead
         Purchaser,  in the form of EXHIBIT  A-2, and any  replacement  warrants
         issued upon partial exercise of such warrant.

                                   ARTICLE II
                                PURCHASE AND SALE

2.1      CLOSING.  Subject  to the  terms  and  conditions  set  forth  in  this
Agreement,  at the Closing the Company  shall issue and sell to each  Purchaser,
and each Purchaser shall, severally and not jointly,  purchase from the Company,
the Notes and a Warrant to purchase  such number of Underlying  Shares,  each as
indicated below such  Purchaser's  name on the signature page of this Agreement,
for an aggregate  purchase  price for such  Purchaser  as  indicated  below such
Purchaser's name on the signature page of this Agreement. The Closing shall take
place at the offices of Proskauer Rose LLP  immediately  following the execution
hereof, or at such other location or time as the parties may agree.

2.2      CLOSING DELIVERIES.

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

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                  (i) a Note in the aggregate  principal  amount indicated below
         such  Purchaser's  name  on  the  signature  page  of  this  Agreement,
         registered in the name of such Purchaser;

                  (ii) a  Warrant,  registered  in the  name of such  Purchaser,
         pursuant  to which such  Purchaser  shall have the right to acquire the
         number of Underlying  Shares  indicated below such  Purchaser's name on
         the signature page of this Agreement, on the terms set forth therein;

                  (iii)  with  respect  to  the  Lead   Purchaser,   a  Warrant,
         registered  in the name of the Lead  Purchaser,  pursuant  to which the
         Lead Purchaser shall have the right to acquire the number of Underlying
         Shares  indicated below Lead  Purchaser's name on the signature page of
         this Agreement, on the terms set forth therein;

                  (iv) a lock-up  letter in the form of EXHIBIT F-1  executed by
         each Restricted Person;

                  (v) the Security Agreement executed by the parties thereto;

                  (vi)  copies  of  the  Uniform   Commercial   Code   financing
         statements and other  documents or agreements  required by the Security
         Agreement  or Pledge  Agreement  with respect to the security or pledge
         granted  thereby,   and  evidence  of  the  filing  of  such  financing
         statement, documents or agreements;

                  (vii) the  Company  has  obtained  key man life  insurance  on
         Robert S. Rosenschein, its chief executive officer in an amount no less
         than $1,000,000;

                  (viii) the Company has entered  into an  employment  agreement
         with Robert S. Rosenschein,  its chief executive  officer,  in form and
         substance reasonably acceptable to EarlyBirdCapital,  Inc. and the Lead
         Purchaser;

                  (ix) a  legal  opinion  of  Company  Counsel,  in the  form of
         EXHIBIT C,  executed by such counsel and  delivered to the  Purchasers;
         and

                  (x) duly executed Transfer Agent Instructions  acknowledged by
         the Transfer Agent.

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

                  (i) the purchase price indicated below such  Purchaser's  name
         on the signature page of this  Agreement,  in United States dollars and
         in  immediately  available  funds,  by  wire  transfer  to  an  account
         designated in writing by the Company for such purpose;

                  (ii) a lock-up  letter in the form of Exhibit F-2  executed by
         such Purchaser (the "PURCHASER LOCK-UP Letter"); and

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                  (iii) a complete,  executed copy of the NASD  Questionnaire in
         the form of Exhibit J.

ARTICLE III
                                               REPRESENTATIONS AND WARRANTIES

3.1      REPRESENTATIONS  AND  WARRANTIES  OF THE  COMPANY.  The Company  hereby
represents and warrants to each of the Purchasers as follows:

                  (a)  Subsidiaries.  The  Company  has no  direct  or  indirect
Subsidiaries other than those listed in Schedule 3.1(a).  Except as disclosed in
Schedule 3.1(a),  the Company owns,  directly or indirectly,  all of the capital
stock or comparable  equity  interests of each  Subsidiary free and clear of any
Lien, and all the issued and  outstanding  shares of capital stock or comparable
equity  interests  of each  Subsidiary  are  validly  issued and are fully paid,
non-assessable and free of preemptive and similar rights.

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

                  (c) AUTHORIZATION;  ENFORCEMENT. The Company has the requisite
corporate  power and authority to enter into and to consummate the  transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder.  The execution and delivery of each of the
Transaction  Documents  by  the  Company  and  the  consummation  by it  of  the
transactions  contemplated  hereby and thereby have been duly  authorized by all
necessary  action on the part of the Company and no further consent or action is
required by the Company, its Board of Directors or its stockholders. Each of the
Transaction  Documents  has been (or upon delivery will be) duly executed by the
Company and is, or when  delivered in  accordance  with the terms  hereof,  will
constitute,  the valid and binding obligation of the Company enforceable against
the  Company in  accordance  with its  terms,  except as  enforceability  may be
limited by applicable bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors'  rights generally and by general  principles of equity
relating to enforceability.

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                  (d) NO CONFLICTS.  Except as set forth on Schedule 3.1(d), the
execution,  delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions  contemplated hereby and
thereby do not and will not (i)  conflict  with or violate any  provision of the
Company's or any Subsidiary's  certificate or articles of incorporation,  bylaws
or other organizational or charter documents,  (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would  become a
default)  under,  or  give to  others  any  rights  of  termination,  amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement,  credit facility,  debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other  understanding to which the Company or
any  Subsidiary  is a party or by which any  property or asset of the Company or
any  Subsidiary is bound or affected,  except to the extent that such  conflict,
default or termination right could not reasonably be expected to have a Material
Adverse  Effect,  or (iii)  assuming  the  accuracy of the  representations  and
warranties of each Purchaser set forth in Section 3.2,  result in a violation of
any  law,  rule,  regulation,  order,  judgment,  injunction,  decree  or  other
restriction  of any court or  governmental  authority  to which the Company or a
Subsidiary  is  subject   (including  federal  and  state  securities  laws  and
regulations and the rules and regulations of any self-regulatory organization to
which the Company or its  securities  are subject),  or by which any property or
asset of the Company or a Subsidiary is bound or affected.

                  (e)  ISSUANCE  OF  THE  SECURITIES.  Except  as  disclosed  in
Schedule  3.1(e),  the Securities  (including  the  Underlying  Shares) are duly
authorized  and,  when issued and paid for in  accordance  with the  Transaction
Documents,  will be duly and validly issued, fully paid and nonassessable,  free
and clear of all Liens (other than any Lien created by the  Purchaser) and shall
not be  subject to  preemptive  rights or similar  rights of  stockholders.  The
Company has reserved from its duly  authorized  capital stock the maximum number
of shares of Common Stock issuable upon exercise of the Warrants.

                  (f)  CAPITALIZATION.  The  number  of  shares  and type of all
authorized,  issued and outstanding capital stock,  options and other securities
of the Company  (whether or not presently  convertible  into or  exercisable  or
exchangeable  for  shares  of  capital  stock of the  Company)  is set  forth in
Schedule  3.1(f).  All outstanding  shares of capital stock are duly authorized,
validly issued,  fully paid and nonassessable and have been issued in compliance
with all applicable  securities  laws.  Except as disclosed in Schedule  3.1(f),
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations  convertible into or exercisable or exchangeable  for, or giving any
Person any right to subscribe  for or acquire,  any shares of Common  Stock,  or
contracts,  commitments,  understandings or arrangements by which the Company or
any  Subsidiary  is or may  become  bound to issue  additional  shares of Common
Stock, or securities or rights convertible or exchangeable into shares of Common
Stock.  Except as disclosed in Schedule  3.1(f),  there are no  anti-dilution or
price adjustment  provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) and the issue and sale of
the Securities  (including the Underlying  Shares) will not obligate the Company
to issue shares of Common Stock or other  securities  to any Person  (other than
the  Purchasers)  and  will  not  result  in a right of any  holder  of  Company
securities  to adjust the  exercise,  conversion,  exchange or reset price under
such securities.

                                       9
<PAGE>

                  (g)  FINANCIAL  STATEMENTS.  The Company has  delivered to the
Purchasers  true and  complete  copies of (i) the audited  consolidated  balance
sheets of the Company and its  Subsidiary as of December 31, 2002,  December 31,
2001 and December 31, 2000 and the related consolidated statements of operation,
stockholders'  equity and  comprehensive  income (loss) and cash flow,  together
with the notes  thereto,  of the Company and its  Subsidiary  for the years then
ended, together with the report of KPMG, in the case of the years ended December
31,  2000  and  2001,  and the  report  of  Somekh  Chaikin,  a  member  of KPMG
International,  thereon,  in the case of the year ended  December  31, 2002 (the
"AUDITED FINANCIAL  STATEMENTS"),  and (ii) the unaudited  consolidated  balance
sheets of the  Company  and its  Subsidiary  as of  September  30,  2003 and the
related  consolidated  statements of income and cash flow, without notes, of the
Company and its  Subsidiary  for the nine month period ended  September 30, 2003
(the "UNAUDITED  FINANCIAL  STATEMENTS").  The Audited Financial Statements have
been prepared in accordance  with United States  generally  accepted  accounting
principles  applied on a consistent basis during the periods involved  ("GAAP"),
except as may be otherwise  specified in such financial  statements or the notes
thereto,  and fairly present in all material respects the financial  position of
the Company and its  consolidated  Subsidiaries  as of and for the dates thereof
and the  results  of  operations  and cash  flows for the  periods  then  ended,
subject, in the case of unaudited statements,  to normal,  immaterial,  year-end
audit  adjustments.   To  the  Company's  knowledge,   the  Unaudited  Financial
Statements  have  been  prepared  in  accordance  with  GAAP,  except  as may be
otherwise  specified in such Schedule 3.1(g), and fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the  periods  then  ended,  subject  to  normal,   immaterial,   year-end  audit
adjustments.

                  (h)  MATERIAL  CONTRACTS  AND  OTHER  COMMITMENTS.  Except  as
disclosed in the Schedule 3.1(h), the Company and the Subsidiary do not have any
contract,  agreement,  lease, or other commitment,  written or oral, absolute or
contingent,  other than (i)  contracts for the purchase of supplies and services
that were entered  into the  ordinary  course of business and that do not, as of
the date  hereof,  involve  more than  $100,000  each;  (ii)  contracts  for the
distribution,  marketing or co-branding  of the Company's  services or contracts
for the licensing of content  incorporated into the Company's services,  in each
case,  entered  into the  ordinary  course  of  business;  and  (iii)  contracts
terminable  at will by the Company or the  Subsidiary on no more than sixty (60)
days notice without cost or liability to the Company or the Subsidiary.

                  (i )MATERIAL  CHANGES.  Since  September  30, 2003,  except as
specifically  disclosed  in  Schedule  3.1(i),  (i)  there  has  been no  event,
occurrence or development  that,  individually  or in the aggregate,  has had or
that could reasonably be expected to result in a Material  Adverse Effect,  (ii)
the Company has not incurred any  liabilities  (contingent  or otherwise)  other
than (A) trade payables and accrued expenses  incurred in the ordinary course of
business  consistent  with past practice and (B)  liabilities not required to be
reflected in the Company's financial  statements pursuant to GAAP or required to
be  disclosed  in filings  made with the  Commission,  (iii) the Company has not
altered  its method of  accounting  or the  identity of its  auditors,  (iv) the
Company has not declared or made any dividend or  distribution  of cash or other
property to its  stockholders  or purchased,  redeemed or made any agreements to
purchase or redeem any shares of its capital stock,  and (v) the Company has not
issued any

                                       10
<PAGE>

equity  securities  to any officer,  director or Affiliate,  except  pursuant to
existing Company stock option plans.

                  (j)  ABSENCE OF  LITIGATION.  Except as set forth in  Schedule
3.1(j),  there is no action, suit, claim,  proceeding,  inquiry or investigation
before  or by  any  court,  public  board,  government  agency,  self-regulatory
organization  or body pending or, to the  knowledge  of the Company,  threatened
against  or  affecting  the  Company  or  any  of its  Subsidiaries  that  could
reasonably be expected to,  individually  or in the  aggregate,  have a Material
Adverse Effect. Schedule 3.1(j) contains a complete list and summary description
of any  pending  or, to the  knowledge  of the  Company,  threatened  proceeding
against  or  affecting  the  Company  or  any  of its  Subsidiaries  that  could
reasonably be expected to,  individually  or in the  aggregate,  have a Material
Adverse Effect.

                  (k)  COMPLIANCE.  Except  as set  forth  in  Schedule  3.1(k),
neither the Company nor any  Subsidiary  (i) is in default under or in violation
of (and no event has  occurred  that has not been  waived  that,  with notice or
lapse  of  time or  both,  would  result  in a  default  by the  Company  or any
Subsidiary  under),  nor has the Company or any Subsidiary  received notice of a
claim that it is in default under or that it is in violation of, any  indenture,
loan or credit agreement or any other material  agreement or instrument to which
it is a party or by which it or any of its  properties is bound  (whether or not
such default or violation has been waived), (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is or has been in violation
of any statute,  rule or regulation  of any  governmental  authority,  including
without limitation all foreign, federal, state and local laws relating to taxes,
environmental  protection,  occupational health and safety,  product quality and
safety and  employment  and labor  matters,  except in the case of clauses (i) -
(iii) as could not reasonably be expected to,  individually or in the aggregate,
have or result in a Material Adverse Effect.

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

                  (m) CERTAIN FEES. Except as described in Schedule 3.1(m),  all
of which are payable to registered broker-dealers, no brokerage or finder's fees
or  commissions  are or will be payable by the Company to any broker,  financial
advisor or consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions  contemplated by this Agreement, and the
Company has not taken any action that would cause any Purchaser to be liable for
any such fees or commissions.

                  (n)  PRIVATE  PLACEMENT.  Neither  the  Company nor any Person
acting on the  Company's  behalf has sold or offered  to sell or  solicited  any
offer to buy the  Securities  by means of any form of  general  solicitation  or
advertising. Neither the Company nor any of its

                                       11
<PAGE>

Affiliates  nor any Person  acting on the  Company's  behalf  has,  directly  or
indirectly,  at any time within the past six  months,  made any offer or sale of
any  security  or   solicitation   of  any  offer  to  buy  any  security  under
circumstances  that would (i) eliminate the  availability  of the exemption from
registration  under Regulation D under the Securities Act in connection with the
offer  and sale of the  Securities  as  contemplated  hereby  or (ii)  cause the
offering  of  the  Securities  pursuant  to  the  Transaction  Documents  to  be
integrated  with prior  offerings by the Company for purposes of any  applicable
law  or  regulation.  The  Company  is  not,  and is not  an  Affiliate  of,  an
"investment  company" within the meaning of the Investment  Company Act of 1940,
as amended. The Company is not a United States real property holding corporation
within the meaning of the Foreign Investment in Real Property Tax Act of 1980.

                  (o) FORM SB-2 ELIGIBILITY. The Company is eligible to register
its Common Stock for resale by the Purchasers using Form SB-2 promulgated  under
the Securities Act.

                  (p)  REGISTRATION  RIGHTS.  Except as  described  in  Schedule
3.1(p),  the Company has not granted or agreed to grant to any Person any rights
(including  "piggy-back"  registration  rights)  to have any  securities  of the
Company registered with the Commission or any other governmental  authority that
have not been satisfied.

                  (q) APPLICATION OF TAKEOVER  PROTECTIONS.  There is no control
share acquisition, business combination, poison pill (including any distribution
under a rights  agreement) or other similar  anti-takeover  provision  under the
Company's  charter  documents  that is or could become  applicable to any of the
Purchasers  as a result  of the  Purchasers  and the  Company  fulfilling  their
obligations  or  exercising  their  rights  under  the  Transaction   Documents,
including,  without  limitation,  as a result of the  Company's  issuance of the
Securities and the Purchasers' ownership of the Securities.

                  (r) DISCLOSURE. The Company understands and confirms that each
of the  Purchasers  will  rely on the  foregoing  representations  in  effecting
transactions  in  securities  of the  Company.  All  disclosure  provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement,  furnished by or on behalf of
the Company are true and  correct and do not contain any untrue  statement  of a
material fact or omit to state any material fact  necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made,  not  misleading.  The Company  acknowledges  and agrees that no Purchaser
makes  or has  made  any  representations  or  warranties  with  respect  to the
transactions  contemplated  hereby  other than those  specifically  set forth in
Section 3.2.

                  (s)   ACKNOWLEDGMENT   REGARDING   PURCHASERS'   PURCHASE   OF
SECURITIES.  The Company  acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm's length  purchaser with respect to this
Agreement  and  the  transactions   contemplated  hereby.  The  Company  further
acknowledges  that no Purchaser is acting as a financial advisor or fiduciary of
the Company or any other Purchaser (or in any similar  capacity) with respect to
this Agreement and the transactions  contemplated hereby and any advice given by
any Purchaser or any of their respective representatives or agents in connection
with  this  Agreement  and  the  transactions   contemplated  hereby  is  merely
incidental to such Purchaser's  purchase of the Securities.  The Company further
represents  to each  Purchaser  that the

                                       12
<PAGE>

Company's  decision to enter into this  Agreement  has been based  solely on the
independent  evaluation of the transactions  contemplated  hereby by the Company
and its representatives.

                  (t) PATENTS AND TRADEMARKS.  The Company and the  Subsidiaries
have,  or have rights to use,  all  patents,  patent  applications,  trademarks,
trademark  applications,  service marks, trade names,  copyrights,  licenses and
other similar  rights that are necessary or material for use in connection  with
their respective businesses as currently being operated, except where failure to
so  have  could  reasonably  be  expected  to  have a  Material  Adverse  Effect
(collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Schedule 3.1(t) sets forth a
complete and true list of the Company's  Intellectual  Property Rights.  Neither
the  Company  nor  any  Subsidiary  has  received  a  written  notice  that  the
Intellectual  Property Rights used by the Company or any Subsidiary  violates or
infringes  upon the rights of any Person.  To the knowledge of the Company,  all
such  Intellectual  Property  Rights are  enforceable  and there is no  existing
infringement by another Person of any of the Intellectual Property Rights.

                  (u) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such amounts as are prudent and customary in the  businesses in which the
Company  and the  Subsidiaries  are  engaged.  Except as  disclosed  on Schedule
3.1(u), neither the Company nor any Subsidiary has any reason to believe that it
will not be able to renew  its  existing  insurance  coverage  as and when  such
coverage  expires or to obtain similar  coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.

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

                  (w) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.  Except as set
forth in Schedule 3.1(w),  none of the officers or directors of the Company and,
to the  knowledge  of the  Company,  none of the  employees  of the  Company  is
presently a party to any transaction  with the Company or any Subsidiary  (other
than for services as employees, officers and directors), including any contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

                  (x) SOLVENCY.  Based on the financial condition of the Company
as of the Closing Date (after taking into account the proceeds received or to be
received by the Company from the sale of the Securities), (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be paid
on or  in  respect  of  the  Company's  existing  debts  and  other  liabilities
(including  known  contingent  liabilities)  as they mature;  (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business for
the

                                       13
<PAGE>

current  fiscal year as now conducted and as proposed to be conducted  including
its capital needs taking into account the particular capital requirements of the
business  conducted by the  Company,  and  projected  capital  requirements  and
capital  availability  thereof;  and (iii) the current cash flow of the Company,
together with the proceeds the Company would  receive,  were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be  sufficient to pay all amounts on or in respect of its debt when such amounts
are  required to be paid.  The Company does not intend to incur debts beyond its
ability to pay such debts as they  mature  (taking  into  account the timing and
amounts of cash to be payable on or in respect of its debt).

                  (y) GOING CONCERN.  The Company and the  Subsidiaries  have no
knowledge (after taking into account the proceeds  received or to be received by
the Company from the sale of the Securities) that Somekh Chaikin,  the Company's
independent public  accountants,  will issue an audit letter containing a "going
concern"  opinion in connection with the Company's  annual report for the period
ended December 31, 2003 or otherwise.

                  (z)  SENIORITY.   As  of  the  date  of  this  Agreement,   no
indebtedness of the Company is or will be senior to or pari passu with the Notes
in right of payment,  whether  with respect to interest or upon  liquidation  or
dissolution, or otherwise.

                  (aa)  INTERNAL  ACCOUNTING  CONTROLS.   The  Company  and  the
Subsidiaries  maintain a system of internal  accounting  controls  sufficient to
provide  reasonable  assurance that (i)  transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted  accounting  principles and to maintain asset
accountability,  (iii) access to assets is  permitted  only in  accordance  with
management's   general  or  specific   authorization,   and  (iv)  the  recorded
accountability  for assets is compared  with the existing  assets at  reasonable
intervals and appropriate action is taken with respect to any differences.

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

                  (a)   ORGANIZATION;   AUTHORITY.   If  the   Purchaser   is  a
corporation,  limited  liability  company or  partnership,  such Purchaser is an
entity duly organized,  validly  existing and in good standing under the laws of
the jurisdiction of its organization with the requisite corporate or partnership
power  and  authority  to  enter  into  and  to  consummate   the   transactions
contemplated  by the  Transaction  Documents  and  otherwise  to  carry  out its
obligations  hereunder and thereunder.  If the Purchaser is an individual,  such
Purchaser has the requisite  power and authority to enter into and to consummate
the transactions  contemplated by each of the Transaction  Documents to which he
is a party and otherwise to carry out his obligations  hereunder and thereunder.
The purchase by such Purchaser of the Notes and the Warrants  hereunder has been
duly  authorized by all  necessary  action on the part of such  Purchaser.  This
Agreement has been duly executed and delivered by such Purchaser and constitutes
the valid and binding  obligation of such Purchaser,  enforceable  against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy,  insolvency  or other  similar

                                       14
<PAGE>

laws  affecting the  enforcement of creditors'  rights  generally and by general
principles of equity relating to enforceability.

                  (b)   INVESTMENT   INTENT  Such  Purchaser  is  acquiring  the
Securities as principal for its own account for investment purposes only and not
with a view to or for  distributing  or reselling  such  Securities  or any part
thereof,  without prejudice,  however, to such Purchaser's right, subject to the
provisions of this Agreement,  at all times to sell or otherwise  dispose of all
or any part of such Securities pursuant to an effective  registration  statement
under the  Securities Act or under an exemption  from such  registration  and in
compliance with applicable  federal,  state and foreign securities laws. Nothing
contained herein shall be deemed a representation  or warranty by such Purchaser
to hold Securities for any period of time.

                  (c) PURCHASER  STATUS.  At the time such Purchaser was offered
the Notes and the Warrants, it was, and at the date hereof it is, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.

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

                                   ARTICLE IV
                         OTHER AGREEMENTS OF THE PARTIES

4.1      TRANSFER RESTRICTIONS.

                  (a)  Securities  may  only  be  disposed  of  pursuant  to  an
effective  registration  statement  under the  Securities  Act or pursuant to an
available  exemption from the  registration  requirements of the Securities Act,
and in compliance with any applicable  state securities laws. In connection with
any transfer of  Securities  other than  pursuant to an  effective  registration
statement or to the Company or pursuant to Rule 144(k),  except as otherwise set
forth herein,  the Company may require the  transferor to provide to the Company
an opinion of counsel  selected by the  transferor,  the form and  substance  of
which  opinion shall be reasonably  satisfactory  to the Company,  to the effect
that such transfer does not require registration under the Securities Act or any
applicable  state securities laws.  Notwithstanding  the foregoing,  the Company
hereby  consents  to and agrees to register on the books of the Company and with
its Transfer Agent,  without any such legal opinion,  any transfer of Securities
by a Purchaser to an Affiliate of such  Purchaser,  provided that the transferee
certifies to the Company that it is an "accredited  investor" as defined in Rule
501(a) under the Securities Act.

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

                                       15
<PAGE>

                  [NEITHER]  THESE  SECURITIES  [NOR THE  SECURITIES  INTO WHICH
         THESE SECURITIES ARE  EXERCISABLE]  HAVE [NOT] BEEN REGISTERED WITH THE
         SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES  COMMISSION OF ANY
         STATE  IN  RELIANCE  UPON AN  EXEMPTION  FROM  REGISTRATION  UNDER  THE
         SECURITIES  ACT OF  1933,  AS  AMENDED  (THE  "SECURITIES  ACT"),  AND,
         ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR  PURSUANT  TO AN
         AVAILABLE  EXEMPTION  FROM,  OR IN A  TRANSACTION  NOT  SUBJECT TO, THE
         REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
         APPLICABLE STATE SECURITIES LAWS.

                  [IF THE IPO EVENT HAS OCCURRED, THE SHARES REPRESENTED BY THIS
         CERTIFICATE  ARE SUBJECT TO  RESTRICTIONS  ON  TRANSFER  AND MAY NOT BE
         SOLD,  EXCHANGED,   TRANSFERRED,  PLEDGED,  HYPOTHECATED  OR  OTHERWISE
         DISPOSED OF EXCEPT IN ACCORDANCE  WITH AND SUBJECT TO ALL THE TERMS AND
         CONDITIONS OF A CERTAIN LOCK-UP  AGREEMENT DATED AS OF JANUARY __, 2004
         (AS THE SAME MAY BE AMENDED OR MODIFIED  FROM TIME TO TIME),  A COPY OF
         WHICH THE COMPANY WILL FURNISH TO THE HOLDER OF THIS  CERTIFICATE  UPON
         REQUEST AND WITHOUT CHARGE.]

                  NOTWITHSTANDING  THE  FOREGOING,  THESE  SECURITIES  [AND  THE
         SECURITIES  ISSUABLE UPON EXERCISE OF THESE  SECURITIES] MAY BE PLEDGED
         IN  CONNECTION  WITH A BONA  FIDE  MARGIN  ACCOUNT  OR  OTHER  LOAN  OR
         FINANCING  ARRANGEMENT  SECURED BY SUCH  SECURITIES,  PROVIDED THAT ANY
         EXERCISE  OF ANY RIGHTS BY ANY SECURED  PARTY  SHALL  COMPLY WITH THESE
         LEGEND REQUIREMENTS.

         Certificates  evidencing  Securities  shall not be  required to contain
such legend or any other legend (i) while a Registration  Statement covering the
resale of such  Securities is effective  under the Securities Act (unless a stop
order is then in effect), or (ii) following any sale of such Securities pursuant
to Rule 144,  or (iii) if such  Securities  are  eligible  for sale  under  Rule
144(k), or (iv) if such legend is not required under applicable  requirements of
the Securities Act (including judicial interpretations and pronouncements issued
by the Staff of the Commission); PROVIDED, HOWEVER, that such certificates shall
retain the legend  relating to the Purchaser  Lock-up Letter to the extent still
applicable.  The  Company  shall  cause its  counsel to issue the legal  opinion
included  in the  Transfer  Agent  Instructions  to the  Transfer  Agent  on the
Effective Date. Following the Effective Date or at such earlier time as a legend
is no longer  required  for certain  Securities,  the Company will no later than
five Business  Days  following the delivery by a Purchaser to the Company or the
Transfer Agent of a legended certificate  representing such Securities,  deliver
or cause to be  delivered  to such  Purchaser a  certificate  representing  such
Securities  that is free  from all  restrictive  and  other  legends;  PROVIDED,
HOWEVER,  that  such  certificates  shall  retain  the  legend  relating  to the
Purchaser Lock-up Letter to the extent still

                                       16
<PAGE>

applicable.  Following the Effective Date and upon the delivery to any Purchaser
of any  certificate  representing  Securities  that is free from all restrictive
legends,  such Purchaser  agrees that any sale of such Securities  shall be made
pursuant  to the  Registration  Statement  and in  accordance  with  the plan of
distribution  described  therein,  and  such  Purchaser  shall  comply  with the
prospectus  delivery  requirements  of the Securities Act as applicable to it in
connection  with sales of Registrable  Securities  pursuant to the  Registration
Statement.  The  Company  may not  make  any  notation  on its  records  or give
instructions to any transfer agent of the Company that enlarge the  restrictions
on transfer set forth in this Section.

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

4.2      FURNISHING OF  INFORMATION.  As long as any Purchaser owns  Securities,
the Company  covenants to timely file (or obtain  extensions in respect  thereof
and file within the applicable grace period) all reports required to be filed by
the  Company  after the IPO  Event or the  Effective  Date,  as the case may be,
pursuant to the Exchange  Act.  Upon the request of any  Purchaser,  the Company
shall deliver to such  Purchaser a written  certification  of a duly  authorized
officer as to whether it has complied  with the preceding  sentence.  As long as
any Purchaser  owns  Securities,  if the Company is not required to file reports
pursuant to such laws,  it will prepare and furnish to the  Purchasers  and make
publicly available in accordance with paragraph (c) of Rule 144 such information
as is required for the  Purchasers  to sell the  Securities  under Rule 144. The
Company further covenants that it will take such further action as any holder of
Securities  may  reasonably  request  to  satisfy  the  provisions  of Rule  144
applicable to the issuer of securities  relating to transactions for the sale of
securities pursuant to Rule 144.

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

                                       17
<PAGE>

4.4      RESERVATION AND LISTING OF SECURITIES.

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

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

                  (c) If, at the time any  Purchaser  requests  an  exercise  or
conversion of any  Securities,  the Actual Minimum minus the number of shares of
Common Stock previously issued pursuant to the Transaction Documents exceeds the
Remaining  Authorized  Shares,  then the Company  shall  issue to the  Purchaser
requesting  such  exercise  or  conversion  a number of  Underlying  Shares  not
exceeding such Purchaser's  pro-rata portion of the Remaining  Authorized Shares
(based on such Purchaser's share of the aggregate  purchase price paid hereunder
and considering any Underlying Shares previously issued to such Purchaser),  and
the remainder of the Underlying Shares issuable in connection with such exercise
or conversion  (if any) shall  constitute  "EXCESS  SHARES"  pursuant to Section
4.4(f) below.

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

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

                                       18
<PAGE>

                  (f) Any Purchaser whose receipt of Excess Shares upon exercise
or  conversion  of  Securities  is  restricted  based on the number of Remaining
Authorized  Shares shall have the option,  by notice to the Company,  to require
the  Company  to  either:  (i) use its  best  efforts  to  obtain  the  required
shareholder  approval  necessary to permit the issuance of such Excess Shares as
soon as is  possible,  but in any event not later  than the 60th day after  such
notice,  or (ii) within five Business  Days after such notice,  pay cash to such
Purchaser, as liquidated damages and not as a penalty, in an amount equal to the
number of Excess  Shares times 115% of the average  Closing  Price over the five
Business Days immediately  prior to the date of such notice or, if greater,  the
five Business Days immediately prior to the date of payment (the "CASH AMOUNT").
If the  exercising  or  converting  Purchaser  elects the first option under the
preceding  sentence  and the Company  fails to obtain the  required  shareholder
approval  on or prior to the 60th day  after  such  notice,  then  within  three
Business Days after such 60th day, the Company shall pay the Cash Amount to such
Purchaser, as liquidated damages and not as penalty.

4.5      SUBSEQUENT PLACEMENTS.

                  (a) From the date hereof until the earlier to occur of (x) IPO
Event or (y) the Effective Date (the "BLOCKOUT  PERIOD"),  the Company will not,
directly or indirectly,  offer, sell, grant any option to purchase, or otherwise
dispose of (or  announce  any offer,  sale,  grant or any option to  purchase or
other  disposition  of)  any  of  its  or the  Subsidiaries'  equity  or  equity
equivalent securities, including without limitation any debt, preferred stock or
other  instrument or security that is, at any time during its life and under any
circumstances,  convertible into or exchangeable or exercisable for Common Stock
or Common  Stock  Equivalents  (any such  offer,  sale,  grant,  disposition  or
announcement being referred to as a "SUBSEQUENT PLACEMENT").

                  (b) The Blockout  Period set forth in the preceding  paragraph
(a) shall be extended for the number of Business  Days  following  the Effective
Date in which  (i) the  Registration  Statement  is not  effective,  or (ii) the
prospectus  included  in the  Registration  Statement  may  not be  used  by the
Purchasers for the resale of Registrable Securities thereunder.

                  (c) From the end of the  Blockout  Period until the earlier to
occur  of (x) the IPO  Event or (y) the two year  anniversary  of the  Effective
Date,  the Company  will not,  directly  or  indirectly,  effect any  Subsequent
Placement unless the Company shall have first complied with this Section 4.5(c).

                      (i) The Company shall deliver to each  Purchaser a written
         notice (the  "OFFER") of any  proposed or intended  issuance or sale or
         exchange of the securities being offered (the "OFFERED  SECURITIES") in
         a Subsequent Placement, which Offer shall (w) identify and describe the
         Offered  Securities,  (x) describe the price and other terms upon which
         they are to be issued,  sold or exchanged,  and the number or amount of
         the Offered  Securities to be issued,  sold or exchanged,  (y) identify
         the Persons or  entities to which or with which the Offered  Securities
         are to be offered, issued, sold or exchanged and (z) offer to issue and
         sell to or  exchange  with each  Purchaser  a pro rata  portion  of the
         Offered  Securities,  based on such Purchaser's pro rata portion of the
         aggregate  purchase

                                       19
<PAGE>

         price paid by the Purchasers for all of the Notes  purchased  hereunder
         (the "BASIC AMOUNT"), and with respect to each Purchaser that elects to
         purchase  its Basic  Amount,  any  additional  portion  of the  Offered
         Securities  attributable  to the Basic  Amounts of other  Purchasers as
         such  Purchaser  shall  indicate it will purchase or acquire should the
         other  Purchasers  subscribe  for less than their  Basic  Amounts  (the
         "UNDERSUBSCRIPTION AMOUNT").

                      (ii) To accept an Offer,  in whole or in part, a Purchaser
         must  deliver a written  notice to the Company  prior to the end of the
         ten (10) Business Day period of the Offer, setting forth the portion of
         the  Purchaser's  Basic Amount that such  Purchaser  elects to purchase
         and, if such Purchaser shall elect to purchase all of its Basic Amount,
         the  Undersubscription  Amount,  if any, that such Purchaser  elects to
         purchase (in either  case,  the "NOTICE OF  ACCEPTANCE").  If the Basic
         Amounts subscribed for by all Purchasers are less than the total of all
         of the  Basic  Amounts,  then  each  Purchaser  who  has set  forth  an
         Undersubcription  Amount in its Notice of Acceptance  shall be entitled
         to  purchase,  in addition to the Basic  Amounts  subscribed  for,  the
         Undersubscription  Amount it has  subscribed  for;  PROVIDED,  HOWEVER,
         that  if  the  Undersubscription  Amounts  subscribed  for  exceed  the
         difference  between  the total of all the Basic  Amounts  and the Basic
         Amounts subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each
         Purchaser who has subscribed for any Undersubscription  Amount shall be
         entitled to purchase on that portion of the Available Undersubscription
         Amount as the Basic Amount of such  Purchaser  bears to the total Basic
         Amounts of all Purchasers  that have  subscribed for  Undersubscription
         Amounts,  subject to rounding by the Board of  Directors  to the extent
         its deems reasonably necessary.

                      (iii) The Company  shall have five (5) Business  Days from
         the expiration of the period set forth in Section  4.5(c)(ii)  above to
         issue,  sell or exchange all or any part of such Offered  Securities as
         to which a Notice of  Acceptance  has not been given by the  Purchasers
         (the "REFUSED  SECURITIES"),  but only to the offerees described in the
         Offer  and  only  upon  terms  and   conditions   (including,   without
         limitation, unit prices and interest rates) that are not more favorable
         to the  acquiring  Person or Persons or less  favorable  to the Company
         than those set forth in the Offer.

                      (iv) In the event the Company  shall  propose to sell less
         than all the Refused  Securities (any such sale to be in the manner and
         on the  terms  specified  in  Section  4.5(c)(iii)  above),  then  each
         Purchaser  may, at its sole option and in its sole  discretion,  reduce
         the number or amount of the Offered Securities  specified in its Notice
         of  Acceptance  to an amount  that shall be not less than the number or
         amount of the Offered Securities that the Purchaser elected to purchase
         pursuant to Section 4.5(c)(ii) above multiplied by a fraction,  (i) the
         numerator of which shall be the number or amount of Offered  Securities
         the Company  actually  proposes to issue,  sell or exchange  (including
         Offered  Securities  to be issued  or sold to  Purchasers  pursuant  to
         Section  4.5(c)(ii)  above  prior  to  such  reduction)  and  (ii)  the
         denominator  of  which  shall be the  original  amount  of the  Offered
         Securities.  In the event  that any  Purchaser  so elects to reduce the
         number or amount  of  Offered  Securities  specified  in its  Notice of
         Acceptance,  the Company may not issue,  sell or exchange more than the
         reduced  number or amount of the  Offered  Securities

                                       20
<PAGE>

         unless  and until  such  securities  have  again  been  offered  to the
         Purchasers in accordance with Section 4.5(c)(i) above.

                      (v) Upon the closing of the issuance,  sale or exchange of
         all or less than all of the Refused  Securities,  the Purchasers  shall
         acquire  from  the  Company,   and  the  Company  shall  issue  to  the
         Purchasers, the number or amount of Offered Securities specified in the
         Notices of Acceptance,  as reduced pursuant to Section 4.5(c)(iv) above
         if the  Purchasers  have so  elected,  upon the  terms  and  conditions
         specified in the Offer.  The purchase by the  Purchasers of any Offered
         Securities  is subject in all cases to the  preparation,  execution and
         delivery  by the  Company and the  Purchasers  of a purchase  agreement
         relating to such Offered Securities reasonably satisfactory in form and
         substance to the Purchasers and their respective counsel.

                      (vi) Any Offered Securities not acquired by the Purchasers
         or other Persons in accordance with Section  4.5(c)(iii)  above may not
         be  issued,  sold or  exchanged  until  they are again  offered  to the
         Purchasers under the procedures specified in this Agreement.

                  (d) The  restrictions  contained in paragraphs  (a) and (c) of
this Section shall not apply to (x) Excluded  Stock,  (y) the issuance of Common
Stock in connection with the IPO Event, or (z) any bona-fide underwritten public
offering with a nationally  recognized  underwriter that will result in proceeds
to  the  Company  equal  to  or  in  excess  of  $5,000,000.  In  addition,  the
restrictions  contained in paragraph  (a) of this Section shall not apply (x) if
the  Company  obtains  the Lead  Purchaser's  consent  or (y) to any  Subsequent
Placement  made for the  purpose  of, and from which the  proceeds  are used for
repayment of the Notes in full, provided, however, that the then-current holders
of the Notes shall have a right of first refusal as described in Section  4.5(c)
above with  respect to any such  Subsequent  Placement  described in this clause
(y).

4.6      SECURITIES  LAWS  DISCLOSURE;  PUBLICITY.  The  Company  and  the  Lead
Purchaser  shall  consult  with each  other in  issuing  any press  releases  or
otherwise making public statements or filings and other  communications with any
regulatory   agency  or  Trading   Market  with  respect  to  the   transactions
contemplated  hereby,  and neither  party shall issue any such press  release or
otherwise make any such public statement,  filing or other communication without
the prior consent of the other, except if such disclosure is required by law, in
which case the  disclosing  party  shall  promptly  provide the other party with
prior  notice  of  such  public  statement,   filing  or  other   communication.
Notwithstanding the foregoing,  the Company shall not publicly disclose the name
of any  Purchaser,  or include the name of any  Purchaser in any filing with the
Commission  (except for the Registration  Statement) or any regulatory agency or
Trading Market,  without the prior written consent of such Purchaser,  except to
the extent such disclosure (but not any disclosure as to the controlling Persons
thereof)  is required by law or Trading  Market  regulations,  in which case the
Company  shall  provide the  Purchasers  with prior  notice of such  disclosure.
Notwithstanding  any other provision  contained in this  Agreement,  the Company
(and each employee,  representative  or other agent of the Company) may disclose
to any and all Persons the tax  treatment  and tax  structure (as such terms are
used  in  Sections  6011,  6111  and  6112 of the  U.S.  Code  and the  Treasury
Regulations  promulgated  thereunder) of the  transactions  contemplated by this
Agreement  and all materials of any kind  (including  opinions and tax

                                       21
<PAGE>

analyses)  that are provided  relating to such tax treatment and tax  structure.
The Company shall not, and shall cause each of its Subsidiaries and its and each
of their respective  officers,  directors,  employees and agents not to, provide
any Purchaser with any material nonpublic  information  regarding the Company or
any of its  Subsidiaries  from and after the Effective  Date without the express
written consent of such Purchaser. Subject to the foregoing, neither the Company
nor any Purchaser shall issue any press releases or any other public statements,
other than in the Registration  Statement or as otherwise  required by law, with
respect to the transactions contemplated hereby. Each press release disseminated
during the 12 months preceding the date of this Agreement did not at the time of
release  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 are made, not
misleading.

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

4.8      REIMBURSEMENT.  If  any  Purchaser  or any  of  its  Affiliates  or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "RELATED  PERSON")  becomes involved in any capacity
in any  Proceeding  brought by or against any Person in connection  with or as a
result  of the  transactions  contemplated  by the  Transaction  Documents,  the
Company will  indemnify and hold harmless such  Purchaser or Related  Person for
its  reasonable   legal  and  other   expenses   (including  the  costs  of  any
investigation, preparation and travel) and for any Losses incurred in connection
therewith,  as such expenses or Losses are incurred,  excluding only Losses that
result directly from such  Purchaser's or Related  Person's gross  negligence or
willful misconduct or any breach of any representation,  warranty or covenant of
such  Purchaser in the  Transaction  Documents.  In addition,  the Company shall
indemnify and hold harmless each  Purchaser and Related  Person from and against
any and all Losses, as incurred, arising out of or relating to any breach by the
Company  of any of the  representations,  warranties  or  covenants  made by the
Company in this Agreement or any other Transaction  Document,  or any allegation
by a third party that, if true, would  constitute such a breach.  The conduct of
any  Proceedings  for which  indemnification  is available  under this paragraph
shall be governed by Section 6.4(c) below.  The  indemnification  obligations of
the Company under this paragraph  shall be in addition to any liability that the
Company may otherwise have and shall be binding upon and inure to the benefit of
any successors,  assigns,  heirs and personal  representatives of the Purchasers
and any  such  Related  Persons.  The  Company  also  agrees  that  neither  the
Purchasers  nor any Related  Persons  shall have any liability to the Company or
any  Person  asserting  claims  on  behalf  of or in  right  of the  Company  in
connection  with  or  as a  result  of  the  transactions  contemplated  by  the
Transaction  Documents,  except to the extent  that any Losses  incurred  by the
Company result from the gross negligence or willful misconduct of the applicable
Purchaser or Related Person in connection with such transactions,  or any breach
of any representation, warranty or covenant of such Purchaser in the Transaction
Documents.  If the  Company  breaches  its  obligations  under  any  Transaction
Document,  then, in addition to any other liabilities the Company may have under
any  Transaction  Document or applicable law, the Company shall pay or reimburse
the Purchasers on demand for all costs of collection and

                                       22
<PAGE>

enforcement (including reasonable attorneys fees and expenses). Without limiting
the generality of the foregoing,  the Company  specifically  agrees to reimburse
the  Purchasers  on  demand  for all  costs  of  enforcing  the  indemnification
obligations in this  paragraph.  Each  Purchaser  hereby agrees to indemnify the
Company  for any Losses it suffers  (including  reasonable  attorney's  fees and
expenses  as well as  costs  of  enforcement  of the  indemnification  described
herein) directly arising out of (a) the failure of such Purchaser to deliver the
original Note to the Company at the time of conversion,  other than an Automatic
Conversion  (as defined in the Note),  and (b) the failure of such  Purchaser to
comply  with the  prospectus  delivery  requirements  of the  Securities  Act as
applicable to it in connection with sales of Registrable  Securities pursuant to
the Registration Statement.

4.9      FUNDAMENTAL  CHANGES In addition to any other rights provided by law or
set  forth  herein,  from and  after  the date of this  Agreement  and until the
earlier  of (x) the  date of the IPO  Event,  and (y) the  Effective  Date,  the
Company  shall not without  first  obtaining  the  written  approval of the Lead
Purchaser:

                  (a)   acquire or merge with any other business entity;

                  (b)   sell a substantial portion of assets not in the ordinary
                        course of business;

                  (c)   enter  into a  transaction  that  results  in or cause a
                        Change of Control;

                  (d)   amend the company's charter or by-laws;

                  (e) purchase,  redeem (other than pursuant to equity incentive
agreements with non-officer employees giving the Company the right to repurchase
shares upon the  termination of services) or set aside any sums for the purchase
or redemption of, or declare or pay any dividend  (including a dividend  payable
in stock of the  Company) or make any other  distribution  with  respect to, any
shares of capital stock or any other  securities  that are  convertible  into or
exercisable for such stock;

                  (f)  increase  the number of shares  issuable  pursuant to any
stock option or other equity incentive plan;

                  (g)  change  the  nature  of  the  Company's  business  to any
business  which  is  fundamentally  distinct  and  separate  from  the  business
currently conducted by the Company;

                  (h)  create,  incur,  assume or  suffer to exist  indebtedness
greater than $100,000 in aggregate;

                  (i)  create or suffer  to exist any Lien or  transfer  upon or
against any of its  property or assets now owned or hereafter  acquired,  except
for indebtedness less than $100,000 in aggregate; or

                  (j) cause or permit any Subsidiary of the Company  directly or
indirectly to take any actions described in clauses (a) through (j) above, other
than issuing securities to the Company.

                                       23
<PAGE>

4.10     SHAREHOLDERS  RIGHTS  PLAN.  No claim will be made or  enforced  by the
Company or any other Person that any  Purchaser is an  "Acquiring  Person" under
any  shareholders  rights  plan or  similar  plan or  arrangement  in  effect or
hereafter  adopted  by the  Company,  or that any  Purchaser  could be deemed to
trigger the provisions of any such plan or  arrangement,  by virtue of receiving
Underlying  Shares under the Transaction  Documents or under any other agreement
between the Company and the Purchasers.

4.11     ACKNOWLEDGMENT OF DILUTION.  The Company acknowledges that the issuance
of the Securities  (including the Underlying  Shares) will result in dilution of
the outstanding  shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents,  including without limitation its obligation to
issue the Securities  (including the Underlying  Shares) in accordance  with the
Transaction  Documents,  are  unconditional  and absolute and not subject to any
right of set off, counterclaim,  delay or reduction, regardless of the effect of
any such dilution or any claim that the Company may have against any Purchaser.

4.12     SENIORITY.   For  so  long  as  the  Notes  are  outstanding,   (i)  no
indebtedness of the Company is or will be senior to or pari passu with this Note
in  right  of  payment,  whether  with  respect  of  interest,  damages  or upon
liquidation  or dissolution or otherwise and (ii) the Company will not, and will
not permit any Subsidiary to, directly or indirectly, enter into, create, incur,
assume or suffer to exist any indebtedness for borrowed money of any kind, on or
with respect to any of its property or assets now owned or hereafter acquired or
any interest therein or any income or profits therefrom,  that is senior or pari
passu in any respect to the Company's  obligations under the Notes, whether with
respect to interest or upon liquidation or dissolution, or otherwise;  provided,
however,  that the  Company  may incur  any such  indebtedness  if the  proceeds
received in respect thereof are used for repayment of the Notes in full.

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

4.14     IPO EVENT.

                  (a) The Company shall use commercially  reasonable  efforts to
cause the IPO Event to be consummated.

                  (b) In connection with the filing of a Registration  Statement
relating to the IPO Event,  the Company  shall  provide Lead  Purchaser  written
notice of such filing.

                  (c)  In  addition  to  providing  the   Purchasers   with  the
information set forth under Section 6.2 herein,  the Company shall promptly (but
in no event later than 3 Business Days) provide the Lead Purchaser with the name
of the  underwriter,  the  pricing  terms,  the timing of the IPO Event and such
other  information as the Lead Purchaser shall  reasonably

                                       24
<PAGE>

request  from time to time  relating  to the IPO Event  and its  status,  to the
extent  available  and to the  extent  such  disclosure  is  not  prohibited  by
applicable law.

                  (d) Each  Purchaser  agrees on  behalf  of itself  that if the
National  Association of Securities  Dealers,  Inc. determines that any Notes or
Warrants received by such Purchaser are "underwriter's  compensation",  then the
Purchaser  shall  either  (a)  surrender  such  Warrant to the  Company  without
consideration  therefor, if such Warrant is deemed to constitute  "underwriter's
compensation"  or (b) surrender such Note to the Company for prepayment,  if the
Note is deemed to constitute "underwriter's compensation."

4.15     PLEDGE  AGREEMENT.   The  Company  shall  deliver  an  executed  Pledge
Agreement within 60 days following the Closing Date; provided,  however, that if
after using its best efforts to obtain the consents described on Schedule 3.1(d)
herein that are required for the Pledge  Agreement,  the Company fails to obtain
such  consents from the  appropriate  governmental  authority,  then the Company
shall not be in breach of this  Section  4.15 if it fails to deliver  the Pledge
Agreement.  Notwithstanding  anything to the contrary, the Company hereby agrees
that it shall  not  transfer,  pledge,  assign,  hypothecate  or sell any of its
assets to any  Subsidiary,  other than in the  ordinary  course of business  and
consistent with prior practice.

                                   ARTICLE V
                                   CONDITIONS

5.1      CONDITIONS  PRECEDENT  TO  THE  OBLIGATIONS  OF  THE  PURCHASERS.   The
obligation of each Purchaser to acquire  Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser,  at or before the Closing, of each
of the following conditions:

                  (a)  REPRESENTATIONS  AND WARRANTIES.  The representations and
warranties  of the  Company  contained  herein  shall be true and correct in all
material  respects as of the date when made and as of the Closing as though made
on and as of such date;

                  (b)  PERFORMANCE.  The Company and each other  Purchaser shall
have  performed,  satisfied  and  complied  in all  material  respects  with all
covenants, agreements and conditions required by the Transaction Documents to be
performed,  satisfied  or  complied  with  by it at or  prior  to  the  Closing,
including the conditions set forth in Section 2.2(a); and

                  (c)  CONVERSION.  Each of the Company's  Preferred Stock shall
have been converted into Common Stock in accordance with Schedule 5.1(c).

5.2      CONDITIONS  PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to sell Securities at the Closing is subject to the  satisfaction
or waiver by the  Company,  at or before the Closing,  of each of the  following
conditions:

                  (a)  REPRESENTATIONS  AND WARRANTIES.  The representations and
warranties of the Purchasers  contained  herein shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made on and as of such date;

                  (b)   PERFORMANCE.   The  Purchasers   shall  have  performed,
satisfied and complied in all material  respects with all covenants,  agreements
and conditions required by the

                                       25
<PAGE>

Transaction  Documents  to be  performed,  satisfied  or  complied  with  by the
Purchasers at or prior to the Closing; and

(c)GROSS  PROCEEDS.  The  gross  proceeds  to the  Company  from the sale of the
   Securities shall be not less than $2,000,000 and not more than $5,000,000.

                                   ARTICLE VI
                               REGISTRATION RIGHTS

6.1      REGISTRATION.

                  (a) In the event  the IPO Event  does not occur on or prior to
the IPO Event Due Date or less than all the Registrable  Securities are included
in the Registration  Statement filed relating to the IPO Event, then as promptly
as possible,  and in any event on or prior to the Filing Date, the Company shall
prepare and file with the Commission a "Shelf"  Registration  Statement covering
the  resale  of all  Registrable  Securities  for an  offering  to be  made on a
continuous  basis pursuant to Rule 415. The  Registration  Statement shall be on
Form SB-2 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form SB-2, in which case such registration shall be on
another  appropriate form in accordance  herewith as the Purchasers may consent)
and shall contain  (except if otherwise  directed by the Purchasers or otherwise
required pursuant to written comments received from the Commission upon a review
of such  Registration  Statement) the "Plan of Distribution"  attached hereto as
Exhibit D.

                  (b) The Company shall use its commercially  reasonable efforts
to cause the  Registration  Statement  filed  pursuant  to Section  6.1(a) to be
declared  effective by the  Commission as promptly as possible  after the filing
thereof,  but in any event prior to the Required  Effectiveness  Date, and shall
use its best efforts to keep the Registration  Statement  continuously effective
under the  Securities  Act  (subject  to  Section  6.5  hereof)  until the fifth
anniversary  of the  Effective  Date or such earlier  date when all  Registrable
Securities   covered  by  such  Registration   Statement  have  been  sold  (the
"EFFECTIVENESS PERIOD").

                  (c)  The  Company  shall  notify  each  Purchaser  in  writing
promptly (and in any event within one Business Day) after receiving notification
from the Commission that the Registration Statement has been declared effective.

                  (d) As  promptly as  possible,  and in any event no later than
the Post-Effective Amendment Filing Deadline, the Company shall prepare and file
with the Commission a Post-Effective  Amendment.  The Company shall use its best
efforts to cause the  Post-Effective  Amendment to be declared  effective by the
Commission as promptly as possible  after the filing  thereof,  but in any event
prior to twenty Business Day after the Post-Effective Amendment Filing Deadline.
The Company  shall notify each  Purchaser in writing  promptly (and in any event
within one business day) after receiving  notification  from the Commission that
the Post-Effective Amendment has been declared effective.

                  (e) Upon the occurrence of any Event (as defined below) and on
every  monthly  anniversary  thereof  until the  applicable  Event is cured,  as
partial  relief for the damages  suffered  therefrom  by the  Purchasers  (which
remedy  shall  not be  exclusive  of any

                                       26
<PAGE>

other remedies available under this Agreement, at law or in equity), the Company
shall pay to each Purchaser an amount in cash, as liquidated  damages and not as
a penalty,  equal to 1% of the aggregate  purchase  price paid by such Purchaser
hereunder for the first month and 1.5% for each month  thereafter.  The payments
to which a Purchaser  shall be  entitled  pursuant  to this  Section  6.1(e) are
referred to herein as "EVENT  PAYMENTS".  Any Event Payments payable pursuant to
the terms  hereof  shall  apply on a pro-rata  basis for any  portion of a month
prior to the cure of an  Event.  In the event the  Company  fails to make  Event
Payments in a timely manner, such Event Payments shall bear interest at the rate
of 1.5% per month (prorated for partial months) until paid in full.

For such purposes, each of the following shall constitute an "EVENT":

                      (i) the IPO Event has not  occurred on or prior to the IPO
         Event Due Date;

                      (ii)the Registration Statement is not filed on or prior to
         the  Filing  Date  or is not  declared  effective  on or  prior  to the
         Required Effectiveness Date;

                      (iii)  after  the  Effective  Date,  a  Purchaser  is  not
         permitted  to  sell  Registrable   Securities  under  the  Registration
         Statement (or a subsequent  Registration Statement filed in replacement
         thereof)  or Rule 144 for any reason for twenty or more  Business  Days
         (whether or not consecutive);

                      (iv)a Post-Effective Amendment is not filed on or prior to
         the  Post-Effective  Amendment  Filing  Deadline  or  is  not  declared
         effective on or prior to the 20th Business Day after the Post-Effective
         Amendment Filing Deadline;

                      (v)  the  Company  fails  for  any  reason  to  deliver  a
         certificate  evidencing  any  Securities  to a Purchaser  within (x) if
         prior  to the IPO  Event,  three  (3)  Business  Days,  or (y) if on or
         following the IPO Event,  ten (10) Business Days after delivery of such
         certificate  is required  pursuant to any  Transaction  Document or the
         exercise rights of the Purchasers pursuant to the Transaction Documents
         are otherwise suspended for any reason; or

                      (vi)the  Company  fails  to have  available  a  sufficient
         number of authorized  but unissued and otherwise  unreserved  shares of
         Common Stock available to issue Underlying  Shares upon any exercise of
         the Warrants.

                  (f) If (i) any Event  occurs and remains  uncured for 60 days;
(ii) the Company fails to make any cash payment  required under the  Transaction
Documents  and such  failure is not cured  within five days after notice of such
default is first  given to the  Company  by a  Purchaser;  or (iii) the  Company
breaches  Section 4.9,  then at any time or times  thereafter  any Purchaser may
deliver to the Company a notice (a "REPURCHASE NOTICE") requiring the Company to
repurchase  all or any portion of (x) the  outstanding  principal  amount of the
Notes  held by such  Purchaser,  at a  repurchase  price  equal  to 115% of such
outstanding  principal  amount,  plus all  accrued but unpaid  interest  thereon
through  the date of  payment,  and (y) any  Underlying  Shares  issued  to such
Purchaser  upon the  conversion or exercise of any  Securities,  at a repurchase
price per  share  equal to 115% of either  (A) if the  Common  Stock is not then

                                       27
<PAGE>

listed or quoted on an Eligible Market, the fair market value of such Underlying
Shares as  determined  by an  independent  investment  bank selected by both the
Company  and the Lead  Purchaser  as of either (I) the date of  delivery of such
Repurchase Notice or (II) the date on which the applicable  repurchase price for
such  Underlying  Shares  (together  with  any  other  payments,   expenses  and
liquidated damages then due and payable under the Transaction Documents) is paid
in full,  whichever  is greater,  or (B), if the Common  Stock is then listed or
quoted on an Eligible  Market,  the  average of the Closing  Prices for the five
Business  Days  preceding  either (I) the date of  delivery  of such  Repurchase
Notice  or (II) the date on  which  the  applicable  repurchase  price  for such
Underlying  Shares  (together with any other  payments,  expenses and liquidated
damages then due and payable under the  Transaction  Documents) is paid in full,
whichever is greater (each such applicable repurchase price,  collectively,  the
"REPURCHASE PRICE").  Notwithstanding  anything to the contrary, a Purchaser may
not deliver a Repurchase Notice with respect to clauses (i), (ii) or (iii) above
in this Section 6.1(f),  until the one year anniversary of the date hereof. If a
Purchaser  delivers a Repurchase  Notice  pursuant to this Section,  the Company
shall pay the aggregate  Repurchase  Price  (together  with any other  payments,
expenses and liquidated damages then due and payable pursuant to the Transaction
Documents) to such  Purchaser no later than the fifth Business Day following the
date of  delivery  of the  Repurchase  Notice,  and upon  receipt  thereof  such
Purchaser  shall deliver  original  certificates  evidencing  the  Securities so
repurchased to the Company (to the extent such  certificates have been delivered
to  such  Purchaser).   Notwithstanding  the  foregoing,  immediately  upon  the
occurrence of a Bankruptcy Event, each Purchaser will automatically be deemed to
have  delivered  a  Repurchase  Notice  pursuant to this  paragraph  and will be
entitled  to receive  the  corresponding  Repurchase  Price  without any further
action  or notice  to the  Company.  Notwithstanding  anything  to the  contrary
contained  herein,  except for clause (v) of Section  6.1(e),  the provisions of
Section 6.1(e) and 6.1(f) shall not apply following an IPO Event.

                  (g) Except for the Registration  Statement relating to the IPO
Event, the Company shall not, prior to the Effective Date, prepare and file with
the  Commission  a  registration  statement  relating to an offering for its own
account or the account of others under the  Securities  Act of any of its equity
securities.

6.2      REGISTRATION PROCEDURES.  In connection with the Company's registration
obligations  hereunder  (including those related to the IPO Event),  the Company
shall:

                  (a) Not less than three Business Days prior to the filing of a
Registration  Statement or any related Prospectus or any amendment or supplement
thereto  (including  any  document  that would be  incorporated  or deemed to be
incorporated  therein by  reference),  the Company shall (i) furnish to the Lead
Purchaser and its counsel,  Proskauer  Rose LLP (the "LEAD  PURCHASER  COUNSEL")
copies of all such documents  proposed to be filed,  which documents (other than
those incorporated or deemed to be incorporated by reference) will be subject to
the review of the Lead Purchaser and Lead Purchaser Counsel,  and (ii) cause its
officers and directors,  counsel and independent certified public accountants to
respond to such inquiries as shall be necessary,  in the  reasonable  opinion of
the Lead Purchaser  Counsel,  to conduct a reasonable  investigation  within the
meaning  of the  Securities  Act.  The  Company  shall  not file a  Registration
Statement or any such  Prospectus or any  amendments or  supplements  thereto to
Lead Purchaser shall reasonably object.

                                       28
<PAGE>

                  (b) (i) Prepare and file with the Commission such  amendments,
including  post-effective  amendments,  to the  Registration  Statement  and the
Prospectus  used  in  connection  therewith  as may be  necessary  to  keep  the
Registration  Statement  continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such  additional  Registration  Statements in order to register for resale under
the Securities  Act all of the  Registrable  Securities;  (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus  supplement,
and as so  supplemented  or  amended  to be filed  pursuant  to Rule 424;  (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments  received  from the  Commission  with  respect to the  Registration
Statement  or any  amendment  thereto  and as promptly  as  reasonably  possible
provide the Purchasers true and complete copies of all  correspondence  from and
to the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the  disposition of all  Registrable  Securities  covered by the
Registration  Statement  during the  applicable  period in  accordance  with the
intended  methods of  disposition  by the  Purchasers  thereof  set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented

                  (c) Notify Lead Purchaser of Registrable Securities to be sold
and Lead Purchaser Counsel as promptly as reasonably possible, and (if requested
by any such Person)  confirm such notice in writing no later than three Business
Day thereafter,  of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii) the
Commission comments in writing on any Registration  Statement (in which case the
Company  shall  deliver to Lead  Purchaser  a copy of such  comments  and of all
written  responses  thereto  except to the extent  prohibited  under Section 4.6
hereof);  (iii) any Registration  Statement or any  post-effective  amendment is
declared  effective;   (iv)  the  Commission  or  any  other  Federal  or  state
governmental  authority requests any amendment or supplement to any Registration
Statement or Prospectus or requests additional  information related thereto; (v)
the  Commission  issues  any stop  order  suspending  the  effectiveness  of any
Registration  Statement or initiates any Proceedings for that purpose;  (vi) the
Company receives notice of any suspension of the qualification or exemption from
qualification of any Registrable Securities for sale in any jurisdiction, or the
initiation or threat of any  Proceeding  for such  purpose;  (vii) the financial
statements  included  in  any  Registration   Statement  become  ineligible  for
inclusion  therein  or any  statement  made  in any  Registration  Statement  or
Prospectus or any document  incorporated or deemed to be incorporated therein by
reference  is untrue in any material  respect or any revision to a  Registration
Statement,  Prospectus or other document is required so that it will not contain
any untrue  statement  of a  material  fact or omit to state any  material  fact
required to be stated  therein or necessary to make the statements  therein,  in
the light of the  circumstances  under which they were made, not misleading,  or
(viii) when the continued  effectiveness  of the  Registration  Statement  would
require  the  Company to  disclose a material  financing,  acquisition  or other
corporate  transaction,  which  disclosure the Company shall have  determined in
good faith is not in the best interests of the Company and its  stockholders  at
that time.

                  (d) Use its  commercially  reasonable  efforts  to  avoid  the
issuance of or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness  of any  Registration

                                       29
<PAGE>

Statement,  or (ii) any  suspension  of the  qualification  (or  exemption  from
qualification)   of  any  of  the   Registrable   Securities  for  sale  in  any
jurisdiction, at the earliest practicable moment.

                  (e)  Furnish to Lead  Purchaser  and Lead  Purchaser  Counsel,
without charge, at least one conformed copy of each  Registration  Statement and
each amendment  thereto,  including  financial  statements  and  schedules,  all
documents  incorporated or deemed to be incorporated  therein by reference,  and
all exhibits to the extent requested by such Person  (including those previously
furnished  or  incorporated  by  reference)  promptly  after the  filing of such
documents with the Commission.

                  (f)  Promptly  deliver to each  Purchaser  and Lead  Purchaser
Counsel,  without  charge,  not more  than  five  copies  of the  Prospectus  or
Prospectuses   (including  each  form  of  prospectus)  and  each  amendment  or
supplement  thereto as such Persons may reasonably  request.  Subject to Section
6.5,  the  Company  hereby  consents  to the use of  such  Prospectus  and  each
amendment or supplement  thereto by each of the selling Purchasers in connection
with  the  offering  and  sale of the  Registrable  Securities  covered  by such
Prospectus and any amendment or supplement thereto.

                  (g) Except for the IPO Event,  prior to any public offering of
Registrable  Securities,  use its commercially reasonable efforts to register or
qualify or cooperate with the selling  Purchasers and Lead Purchaser  Counsel in
connection  with the  registration  or  qualification  (or  exemption  from such
registration or qualification) of such Registrable Securities for offer and sale
under the  securities or blue sky laws of such  jurisdictions  within the United
States  as any  Purchaser  reasonably  requests  in  writing,  to keep each such
registration or  qualification  (or exemption  therefrom)  effective  during the
Effectiveness  Period  and to do any and all  other  acts or  things  reasonably
necessary or advisable to enable the  disposition in such  jurisdictions  of the
Registrable Securities covered by a Registration Statement;  PROVIDED,  HOWEVER,
that the Company  shall not be obligated to file any general  consent to service
of process or to qualify as a foreign  corporation  or as a dealer in securities
in any  jurisdiction  in which it is not so  qualified  or to subject  itself to
taxation  in respect of doing  business in any  jurisdiction  in which it is not
otherwise subject.

                  (h) Cooperate  with the  Purchasers  to facilitate  the timely
preparation and delivery of certificates  representing Registrable Securities to
be  delivered  to a  transferee  pursuant  to a  Registration  Statement,  which
certificates  shall be free, to the extent  permitted by this Agreement,  of all
restrictive  legends,  and to enable such  Registrable  Securities to be in such
denominations and registered in such names as any such Purchasers may request.

                  (i) Upon the  occurrence  of any event  described  in  Section
6.2(c)(vii),  as  promptly  as  reasonably  possible,  prepare a  supplement  or
amendment,  including a post-effective  amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that,  as  thereafter  delivered,  neither the  Registration  Statement nor such
Prospectus will contain an 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 the light of the  circumstances  under  which they were
made, not misleading.

                                       30
<PAGE>

                  (j) The Company may require each selling  Purchaser to furnish
in writing to the Company a selling  security holder  questionnaire  in the form
attached hereto as Exhibit G (a "SELLING HOLDER QUESTIONNAIRE").

                  (k)  The  Company   shall  not  be  required  to  include  the
Registrable  Securities of any Purchaser in the Registration Statement and shall
not be required  to pay any  liquidated  or other  damages  under  clause (i) of
Section  6.1(e) to the extent it  relates  to  failure to file the  Registration
Statement  or become  effective  (nor shall any such  Purchaser  be  entitled to
exercise this rights in clause (i) of Section 6.1(f) to the extent it relates to
failure to file the Registration Statement or become effective) to any Purchaser
hereof who fails to  furnish to the  Company a fully  completed  Selling  Holder
Questionnaire  at least five (5) Business  Days prior to the Filing Date (to the
extent  requested in writing by the Company) or any other  information  that the
Commission's  staff may require from a Purchaser as a condition to allowing such
Registration  Statement to be declared  effective  under the  Securities Act (as
evidenced  by  written  comments  made by the  Commission  in its review of such
Registration Statement and delivered to Lead Purchaser).

                  (l) Cooperate with any due diligence investigation  undertaken
by the  Purchasers  in  connection  with  the  sale of  Registrable  Securities,
including  without  limitation by making  available  any material  documents and
information; provided that the Company will not deliver or make available to any
Purchaser material, nonpublic information.

                  (m) Except for the IPO Event,  if holders of a majority of the
Registrable Securities being offered pursuant to a Registration Statement 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,  by providing customary legal opinions,  comfort
letters and indemnification and contribution obligations.  Such holders shall be
responsible for any underwriting discounts relating to such offering.

                  (n) Comply with all  applicable  rules and  regulations of the
Commission.

6.3      REGISTRATION   EXPENSES.  The  Company  shall  pay  (or  reimburse  the
Purchasers  for)  all  fees  and  expenses  incident  to the  performance  of or
compliance with this Agreement by the Company,  including without limitation (a)
all  registration  and filing fees and expenses,  including  without  limitation
those  related  to  filings  with the  Commission,  any  Trading  Market  and in
connection  with  applicable  state  securities  or Blue Sky laws,  (b) printing
expenses  (including  without limitation  expenses of printing  certificates for
Registrable   Securities   and  of  printing   prospectuses   requested  by  the
Purchasers),  (c)  messenger,  telephone  and  delivery  expenses,  (d) fees and
disbursements  of counsel for the  Company,  (e) fees and  expenses of all other
Persons  retained  by the Company in  connection  with the  consummation  of the
transactions contemplated by this Agreement, and (f) all listing fees to be paid
by the Company to the Trading Market.

6.4      INDEMNIFICATION.

                  (a)  INDEMNIFICATION  BY  THE  COMPANY.   The  Company  shall,
notwithstanding  any termination of this Agreement,  indemnify and hold harmless
each Purchaser,  the officers,  directors,  partners,  members,  agents, brokers
(including  brokers who offer and sell Registrable

                                       31
<PAGE>

Securities  as principal as a result of a pledge or any failure to perform under
a margin call of Common  Stock),  investment  advisors and  employees of each of
them, each Person who controls any such Purchaser (within the meaning of Section
15 of the  Securities  Act or Section 20 of the Exchange  Act) and the officers,
directors,  partners,  members,  agents and  employees of each such  controlling
Person,  to the fullest extent permitted by applicable law, from and against any
and all Losses, as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, any
Prospectus or any form of  prospectus or in any amendment or supplement  thereto
or in any preliminary prospectus,  or arising out of or relating to any omission
or  alleged  omission  of a  material  fact  required  to be stated  therein  or
necessary to make the statements  therein (in the case of any Prospectus or form
of prospectus or supplement  thereto,  in the light of the  circumstances  under
which  they were made) not  misleading,  except to the  extent,  but only to the
extent, that (i) such untrue statements, alleged untrue statements, omissions or
alleged  omissions are based solely upon  information  regarding  such Purchaser
furnished in writing to the Company by such Purchaser expressly for use therein,
or to the  extent  that  such  information  relates  to such  Purchaser  or such
Purchaser's  proposed method of  distribution of Registrable  Securities and was
reviewed and expressly  approved in writing by such Purchaser  expressly for use
in the Registration Statement,  such Prospectus or such form of Prospectus or in
any amendment or  supplement  thereto or (ii) in the case of an occurrence of an
event  of the  type  specified  in  Section  6.2(c)(v)-(viii),  the  use by such
Purchaser of an outdated or defective  Prospectus after the Company has notified
such Purchaser in writing that the Prospectus is outdated or defective and prior
to the receipt by such Purchaser of the Advice  contemplated in Section 6.5. The
Company  shall  notify the  Purchasers  promptly of the  institution,  threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.

                  (b)  INDEMNIFICATION  BY  PURCHASERS.  Each  Purchaser  shall,
severally  and not  jointly,  indemnify  and  hold  harmless  the  Company,  its
directors,  officers, agents and employees, each Person who controls the Company
(within  the meaning of Section 15 of the  Securities  Act and Section 20 of the
Exchange  Act),  and  the  directors,  officers,  agents  or  employees  of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses (as  determined  by a court of  competent  jurisdiction  in a
final judgment not subject to appeal or review) arising solely out of any untrue
statement  of a material  fact  contained  in the  Registration  Statement,  any
Prospectus,  or any  form  of  prospectus,  or in any  amendment  or  supplement
thereto, or arising solely out of any omission of a material fact required to be
stated therein or necessary to make the  statements  therein (in the case of any
Prospectus  or form of prospectus  or  supplement  thereto,  in the light of the
circumstances under which they were made) not misleading to the extent, but only
to the extent,  that such untrue  statement  or  omission  is  contained  in any
information   so  furnished  in  writing  by  such   Purchaser  to  the  Company
specifically for inclusion in such Registration  Statement or such Prospectus or
to the extent that (i) such untrue statements or omissions are based solely upon
information regarding such Purchaser furnished in writing to the Company by such
Purchaser  expressly  for use  therein,  or to the extent that such  information
relates to such Purchaser or such Purchaser's proposed method of distribution of
Registrable  Securities  and was reviewed and  expressly  approved in writing by
such Purchaser expressly for use in the Registration Statement,  such Prospectus
or such form of Prospectus  or in any amendment or supplement  thereto (it being
agreed that the Purchasers have expressly and in writing  approved EXHIBIT D

                                       32
<PAGE>

for this  purpose) or (ii) in the case of an  occurrence of an event of the type
specified in SECTION 6.2(C)(V)-(VIII),  the use by such Purchaser of an outdated
or defective Prospectus after the Company has notified such Purchaser in writing
that the  Prospectus  is outdated or defective  and prior to the receipt by such
Purchaser  of the Advice  contemplated  in SECTION  6.5.  In no event  shall the
liability  of any  selling  Purchaser  hereunder  be greater in amount  than the
dollar amount of the net proceeds  received by such  Purchaser  upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

                  (c) CONDUCT OF INDEMNIFICATION  PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity  hereunder
(an  "INDEMNIFIED  PARTY"),  such  Indemnified  Party shall promptly  notify the
Person from whom indemnity is sought (the "INDEMNIFYING  PARTY") in writing, and
the  Indemnifying  Party  shall  assume  the  defense  thereof,   including  the
employment of counsel  reasonably  satisfactory to the Indemnified Party and the
payment of all fees and expenses  incurred in connection  with defense  thereof;
provided,  that the failure of any  Indemnified  Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this  Agreement,  except  (and  only) to the  extent  that it  shall be  finally
determined  by a court of competent  jurisdiction  (which  determination  is not
subject to appeal or further  review) that such failure  shall have  proximately
and materially adversely prejudiced the Indemnifying Party.

                  An Indemnified  Party shall have the right to employ  separate
counsel in any such  Proceeding and to participate in the defense  thereof,  but
the  fees  and  expenses  of  such  counsel  shall  be at the  expense  of  such
Indemnified  Party or Parties unless:  (i) the Indemnifying  Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have
failed  promptly to assume the defense of such  Proceeding and to employ counsel
reasonably  satisfactory to such Indemnified  Party in any such  Proceeding;  or
(iii) the named parties to any such Proceeding (including any impleaded parties)
include  both  such  Indemnified  Party  and the  Indemnifying  Party,  and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified  Party
and the Indemnifying  Party (in which case, if such  Indemnified  Party notifies
the  Indemnifying  Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense  thereof and such counsel shall be at the expense of
the  Indemnifying  Party),  provided  that  under  no  circumstances  shall  the
Indemnifying  Party be  responsible  for the fees and  expenses of more than one
counsel for all Indemnified  Parties with respect to a Proceeding arising out of
the same claim. The Indemnifying Party shall not be liable for any settlement of
any such Proceeding  effected without its written  consent,  which consent shall
not be unreasonably  withheld.  No Indemnifying  Party shall,  without the prior
written consent of the Indemnified  Party,  effect any settlement of any pending
Proceeding  in respect of which any  Indemnified  Party is a party,  unless such
settlement includes an unconditional  release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

                  All fees and  expenses  of the  Indemnified  Party  (including
reasonable  fees  and  expenses  to  the  extent  incurred  in  connection  with
investigating   or  preparing  to  defend  such   Proceeding  in  a  manner  not
inconsistent  with this  Section)  shall be paid to the  Indemnified  Party,  as
incurred, within ten Business Days of written notice thereof to the Indemnifying
Party  and   submission  of  reasonably   satisfactory   documentation   to  the
Indemnifying  Party  (regardless of

                                       33
<PAGE>

whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification  hereunder;  provided,  that the Indemnifying  Party may require
such  Indemnified  Party to undertake to reimburse all such fees and expenses to
the extent it is finally  judicially  determined that such Indemnified  Party is
not entitled to indemnification hereunder).

                  (d) CONTRIBUTION. If a claim for indemnification under SECTION
6.4(A) or (B) is unavailable to an Indemnified  Party (by reasons other than the
specified exclusions to indemnification),  then each Indemnifying Party, in lieu
of indemnifying such Indemnified  Party,  shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative  fault of the  Indemnifying  Party and
Indemnified  Party in connection with the actions,  statements or omissions that
resulted in such Losses as well as any other relevant equitable  considerations.
The relative fault of such  Indemnifying  Party and  Indemnified  Party shall be
determined by reference to, among other things,  whether any action in question,
including any untrue or alleged untrue  statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information  supplied by, such Indemnifying  Party or Indemnified Party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such  action,  statement  or  omission.  The amount  paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the  limitations set forth in SECTION  6.4(C),  any reasonable  attorneys' or
other reasonable fees or expenses  incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the  indemnification  provided for in this Section was  available to
such party in accordance with its terms.

                  The  parties  hereto  agree  that it  would  not be  just  and
equitable if contribution pursuant to this SECTION 6.4(D) were determined by pro
rata  allocation  or by any other method of  allocation  that does not take into
account the equitable  considerations  referred to in the immediately  preceding
paragraph.  Notwithstanding  the provisions of this Section 6.4(d), no Purchaser
shall be required to contribute,  in the aggregate,  any amount in excess of the
amount by which the proceeds  actually  received by such Purchaser from the sale
of the Registrable  Securities  subject to the Proceeding  exceeds the amount of
any damages that such  Purchaser has otherwise been required to pay by reason of
such untrue or alleged  untrue  statement  or omission or alleged  omission.  No
Person  guilty of  fraudulent  misrepresentation  (within the meaning of Section
11(f) of the Securities Act) shall be entitled to  contribution  from any Person
who was not guilty of such fraudulent misrepresentation.

                  The indemnity and  contribution  agreements  contained in this
Section are in addition to any liability that the Indemnifying  Parties may have
to the Indemnified Parties.

6.5      DISPOSITIONS.  Each  Purchaser  agrees  that it will  comply  with  the
prospectus  delivery  requirements  of the Securities Act as applicable to it in
connection  with sales of Registrable  Securities  pursuant to the  Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company  of the  occurrence  of any  event of the  kind  described  in  Sections
6.2(c)(v),  (vi), (vii) or (viii) such Purchaser will discontinue disposition of
such  Registrable   Securities  under  the  Registration  Statement  until  such
Purchaser's receipt of the copies of the supplemented  Prospectus and/or amended
Registration Statement contemplated by Section 6.2(j), or until it is advised in
writing (the "ADVICE") by the Company that the use of the

                                       34
<PAGE>

applicable  Prospectus may be resumed,  and, in either case, has received copies
of any additional or supplemental  filings that are incorporated or deemed to be
incorporated  by reference in such  Prospectus or  Registration  Statement.  The
Company may provide  appropriate  stop orders to enforce the  provisions of this
paragraph.

6.6      NO PIGGYBACK ON REGISTRATIONS.  Except in connection with the IPO Event
or as set forth in Schedule  6.6,  neither  the Company nor any of its  security
holders (other than the Purchasers in such capacity pursuant hereto) may include
securities  of  the  Company  in  the  Registration  Statement  other  than  the
Registrable  Securities,  and the Company  shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.

6.7      PIGGY-BACK   REGISTRATIONS.   If   (a)(x)  at  any  time   during   the
Effectiveness  Period  when  there is not an  effective  Registration  Statement
covering all of the Registrable  Securities and the Purchasers  cannot otherwise
dispose of the Registrable  Securities  under Rule 144 or (y) on or prior to the
IPO Event Due Date and (b) the Company shall  determine to prepare and file with
the  Commission  a  registration  statement  relating to an offering for its own
account or the account of others under the  Securities  Act of any of its equity
securities,  other than on Form S-4 or Form S-8 (each as  promulgated  under the
Securities Act) or their then  equivalents  relating to equity  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,  then the Company shall send to each Purchaser  written notice of
such determination and if, within fifteen days after receipt of such notice, any
such  Purchaser  shall so request in writing,  the Company shall include in such
registration  statement  all or any  part of such  Registrable  Securities  such
Purchaser requests to be registered.

                                  ARTICLE VII
                                  MISCELLANEOUS

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

7.2      FEES AND  EXPENSES.  At the Closing,  the Company shall pay to Vertical
Ventures, LLC an aggregate of $35,000 for their legal fees and expenses incurred
in connection with the preparation and negotiation of the Transaction Documents.
In lieu of the foregoing payment,  Vertical Ventures, LLC may retain such amount
at the Closing.  Except as expressly set forth in the  Transaction  Documents to
the  contrary,  each  party  shall pay the fees and  expenses  of its  advisers,
counsel,  accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation,  preparation, execution, delivery and
performance  of this  Agreement.  The Company shall pay all Transfer Agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
the Securities.

7.3      ENTIRE AGREEMENT. The Transaction Documents, together with the Exhibits
and  Schedules  thereto,  contain the entire  understanding  of the parties with
respect to the subject  matter  hereof and supersede  all prior  agreements  and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents,

                                       35
<PAGE>

exhibits  and  schedules.   At  or  after  the  Closing,   and  without  further
consideration,  the Company  will  execute and  deliver to the  Purchasers  such
further  documents as may be  reasonably  requested  in order to give  practical
effect  to the  intention  of  the  parties  under  the  Transaction  Documents.
Notwithstanding  anything to the contrary herein,  Securities may be assigned to
any  Person in  connection  with a bona fide  margin  account  or other  loan or
financing arrangement secured by such Company Securities.

7.4      NOTICES.  Any and all  notices or other  communications  or  deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
specified in this Section  prior to 6:30 p.m. (New York City time) on a Business
Day, (b) the next Business Day after the date of transmission, if such notice or
communication  is delivered via facsimile at the facsimile  number  specified in
this  Section on a day that is not a Business  Day or later than 6:30 p.m.  (New
York City time) on any Business  Day, (c) the Business Day following the date of
mailing, if sent by internationally recognized overnight courier service, or (d)
upon  actual  receipt by the party to whom such  notice is required to be given.
The  addresses  and facsimile  numbers for such notices and  communications  are
those  set  forth on the  signature  pages  hereof,  or such  other  address  or
facsimile number as may be designated in writing hereafter,  in the same manner,
by such Person. In addition, copies of all such notices and communications shall
also be provided to  EarlyBirdCapital,  Inc. at 600 Third Avenue,  New York, New
York 10016,  to the  attention of Steven  Levine,  on or about such time as each
such  notice  and  communication  is  otherwise  required  to  be  delivered  in
accordance to the terms hereof.

7.5      AMENDMENTS;  WAIVERS.  No provision of this  Agreement may be waived or
amended except in a written instrument  signed, in the case of an amendment,  by
the Company and each of the  Purchasers  holding not less than a majority of the
Securities or, in the case of a waiver, by the party against whom enforcement of
any such  waiver is  sought.  No  waiver  of any  default  with  respect  to any
provision,  condition or requirement  of this Agreement  shall be deemed to be a
continuing  waiver  in the  future or a waiver of any  subsequent  default  or a
waiver of any other provision,  condition or requirement  hereof,  nor shall any
delay or omission of either party to exercise any right  hereunder in any manner
impair the exercise of any such right.  Notwithstanding the foregoing,  a waiver
or consent to depart from the  provisions  hereof with  respect to a matter that
relates  exclusively to the rights of Purchasers  under Article VI and that does
not directly or indirectly affect the rights of other Purchasers may be given by
Purchasers  holding at least a majority of the  Registrable  Securities to which
such waiver or consent relates.

7.6      CONSTRUCTION.  The headings  herein are for  convenience  only,  do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent,  and no
rules of strict construction will be applied against any party.

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

                                       36
<PAGE>

be bound, with respect to the transferred  Securities,  by the provisions hereof
that apply to the "Purchasers." Notwithstanding anything to the contrary herein,
Securities  may be assigned to any Person in connection  with a bona fide margin
account or other loan or financing arrangement secured by such Securities.

7.8      NO  THIRD-PARTY  BENEFICIARIES.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.

7.9      GOVERNING LAW; VENUE;  WAIVER OF JURY TRAIL.  ALL QUESTIONS  CONCERNING
THE  CONSTRUCTION,  VALIDITY,  ENFORCEMENT AND  INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED  AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF
THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS HEREBY  IRREVOCABLY  SUBMIT TO
THE EXCLUSIVE  JURISDICTION  OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY
THE  COMPANY OR ANY  PURCHASER  HEREUNDER,  IN  CONNECTION  HEREWITH OR WITH ANY
TRANSACTION  CONTEMPLATED  HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE  TRANSACTION  DOCUMENTS),  AND HEREBY  IRREVOCABLY
WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING  BROUGHT BY THE
COMPANY OR ANY  PURCHASER,  ANY CLAIM THAT IT IS NOT  PERSONALLY  SUBJECT TO THE
JURISDICTION  OF ANY SUCH  COURT,  OR THAT SUCH SUIT,  ACTION OR  PROCEEDING  IS
IMPROPER.  EACH PARTY HEREBY  IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS  TO PROCESS  BEING  SERVED IN ANY SUCH SUIT,  ACTION OR  PROCEEDING  BY
MAILING A COPY THEREOF VIA  REGISTERED OR CERTIFIED  MAIL OR OVERNIGHT  DELIVERY
(WITH  EVIDENCE OF  DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS  AGREEMENT AND AGREES THAT SUCH SERVICE SHALL  CONSTITUTE  GOOD
AND SUFFICIENT  SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN
SHALL BE  DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE  PROCESS  IN ANY  MANNER
PERMITTED BY LAW. THE COMPANY AND PURCHASERS  HEREBY WAIVE ALL RIGHTS TO A TRIAL
BY JURY.

7.10     SURVIVAL.  The  representations,  warranties,  agreements and covenants
contained  herein shall  survive the Closing and the  delivery,  exercise of the
Securities and/or conversion,  as applicable;  provided that the representations
and  warranties  set forth in Sections 3.1 and 3.2 shall expire upon the earlier
to  occur  of (i) two  years  from  the  Closing  Date,  and  (ii)  the one year
anniversary of the Effective Date of the Registration Statement.

7.11     EXECUTION.  This Agreement may be executed in two or more counterparts,
all of which when taken  together shall be considered one and the same agreement
and shall become effective when  counterparts have been signed by each party and
delivered to the other  party,  it being

                                       37
<PAGE>

understood  that both parties need not sign the same  counterpart.  In the event
that any signature is delivered by facsimile transmission,  such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such  signature is executed)  the same with the same force and effect as if such
facsimile signature page were an original thereof.

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

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

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

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

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

7.17     ADJUSTMENTS  IN SHARE  NUMBERS  AND  PRICES.  In the event of any stock
split,  subdivision,  dividend or distribution payable in shares of Common Stock
(or other securities or rights

                                       38
<PAGE>

convertible  into,  or  entitling  the holder  thereof to  receive  directly  or
indirectly   shares   of   Common   Stock),   combination   or   other   similar
recapitalization or event occurring after the date hereof, each reference in any
Transaction Document to a number of shares or a price per share shall be amended
to appropriately account for such event.

7.18     INDEPENDENT   NATURE  OF  PURCHASERS'   OBLIGATIONS  AND  RIGHTS.   The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations of any other  Purchaser,  and no Purchaser  shall be
responsible  in any way for the  performance  of the  obligations  of any  other
Purchaser  under any  Transaction  Document.  The decision of each  Purchaser to
purchase  Notes  pursuant  to this  Agreement  has been  made by such  Purchaser
independently  of any other  Purchaser  and  independently  of any  information,
materials,  statements  or opinions  as to the  business,  affairs,  operations,
assets, properties,  liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary  which may have been
made or given by any other  Purchaser  or by any agent or  employee of any other
Purchaser,  and no Purchaser  or any of its agents or  employees  shall have any
liability to any other  Purchaser (or any other  Person)  relating to or arising
from any such information,  materials, statements or opinions. Nothing contained
herein or in any  Transaction  Document,  and no action  taken by any  Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an  association,  a joint  venture  or any  other  kind of  entity,  or create a
presumption  that the  Purchasers are in any way acting in concert or as a group
with  respect  to  such  obligations  or the  transactions  contemplated  by the
Transaction  Document.  Each Purchaser  acknowledges that no other Purchaser has
acted as agent for such  Purchaser  in  connection  with  making its  investment
hereunder and that no other  Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder.  Each Purchaser shall be
entitled to  independently  protect and  enforce its rights,  including  without
limitation  the  rights  arising  out of  this  Agreement  or  out of the  other
Transaction Documents,  and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.

                           [SIGNATURE PAGES TO FOLLOW]

                                       39
<PAGE>

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

                                    GURUNET CORPORATION

                                    By:      __________________________
                                    Name:
                                    Title:

                                    Address for Notice:

                                    c/o Guru Technologies Israel Ltd.
                                    Building 98, Jerusalem Technology Park
                                    P.O. Box 48253
                                    Jerusalem 91481, ISRAEL
                                    Facsimile No.:   (845) 818-3974
                                    Telephone No.:   (845) 818-3988
                                    Attn:   Mr. Robert S. Rosenschein

         With a copy to:      Morrison Cohen Singer & Weinstein, LLP
                                    750 Lexington Avenue
                                    New York, NY 10022
                                    Facsimile No.:  (212) 735-8708
                                    Telephone No.:  (212) 735-8600
                                    Attn:  Robert Cohen, Esq.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOW]

<PAGE>

                                    VERTICAL VENTURES, LLC

                                    By:      __________________________
                                    Name:
                                    Title:

                                    Purchase Price:   $[        ]

                                    Aggregate  Principal Amount of Notes
                                    to be acquired: [ ]

                                    Underlying Shares subject to Warrant: [ ](1)

                                    Underlying Shares subject to Lead
                                             Purchaser Warrant            [ ]

                                    Address for Notice:

                                    Vertical Ventures, LLC
                                    641 Lexington Ave, 26th Floor
                                    New York, NY  10022
                                    Facsimile No.: (212) 207-3452
                                    Telephone No.: (212) 974-3070
                                    Attn: Joshua Silverman and Michael Chill

         With a copy to:      Proskauer Rose LLP
                                    1585 Broadway
                                    New York, New York  10036-8299
                                    Facsimile No.:  (212) 969-2900
                                    Telephone No.:  (212) 969-3000
                                    Attn:  Adam J. Kansler, Esq.

--------
(1) Vertical --- Equal to 1/3 of the principal amount of the Note.

<PAGE>

                                    [            ]

                                    By:   __________________________
                                    Name:
                                    Title:

                                    Purchase Price:   $[   ]

                                    Aggregate  Principal Amount of Notes
                                    to be acquired: [   ]

                                    Underlying Shares subject to Warrant:  [   ]

                                    Address for Notice:

                                    [    ]
                                    Facsimile No.:
                                    Telephone No.:
                                    Attn:

<PAGE>

         Exhibits:

         A-1      Form of Warrant
         A-2      Form of Lead Purchaser Warrant
         B        Form of Note
         C        Form of Opinion of Company Counsel
         D        Plan of Distribution
         E        Form of Transfer Agent Instructions
         F-1      Form of Restricted Persons Lock-up Letter
         F-2      Form of Purchaser Lock-up Letter
         G        Form of Selling Stockholder Questionnaire
         H        Form of Pledge Agreement
         I        Form of Security Agreement
         J        Form of NASD QuestionnaireExhibit 10.4

NEITHER THESE  SECURITIES  NOR THE  SECURITIES  INTO WHICH THESE  SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
TILE  SECURITIES  COMMISSION  OF ANY STATE IN RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN COMPLIANCE  WITH  APPLICABLE  STATE
SECURITIES  LAWS  OR  BLUE  SKY  LAWS.  NOTWITHSTANDING  TILE  FOREGOING,  THESE
SECURITIES AND THE SECURITIES  ISSUABLE UPON CONVERSION OF THESE  SECURITIES MAY
BE  PLEDGED  IN  CONNECTION  WITH A BONA FIDE  MARGIN  ACCOUNT  OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES,  PROVIDED THAT ANY EXERCISE OF
ANY RIGHTS BY ANY SECURED PARTY SHALL COMPLY WITH THESE LEGEND REQUIREMENTS.

No.  __                                                                  $______
Date:    __________

                               GURUNET CORPORATION
                     8% SENIOR SECURED CONVERTIBLE NOTE DUE
                                JANUARY 30, 2005

         THIS NOTE is one of a series of duly  authorized  and  issued  Notes of
GuruNet Corporation,  a Delaware corporation (the "COMPANY"),  designated as its
8% Senior Secured  Convertible  Notes due on the earlier to occur of (a) January
30, 2005 and (b) the IPO Event, in the aggregate  principal amount of $5,000,000
(the "NOTES").

         FOR  VALUE  RECEIVED,  the  Company  promises  to pay to the  order  of
_________  or its  registered  assigns  (the  "HOLDER"),  the  principal  sum of
___________  ($______),  on the earlier to occur of (a) January 30, 2005 and (b)
the IPO Event  (the  "MATURITY  DATE"),  or such  earlier  date as the Notes are
required or permitted to be repaid as provided hereunder, and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Note in accordance with the provisions hereof.  This Note is subject to the
following additional provisions.

         1.  DEFINITIONS.  In addition to the terms  defined  elsewhere  in this
Note,  (a)  capitalized  terms that are not  otherwise  defined  herein have the
meanings given to such terms in the Securities Purchase  Agreement,  dated as of
January 30, 2004, among the Company and the Purchasers  identified  therein (the
"PURCHASE AGREEMENT"), and (b) the following terms have the meanings indicated:

                  "CONVERSION  DATE"  means  the  date a  Conversion  Notice  is
         delivered,  to  the  Company  together  with  the  Conversion  Schedule
         pursuant to Section 5(a).

<PAGE>

                  "CONVERSION  NOTICE"  means  a  written  notice  in  the  form
         attached hereto as EXHIBIT A.

                  "CONVERSION  PRICE" means the product of (i) 0.75 and (ii) the
         IPO Price;  provided,  however,  that (a) if in connection with the IPO
         Event, any governmental agency or self-regulatory organization requires
         contractual  restrictions  on sales by the Purchasers of the Underlying
         Shares  that  are more  stringent  than  the  contractual  restrictions
         contained in the Purchaser  Lock-up Letter,  then the Conversion  Price
         shall equal the  product of (i) 0.50 and (ii) the IPO Price;  or (b) if
         there is an Offering Termination, then the Conversion Price shall equal
         $4.50.  The Conversion Price is subject to adjustment from time to time
         as provided in Section 11.

                  "EQUITY   CONDITIONS"  means,  with  respect  to  a  specified
         issuance of Common  Stock,  that each of the  following  conditions  is
         satisfied:  (i) the number of  authorized  but unissued  and  otherwise
         unreserved shares of Common Stock is sufficient for such issuance; (ii)
         such shares of Common Stock are included in the Registration  Statement
         filed  in  connection  with  the  IPO  Event  or  another  Registration
         Statement;  (iii) such  issuance  would be  permitted  in full  without
         violating SECTION 12 hereof; (iv) no Bankruptcy Event has occurred; (v)
         the Company is not in default  (after giving  effect to any  applicable
         notice  requirements  and cure  periods)  with  respect to any material
         obligation hereunder or under any other Transaction Document;  and (vi)
         no public  announcement  of a pending  or  proposed  Change of  Control
         transaction has occurred that has not been consummated.

                  "EVENT  EQUITY  VALUE"  means 115% of either (A) if the Common
         Stock is not then  listed  or quoted on an  Eligible  Market,  the fair
         market  value of such  Underlying  Shares as of the date of delivery of
         the notice  requiring  payment of the Equity Event Value, as determined
         by an independent  investment bank selected by both the Company and the
         Lead  Purchaser,  or (B) if Common Stock is then listed or quoted on an
         Eligible  Market,  the  average  of the  Closing  Prices  for the  five
         Business Days  preceding  the date of delivery of the notice  requiring
         payment  of the Event  Equity  Value,  PROVIDED,  HOWEVER,  that if the
         Company does not make such required  payment  (together  with any other
         payments,  expenses and  liquidated  damages then due and payable under
         the  Transaction  Documents)  when due or,  in the  event  the  Company
         disputes in good faith the occurrence of the Triggering  Event pursuant
         to which such notice  relates,  does not instead  deposit such required
         payment  (together  with such other  payments,  expenses and liquidated
         damages then due and payable under the Transaction Documents) in escrow
         with an independent  third-party escrow agent within five Business Days
         of the date such  required  payment is due, then the Event Equity Value
         shall be 115% of  either  (A) if  Common  Stock is not then  listed  or
         quoted on an Eligible Market,  the fair market value of such Underlying
         Shares  either (1) as of the date of delivery  of the notice  requiring
         the payment of Event  Equity Value or (II) as of the date on which such
         required  payment  (together  with such other  payments,  expenses  and
         liquidated   damages  then  due  and  payable  under  the   Transaction
         Documents) is paid in full,  whichever is greater,  and in either case,
         as determined by an  independent  investment  bank selected by both the
         Company and the Lead  Purchaser,  or (B) if Common Stock is then listed
         or quoted on an Eligible Market,  the average of the Closing Prices for
         the five Business Days preceding

                                       2
<PAGE>

         either (1) the dale of delivery of the notice  requiring the payment of
         Event  Equity  Value or (II) the date on which  such  required  payment
         (together with such other  payments,  expenses and  liquidated  damages
         then due and payable under the Transaction  Documents) is paid in full,
         whichever is greater.

                  "IPO PRICE" means the offering  price in  connection  with the
         initial public  offering of units  consisting of a share of the Company
         Common  Stock and a warrant to purchase a share of the  Company  Common
         Stock as set forth in the final prospectus Registration Statement filed
         relating to the IPO Event,  and which shall be $6.00  unless  otherwise
         set forth in an effective Registration Statement.

                  "OFFERING  TERMINATION"  has the  meaning  set  forth  in that
         certain  letter  agreement  between the  Company and  EarlyBirdCapital,
         Inc., dated as of November 26, 2003

                  "ORIGINAL  ISSUE DATE" means the date of the first issuance of
         any Notes,  regardless  of the number of  transfers  of any  particular
         Note.

                  "TRIGGERING  EVENT" means any of the following events: (a) the
         occurrence of any Bankruptcy  Event;  (b) suspension of the exercise or
         conversion rights of the Holders pursuant to the Transaction  Documents
         for any reason  other than  pursuant to Section 5(C) or Section 12; (c)
         the Company fails to have  available a sufficient  number of authorized
         but unissued and otherwise  unreserved shares of Common Stock available
         to issue  Underlying  Shares upon any  exercise of the  Warrants or any
         conversion of the Notes; (d) the Company fails to make any cash payment
         required under the Transaction  Documents and such failure is not cured
         within  five days after  notice of such  default is first  given to the
         Company by a Purchaser; or (e) any Event occurs and remains uncured for
         60 days.

         2. PRINCIPAL AND INTEREST.

                           (a) The Company  shall pay  interest to the Holder on
         the aggregate unconverted and then outstanding principal amount of this
         Note at the rate of 8% per annum,  payable in cash,  upon the  Maturity
         Date;  provided,  however,  that if the IPO Event  does not occur on or
         prior to July 1, 2004,  then all  accrued  and unpaid  interest on this
         Note  shall be  payable  on such date and shall be  payable on each one
         month anniversary thereafter. Interest shall be calculated on the basis
         of a 360-day  year and shall  accrue  daily and be  compounded  monthly
         commencing on the Original Issue Date.

                           (b) The Company shall pay the  outstanding  principal
         amount of the Note to the Holder on the Maturity Date.

                           (c)  Following an Offering  Termination,  the Company
         may  prepay  without  penalty  or  premium  all or any  portion  of the
         outstanding  principal  amount  and any  accrued  but  unpaid  interest
         thereon  under  this  Note  upon not less  than 10 days  prior  written
         notice.

         3.  REGISTRATION  OF NOTES.  The Company shall  register the Notes upon
records to be maintained  by the Company for that purpose (the "NOTE  REGISTER")
in the name of each record  holder  thereof  from time to time.  The Company may
deem and treat the  registered  Holder of this

                                       3
<PAGE>

Note as the absolute  owner hereof for the purpose of any  conversion  hereof or
any payment of interest hereon, and for all other purposes, absent actual notice
to the contrary.

         4. REGISTRATION OF TRANSFERS AND EXCHANGES.  No transfer of any portion
of this Note shall be effected  without  complying with the legend  requirements
set forth in Section 4.1 of the Purchase  Agreement.  The Company shall register
the transfer of any portion of this Note in the Note Register upon  surrender of
this Note to the Company at its address  for notice set forth  herein.  Upon any
such  registration or transfer,  a new Note, in substantially  the forth of this
Note (any such new Note, a "NEW NOTE"),  evidencing  the portion of this Note so
transferred  shall be issued to the  transferee  and a New Note  evidencing  the
remaining  portion of this Note not so  transferred,  if any, shall be issued to
the  transferring  Holder.  The  acceptance  of the New  Note by the  transferee
thereof shall be deemed the  acceptance by such  transferee of all of the rights
and obligations of a holder of a Note.  This Note is  exchangeable  for an equal
aggregate principal amount of Notes of different  authorized  denominations,  as
requested by the Holder  surrendering  the same. No service  charge or other fee
will be  imposed  in  connection  with  any such  registration  of  transfer  or
exchange.

         5. CONVERSION.

                           (a) AT THE OPTION OF THE  HOLDER.  All or any portion
         of the  principal  amount  of  this  Note  then  outstanding  shall  be
         convertible  into  shares  of  Common  Stock  at the  Conversion  Price
         (subject to limitations  set forth in Section  5(c)),  at the option of
         the  Holder,  at any time  and from  time to time  from and  after  the
         Original  Issue Date.  The Holder shall effect  conversions  under this
         Section 5(a), by delivering to the Company a Conversion Notice together
         with a  schedule  in the  form  of  SCHEDULE  I  attached  hereto  (the
         "CONVERSION SCHEDULE").  The number, of Underlying Shares issuable upon
         any conversion  hereunder  shall  (subject to limitations  set forth in
         Section 5(c)) equal the outstanding principal amount of this Note to be
         converted  divided by the Conversion Price. If the Holder is converting
         less than all of the principal amount represented by this Note, or if a
         conversion hereunder may not be effected in full due to the application
         of Section 5(c), the Company shall honor such  conversion to the extent
         permissible  hereunder  and  shall  promptly  deliver  to the  Holder a
         Conversion  Schedule indicating the principal amount which has not been
         converted.  If, in connection with the consummation of the IP0 Event, a
         Holder  desires to convert any principal  amount of this Note in excess
         of the principal amount subject to an Automatic  Conversion (as defined
         below),  then the Holder must notify the Company of such  conversion in
         accordance  with the terms  hereof by no later  than 10  Business  Days
         after  delivery  of notice from the Company  that it has  received  the
         initial comments on the  Registration  Statement from the Commission or
         has  received  notice that the  Commission  will not be  reviewing  the
         Registration  Statement.  Any such conversion election by a Holder will
         be  irrevocable  and will be deemed an Automatic  Conversion  and shall
         occur on the Automatic Conversion Date (as defined below).

                           (b) AT THE OPTION OF THE COMPANY. Upon the earlier to
         occur of (1) the  consummation  of the IPO Event and (2) the  Effective
         Date,  the Company may cause 50% of the  principal  amount of this Note
         then  outstanding  to  be  automatically   converted  into  fully  paid
         non-assessable  shares of Common Stock (such conversion,  an "AUTOMATIC

                                       4
<PAGE>

         CONVERSION")  at the Conversion  Price (subject to the  limitations set
         forth in Sections 5(c) and 12), by delivery of a notice (the "AUTOMATIC
         CONVERSION  Notice") to the Holder,  which  notice  shall  describe the
         Automatic Conversion; provided, however, that the Company may not cause
         an Automatic  Conversion  unless as of the "Automatic  Conversion Date"
         (as defined below), the Equity Conditions are satisfied with respect to
         all of the  Underlying  Shares  then  issuable  under  the  Transaction
         Documents.   Upon  an  Automatic  Conversion  in  accordance  with  the
         procedures  specified in this  Section  5(b),  and  effective as of the
         close of business on the Automatic  Conversion Date, this Note shall be
         converted  into fully paid and  non-assessable  shares of Common  Stock
         automatically  without the need for any  further  action by the Holder.
         Upon the  occurrence of such Automatic  Conversion of this Note,  there
         shall  be  issued  and  delivered  to  the  Holder  a  certificate   or
         certificates  for the number of shares of Common  Stock into which this
         Note were convertible on the Automatic Conversion Date. For purposes of
         this Section 5(b), the "AUTOMATIC  CONVERSION DATE" shall mean the date
         of the IPO Event.

                           (c) Certain Conversion Restrictions.  Notwithstanding
         anything  to the  contrary  contained  herein,  the number of shares of
         Common  Stock that may be acquired by a Holder upon any  conversion  of
         Notes (or  otherwise in respect  hereof) shall be limited to the extent
         necessary  to  insure  that,   following  such   conversion  (or  other
         issuance), the total number of shares of Common Stock then beneficially
         owned by such Holder and its  Affiliates  and any other  Persons  whose
         beneficial  ownership  of Common  Stock would be  aggregated  with such
         Holder's for purposes of Section  13(d) of the Exchange  Act,  does not
         exceed 9.999% (the "PERCENTAGE  CAP") of the total number of issued and
         outstanding  shares of Common  Stock  (including  for such  purpose the
         shares  of  Common  Stock  issuable  upon  such  conversion).  For such
         purposes,  beneficial  ownership shall be determined in accordance with
         Section  13(d)  of the  Exchange  Act and  the  rules  and  regulations
         promulgated thereunder. Additionally, by written notice to the Company,
         the Holder may waive the provisions of this Section 5(c) or increase or
         decrease the Percentage Cap to any other  percentage  specified in such
         notice, but (i) any such waiver or increase will not be effective until
         the 61st day after such notice is delivered  to the  Company,  and (ii)
         any such waiver or  increase or decrease  will apply only to the Holder
         and not to any other  holder of  Warrants.  The  Company  shall have no
         obligation to determine the beneficial  ownership of any Holder and its
         Affiliates and any other Persons whose  beneficial  ownership of Common
         Stock would be  aggregated  with the  Holder's for purposes of Sections
         13(d) and 16 of the Exchange Act. This provision shall not restrict the
         number  of  shares  of  Common  Stock  which a Holder  may  receive  or
         beneficially  own in order to  determine  the amount of  securities  or
         other  consideration  that such  Holder  may  receive in the event of a
         merger,   sale  or  other  business   combination  or  reclassification
         involving the Company as contemplated herein.

         6. MECHANICS OF CONVERSION.
                           (a) The number of Underlying Shares issuable upon any
         conversion  hereunder shall equal (i) the outstanding  principal amount
         of this Note to be converted,  divided by the

                                       5
<PAGE>

         Conversion  Price on the Conversion  Date,  plus (ii) the amount of any
         accrued but unpaid  interest on this Note through the Conversion  Date,
         divided by the  Conversion  Price on the Conversion  Date,  unless such
         interest is paid in cash by the Company on the Conversion Date.

                           (b) Upon  conversion  of this Note and receipt of the
         Conversion  Notice,  the Company shall  promptly (but in no event later
         than  three  Business  Days  after  the  Conversion  Date or the  tenth
         Business  Day after a Conversion  Date that is on or following  the IP0
         Event) issue or cause to be issued and cause to be delivered to or upon
         the written order of the Holder and in such name or names as the Holder
         may designate a certificate  for the  Underlying  Shares  issuable upon
         such conversion,  free of restrictive  legends,  unless required by the
         Purchase  Agreement.  The Holder,  or any Person so  designated  by the
         Holder to receive  Underlying  Shares,  shall be deemed to have  become
         holder of record of such Underlying  Shares as of the Conversion  Date.
         The Company  shall,  upon request of the Holder,  use its  commercially
         reasonable    efforts   to   deliver    Underlying   Shares   hereunder
         electronically  through the  Depository  Trust  Corporation  or another
         established clearing corporation performing similar functions.

                           (c) The Holder  shall not be  required to deliver the
         original  Note in order to effect a  conversion  hereunder.  The Holder
         agrees to use  reasonable  efforts to deliver the original  Note to the
         Company for  cancellation  within 5 Business  Days of such  conversion.
         Automatic  Conversion  pursuant  -to  Section  5(b) and any  conversion
         effected in  accordance  with the last two  sentences  of Section  5(a)
         shall have the same effect as cancellation of the original Note and, if
         applicable,   issuance  of  a  New  Note   representing  the  remaining
         outstanding principal amount. Upon surrender of this Note following one
         or more partial conversions,  the Company shall promptly deliver to the
         Holder a New Note  representing  the  remaining  outstanding  principal
         amount.

                           (d) The  Company's  obligations  to issue and deliver
         Underlying  Shares upon  conversion of this Note in accordance with the
         terms hereof are absolute and unconditional, irrespective of any action
         or inaction  by the Holder to enforce  the same,  any waiver or consent
         with  respect to any  provision  hereof,  the  recovery of any judgment
         against  any Person or any action to enforce  the same,  or any setoff,
         counterclaim,  recoupment,  limitation or termination, or any breach or
         alleged  breach by the Holder or any other Person of any  obligation to
         the Company or any violation or alleged  violation of law by the Holder
         or any other Person,  and irrespective of any other  circumstance which
         might  otherwise  limit such obligation of the Company to the Holder in
         connection with the issuance of such Underlying Shares.

                           (e)  If  by  (x)  the  third  Business  Day  after  a
         Conversion  Date  that is  prior  to the IP0  Event,  or (y) the  tenth
         Business  Day after a Conversion  Date that is on or following  the IP0
         Event,  the  Company  fails to deliver to the  Holder  such  Underlying
         Shares in such amounts and in the manner  required  pursuant to Section
         6, then the Holder will have the right to rescind such conversion. .

                           (f) If by the third  Business  Day after a Conversion
         Date the Company fails to deliver to the Holder such Underlying  Shares
         in such amounts and in the manner  required  pursuant to Section 6, and
         if after  such third  Business  Day the  Holder  purchases  (in an open
         market  transaction or otherwise)  shares of Common Stock to deliver in

                                       6
<PAGE>

         satisfaction  of a sale by such Holder of the  Underlying  Shares which
         the Holder  anticipated  receiving  upon such  conversion (a "BUY-IN"),
         then the  Company  shall  either (i) pay cash to such  Purchaser  in an
         amount  equal  to such  Purchaser's  total  purchase  price  (including
         brokerage  commissions,  if any)  for the  shares  of  Common  Stock so
         purchased (the "BUY-IN Price"), at which point the Company's obligation
         to deliver  such  certificate  (and to issue such Common  Stock)  shall
         terminate,  or (ii)  promptly  honor its  obligation to deliver to such
         Purchaser a certificate or certificates  representing such Common Stock
         and pay cash to such  Purchaser  in an amount  equal to the  excess (if
         any) of the Buy-In  Price over the product of (A) such number of shares
         of Common  Stock,  times (B) the Closing Price on the date of the event
         giving rise to the Company's obligation to deliver such certificate.

         7. EVENTS OF DEFAULT.

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

                           (i) any default in the payment  (free of any claim of
         subordination) of principal,  interest or liquidated damages in respect
         of any Notes, as and when the same becomes due and payable  (whether on
         a Conversion Date or the Maturity Date or by acceleration or prepayment
         or otherwise);

                           (ii) the Company or any Subsidiary defaults in any of
         its obligations under any other note or any mortgage,  credit agreement
         or other facility,  indenture  agreement,  factoring agreement or other
         instrument  under which  there may be issued,  or by which there may be
         secured or evidenced,  any indebtedness for borrowed money or money due
         under any long term leasing or factoring  arrangement of the Company or
         any  Subsidiary  in  an  amount   exceeding   $100,000,   whether  such
         indebtedness  now  exists or is  hereafter  created,  and such  default
         results in such indebtedness becoming or being declared due and payable
         prior to the date on which it would otherwise become due and payable;

                           (iii) the occurrence of a Triggering Event other than
         as a result of an occurrence  described in clause (e) of the definition
         thereof;

                           (iv) the occurrence of a Change of Control;

                           (v) the Company  breaches Section 4.9 of the Purchase
         Agreement;

                           (vi) the occurrence of an Offering Termination;

                           (vii) following the Effective Date, the effectiveness
         of the  Registration  Statement  lapses for any reason,  or the Company
         fails to deliver a certificate evidencing any Securities to a Purchaser
         within 10 days after delivery of such certificate is required  pursuant
         to any Transaction  Document,  or the Holder is not permitted to resell
         the
                                       7
<PAGE>

         Securities under the  Registration  Statement or under Rule 144, in any
         case,  for more than 20 Business  Days  (which need not be  consecutive
         Business Days); or

                           (viii) the Company defaults in the timely performance
         of any other  obligation  under the  Transaction  Documents that is not
         subject  to a good  faith  dispute  by the  Company  and  such  default
         continues  uncured for a period of twenty  Business Days after the date
         on which  notice of such  default is first  given to the Company by the
         Holder (it being  understood  that no prior notice need be given in the
         case of a  default  that  cannot  reasonably  be  cured  within  twenty
         Business Days).

                           (b) At any time or times  following the occurrence of
         an Event of  Default,  the Holder  shall  have the option to elect,  by
         notice to the  Company (an "EVENT  NOTICE"),  to require the Company to
         repurchase all or any portion of (i) the outstanding  principal  amount
         of this Note, at a repurchase price equal to the greater of (A) 115% of
         such outstanding principal amount, plus all accrued but unpaid interest
         thereon  through the date of payment,  or (B) the Event Equity Value of
         the  Underlying  Shares  issuable  upon  conversion  of such  principal
         amount,  plus all accrued but unpaid interest  thereon through the date
         of  payment,  and  (ii)  solely  in the  case of an  Event  of  Default
         described in Section  7(a)(vii),  any Underlying  Shares issued to such
         Holder  upon  conversion  of Notes,  at a price per share  equal to the
         Event Equity Value of such  Underlying  Shares.  The  aggregate  amount
         payable pursuant to the preceding sentence is referred to as the "EVENT
         PRICE." The Company shall pay the  aggregate  Event Price to the Holder
         no later than the third  Business Day following the date of delivery of
         the Event Notice, and upon receipt thereof the Holder shall deliver the
         original  Note and  original  certificates  evidencing  any  Underlying
         Shares so repurchased to the Company (to the extent such documents have
         been delivered to the Holder).

                           (c) Upon the occurrence of any Bankruptcy  Event, all
         outstanding  principal  and  accrued  but unpaid  interest on this Note
         shall immediately  become due and payable in full in cash,  without any
         further  action by the Holder,  and the Company  shall  immediately  be
         obligated to repurchase this Note and all such Underlying Shares at the
         Event Price  pursuant to the  preceding  paragraph as if the Holder had
         delivered an Event Notice  immediately  prior to the occurrence of such
         Bankruptcy Event.

                           (d) In  connection  with any  Event of  Default,  the
         Holder need not provide and the Company hereby waives any  presentment,
         demand,  protest  or other  notice  of any  kind,  and the  Holder  may
         immediately and without  expiration of any grace period enforce any and
         all of its  rights  and  remedies  hereunder  and  all  other  remedies
         available  to it under  applicable  law.  Any such  declaration  may be
         rescinded  and  annulled  by the  Holder at any time  prior to  payment
         hereunder.  No such rescission or annulment shall affect any subsequent
         Event of Default or impair any right consequent thereto.

8. RANKING.  No indebtedness of the Company is senior to or pari passu with this
Note  (and the  other  Notes)  in right of  payment,  whether  with  respect  of
interest,  damages or upon liquidation or dissolution or otherwise.  The Company
will not, and will not permit any Subsidiary to,  directly or indirectly,  enter
into,  create,  incur,  assume or suffer to exist any  indebtedness for borrowed
money,  on or with  respect  to any of its  property  or  assets  now  owned

                                       8
<PAGE>

or  hereafter  acquired  or any  interest  therein  or  any  income  or  profits
therefrom,  that is  senior  or  pari  passu  in any  respect  to the  Company's
obligations  under the Notes. So long as any Notes are outstanding,  (i) neither
the Company nor any Subsidiary shall, directly or indirectly,  redeem,  purchase
or  otherwise  acquire  any  capital  stock or set aside any  monies  for such a
redemption, purchase or other acquisition, and (ii) the Company shall not pay or
declare any dividend or make any distribution on any capital stock, except stock
dividends on the Common Stock payable in additional shares of Common Stock.

         9. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Underlying
Shares upon  conversion  of (or otherwise in respect of) this Note shall be made
without  charge to the Holder for any issue or transfer  tax,  withholding  tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such  certificate,  all of  which  taxes  and  expenses  shall be paid by the
Company;  provided,  however,  that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Underlying  Shares or Notes in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring  this Note or receiving  Underlying
Shares in respect hereof.

         10.  RESERVATION OF UNDERLYING  SHARES.  The Company  covenants that it
will at all  times  reserve  and  keep  available  out of the  aggregate  of its
authorized but unissued and otherwise  unreserved  Common Stock,  solely for the
purpose of enabling it to issue  Underlying  Shares as required  hereunder,  the
number of  Underlying  Shares which are then issuable and  deliverable  upon the
conversion  of (and  otherwise  in respect  of) this entire  Note  (taking  into
account  any  adjustments  that  may be  required  by  SECTION  11),  free  from
preemptive rights or any other contingent  purchase rights of persons other than
the Holder.  The Company  covenants that all  Underlying  Shares so issuable and
deliverable  shall,  upon issuance in accordance with the terms hereof,  be duly
and validly  authorized,  issued and fully paid and  nonassessable.  The Company
covenants that it shall keep the Registration  Statement  continuously effective
until the Maturity Date.

         11. CERTAIN ADJUSTMENTS.  The Conversion Price is subject to adjustment
from time to time as set forth in this SECTION 11.

                           (a) STOCK  DIVIDENDS AND SPLITS.  If the Company,  at
         any time while this Note is  outstanding,  (i) pays a stock dividend on
         its Common  Stock or  otherwise  makes a  distribution  on any class of
         capital  stock  that  is  payable  in  shares  of  Common  Stock,  (ii)
         subdivides  outstanding  shares of Common Stock into a larger number of
         shares,  or (iii)  combines  outstanding  shares of Common Stock into a
         smaller number of shares,  then in each such case the Conversion  Price
         shall be multiplied  by a fraction of which the numerator  shall be the
         number of shares of Common Stock  outstanding  immediately  before such
         event and of which  the  denominator  shall be the  number of shares of
         Common Stock  outstanding  immediately after such event. Any adjustment
         made pursuant to clause (i) of this  paragraph  shall become  effective
         immediately after the record date for the determination of stockholders
         entitled to receive such dividend or  distribution,  and any adjustment
         pursuant  to  clause  (ii) or (iii)  of this  paragraph  shall  become,
         effective  immediately  after the effective date of such subdivision or
         combination.

                                       9
<PAGE>

                           (b) PRO RATA  DISTRIBUTIONS.  If the Company,  at any
         time  while this Note is  outstanding,  distributes  to all  holders of
         Common  Stock (i)  evidences  of its  indebtedness,  (ii) any  security
         (other than a  distribution  of Common Stock  covered by the  preceding
         paragraph),  (iii) rights or warrants to subscribe  for or purchase any
         security,  or  (iv)  any  other  asset  (in  each  case,   "DISTRIBUTED
         PROPERTY"),  then,  at the request of the Holder  delivered  before the
         90th day after the record date fixed for  determination of stockholders
         entitled to receive such distribution,  the Company will deliver to the
         Holder,  within five Business Days after such request (or, if later, on
         the effective date of such distribution), the Distributed Property that
         the  Holder  would  have been  entitled  to  receive  in respect of the
         Underlying  Shares  for which  this  Note  could  have  been  converted
         immediately prior to such record date. If such Distributed  Property is
         not delivered to the Holder  pursuant to the preceding  sentence,  then
         upon any  conversion  of this Note that occurs  after such record date,
         the Holder shall be entitled to receive,  in addition to the Underlying
         Shares  otherwise  issuable  upon  such  conversion,   the  Distributed
         Property that the Holder would have been entitled to receive in respect
         of such  number of  Underlying  Shares had the  Holder  been the record
         holder of such Underlying Shares immediately prior to such record date.

                           (c) FUNDAMENTAL  TRANSACTIONS.  If, at any time while
         this  Note is  outstanding,  (i) the  Company  effects  any  merger  or
         consolidation  of the Company  with or into  another  Person,  (ii) the
         Company effects any sale of all or  substantially  all of its assets in
         one or a series of  related  transactions,  (iii) any  tender  offer or
         exchange offer (whether by the Company or another  Person) is completed
         pursuant to which  holders of Common  Stock are  permitted to tender or
         exchange their shares for other securities,  cash or property,  or (iv)
         the Company  effects any  reclassification  of the Common  Stock or any
         compulsory  share  exchange  pursuant  to  which  the  Common  Stock is
         effectively  converted into or exchanged for other securities,  cash or
         property  (other than as a result of a subdivision  or  combination  of
         shares of Common  Stock  covered by Section  11(a)  above) (in any such
         case, a "FUNDAMENTAL Transaction"), then upon any subsequent conversion
         of this Note,  the Holder  shall  have the right to  receive,  for each
         Underlying  Share that would have been  issuable  upon such  conversion
         absent  such  Fundamental  Transaction,  the same  kind and  amount  of
         securities,  cash or property as it would have been entitled to receive
         upon the  occurrence of such  Fundamental  Transaction  if it had been,
         immediately  prior to such Fundamental  Transaction,  the holder of one
         share of Common Stock (the  "ALTERNATE  CONSIDERATION").  If holders of
         Common  Stock  are  given  any  choice  as to the  securities,  cash or
         property to be received in a Fundamental  Transaction,  then the Holder
         shall be given the same  choice as to the  Alternate  Consideration  it
         receives upon any conversion of this Note  following  such  Fundamental
         Transaction.  To the  extent  necessary  to  effectuate  the  foregoing
         provisions,  any  successor to the Company or surviving  entity in such
         Fundamental Transaction shall issue to the Holder a new Note consistent
         with the foregoing  provisions  and  evidencing  the Holder's  right to
         convert  such  Note  into  Alternate  Consideration.  The  terms of any
         agreement pursuant to which a Fundamental Transaction is effected shall
         include  terms  requiring  any such  successor or  surviving  entity to
         comply with the provisions of this paragraph (c) and insuring that this
         Note (or any such replacement security) will be similarly adjusted upon
         any subsequent transaction analogous to a Fundamental Transaction.

                                       10
<PAGE>

                           (d) SUBSEQUENT  EQUITY SALES.  The provisions of this
         SECTION 11(D) shall only apply prior to the IPO Event.

                           (i) If, at any time while  this Note is  outstanding,
         the Company or any Subsidiary  issues additional shares of Common Stock
         or rights,  warrants,  options or other securities or debt convertible,
         exercisable  or  exchangeable  for shares of Common  Stock or otherwise
         entitling any Person to acquire  shares of Common Stock  (collectively,
         "COMMON  STOCK  EQUIVALENTS")  at an effective net price to the Company
         per  share of  Common  Stock  (the  "EFFECTIVE  PRICE")  less  than the
         Conversion  Price  (as  adjusted  hereunder  to such  date),  then  the
         Conversion  Price shall be reduced to equal the Effective Price. If, at
         any time while this Note is outstanding,  the Company or any Subsidiary
         issues Common Stock or Common Stock  Equivalents at an Effective  Price
         greater than the Conversion Price (as adjusted  hereunder to such date)
         but less than the average  Closing  Price over the five  Business  Days
         prior to such issuance (the  "ADJUSTMENT  PRICE"),  then the Conversion
         Price shall be reduced to equal the product of (A) the Conversion Price
         in effect  immediately prior to such issuance of Common Stock or Common
         Stock Equivalents  times (B) a fraction,  the numerator of which is the
         sum of (1) the number of shares of Common Stock outstanding immediately
         prior to such  issuance,  plus (2) the number of shares of Common Stock
         which the  aggregate  Effective  Price of the Common  Stock  issued (or
         deemed to be issued) would  purchase at the Adjustment  Price,  and the
         denominator of which is the aggregate  number of shares of Common Stock
         outstanding  or  deemed  to  be  outstanding   immediately  after  such
         issuance.  For  purposes  of this  paragraph,  in  connection  with any
         issuance of any Common  Stock  Equivalents,  (A) the maximum  number of
         shares  of  Common  Stock   potentially   issuable  at  any  time  upon
         conversion,  exercise or exchange of such Common Stock Equivalents (the
         "DEEMED  NUMBER")  shall be deemed to be  outstanding  upon issuance of
         such Common Stock  Equivalents,  (B) the Effective Price  applicable to
         such Common Stock shall equal the minimum dollar value of consideration
         payable to the Company to purchase such Common Stock Equivalents and to
         convert,  exercise  or  exchange  them into  Common  Stock  (net of any
         discounts, fees, commissions and other expenses), divided by the Deemed
         Number,  and (C) no further  adjustment shall be made to the Conversion
         Price  upon the  actual  issuance  of  Common  Stock  upon  conversion,
         exercise or exchange of such Common Stock Equivalents.

                           (ii) If, at any time while this Note is  outstanding,
         the Company or any Subsidiary  issues Common Stock  Equivalents with an
         Effective Price or, a number of underlying shares that floats or resets
         or  otherwise  varies or is subject to  adjustment  based  (directly or
         indirectly)  on market  prices of the Common Stock (a  "FLOATING  PRICE
         SECURITY"),  then for purposes of applying the  preceding  paragraph in
         connection with any subsequent conversion,  the Effective Price will be
         determined  separately  on each  Conversion  Date and will be deemed to
         equal the lowest  Effective  Price at which any holder of such Floating
         Price Security is entitled to acquire  Common Stock on such  Conversion
         Date  (regardless  of whether any such  holder  actually  acquires  any
         shares on such date).

                           (iii)  Notwithstanding  the foregoing,  no adjustment
         will be made under this  paragraph  (d) in respect of the  issuance  of
         Excluded Stock.

                                       11
<PAGE>

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

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

                           (g) NOTICE OF  ADJUSTMENTS.  Upon the  occurrence  of
         each adjustment pursuant to this SECTION 11, the Company at its expense
         will promptly  compute such  adjustment  in  accordance  with the terms
         hereof and prepare a certificate  describing in reasonable  detail such
         adjustment  and the  transactions  giving rise  thereto,  including all
         facts upon which such adjustment is based.  Upon written  request,  the
         Company will promptly  deliver a copy of each such  certificate  to the
         Holder.

                           (h) NOTICE OF  CORPORATE  EVENTS.  If the Company (i)
         declares a dividend or any other  distribution  of cash,  securities or
         other  property  in  respect  of its Common  Stock,  including  without
         limitation  any  granting  of rights or warrants  to  subscribe  for or
         purchase  any  capital  stock of the  Company or any  Subsidiary,  (ii)
         authorizes  or approves,  enters into any  agreement  contemplating  or
         solicits stockholder approval for any Fundamental  Transaction or (iii)
         authorizes the voluntary dissolution,  liquidation or winding up of the
         affairs of the Company,  then the Company shall deliver to the Holder a
         notice   describing   the  material   terms  and   conditions  of  such
         transaction,  at least 20 calendar days prior to the applicable  record
         or effective  date on which a Person would need to hold Common Stock in
         order to participate in or vote with respect to such  transaction,  and
         the Company will take all steps reasonably necessary in order to insure
         that the Holder is given the practical opportunity to convert this Note
         prior to such time so as to participate in or vote with respect to such
         transaction; provided, however, that the failure to deliver such notice
         or any defect  therein  shall not affect the validity of the  corporate
         action required to be described in such notice.

         12. LIMITATION ON CONVERSION.  Notwithstanding anything to the contrary
contained  herein,  the number of shares of Common Stock that may be acquired by
the Holder upon any  conversion  of this Note (or  otherwise in respect  hereof)
shall be  limited  to the  extent  necessary  to  insure  that,  following  such
conversion (or other issuance),  the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose

                                       12
<PAGE>

beneficial  ownership of Common Stock would be aggregated  with the Holder's for
purposes  of Section  13(d) of the  Exchange  Act,  does not exceed  4.999% (the
"MAXIMUM  PERCENTAGE") of the total number of issued and  outstanding  shares of
Common Stock  (including  for such  purpose the shares of Common Stock  issuable
upon  such  conversion).  For  such  purposes,  beneficial  ownership  shall  be
determined  in  accordance  with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder.  Each delivery of a Conversion Notice by
the Holder will constitute a representation  by the Holder that it has evaluated
the limitation  set forth in this paragraph and determined  that issuance of the
full  number  of  Underlying  Shares  requested  in such  Conversion  Notice  is
permitted under this paragraph. By written notice to the Company, the Holder may
waive the  provisions  of this  Section or  increase  or  decrease  the  Maximum
Percentage to any other  percentage  specified in such notice,  but (i) any such
waiver or increase will not be effective until the 61st day after such notice is
delivered to the Company,  and (ii) any such waiver or increase or decrease will
apply only to the Holder and not to any other holder of Notes.

         13.  FRACTIONAL  SHARES.  The Company shall not be required to issue or
cause to be issued  fractional  Underlying Shares on conversion of this Note. If
any fraction of an  Underlying  Share would,  except for the  provisions of this
Section,  be issuable  upon  conversion  of this Note,  the number of Underlying
Shares to be issued will be rounded up to the nearest whole share.

         14. NOTICES.  Any and all notices or other communications or deliveries
hereunder  (including  without  limitation  any  Conversion  Notice) shall be in
writing and shall be deemed given and  effective on the earliest of (i) the date
of  transmission,  if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York City
time)  on a  Business  Day,  (ii)  the  next  Business  Day  after  the  date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number  specified in this Section on a day that is not a Business Day
or later than 6:30 p.m.  (New York City  time) on any  Business  Day,  (iii) the
Business Day  following the date of mailing,  if sent by  nationally  recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The addresses for such communications  shall be:
(i) if to the Company,  do Guru Technologies Israel Ltd., Building 98, Jerusalem
Technology Park,  -P.O. Box 48253,  Jerusalem 91481,  ISRAEL,  facsimile:  (845)
818-3974,  attention Chief Financial  Officer,  or (ii) if to the Holder, to the
address or facsimile  number appearing on the Company's  stockholder  records or
such other address or facsimile  number as the Holder may provide to the Company
in accordance with this Section.

         15. MISCELLANEOUS.

                           (a) This Note  shall be  binding  on and inure to the
         benefit of the  parties  hereto  and their  respective  successors  and
         assigns. This Note may be amended only in writing signed by the Company
         and the Holder and their successors and assigns.

                           (b) Subject to SECTION 15(A), above,  nothing in this
         Note shall be construed to give to any person or corporation other than
         the  Company  and the Holder any legal or  equitable  right,  remedy or
         cause under this Note.  This Note shall inure to the sole and exclusive
         benefit of the Company and the Holder.

                                       13
<PAGE>

                           (c) GOVERNING LAW; VENUE;  WAIVER OF JURY TRIAL.  ALL
         QUESTIONS  CONCERNING  THE  CONSTRUCTION,   VALIDITY,  ENFORCEMENT  AND
         INTERPRETATION  OF THIS NOTE SHALL BE  GOVERNED  BY AND  CONSTRUED  AND
         ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK,
         WITHOUT  REGARD TO THE  PRINCIPLES  OF CONFLICTS  OF LAW THEREOF.  EACH
         PARTY HEREBY IRREVOCABLY  SUBMITS TO THE EXCLUSIVE  JURISDICTION OF THE
         STATE AND FEDERAL  COURTS  SITTING IN THE CITY OF NEW YORK,  BOROUGH OF
         MANHATTAN,  FOR  THE  ADJUDICATION  OF  ANY  DISPUTE  HEREUNDER  OR  IN
         CONNECTION  HEREWITH  OR WITH ANY  TRANSACTION  CONTEMPLATED  HEREBY OR
         DISCUSSED  HEREIN  (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF
         THE TRANSACTION  DOCUMENTS),  AND HEREBY  IRREVOCABLY WANES, AND AGREES
         NOT TO ASSERT IN ANY SUIT,  ACTION OR PROCEEDING,  ANY CLAIM THAT IT IS
         NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH
         SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY  IRREVOCABLY
         WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED
         IN ANY SUCH SUIT,  ACTION OR  PROCEEDING  BY MAILING A COPY THEREOF VIA
         REGISTERED OR CERTIFIED  MAIL OR OVERNIGHT  DELIVERY  (WITH EVIDENCE OF
         DELIVERY)  TO SUCH PARTY AT THE  ADDRESS  IN EFFECT  FOR  NOTICES TO IT
         UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
         AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED
         HEREIN  SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE  PROCESS
         IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO
         A TRIAL BY JURY.

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

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

                           (f) In the  event of any  stock  split,  subdivision,
         dividend or  distribution  payable in shares of Common  Stock (or other
         securities or rights  convertible into, or entitling the holder thereof
         to receive directly or indirectly shares of Common Stock),  combination
         or other similar  recapitalization  or event  occurring  after the date
         hereof,  each  reference  in this Note to a price  shall be  amended to
         appropriately account for such event.

(g) No  provision  of this  Note may be waived  or  amended  except in a written
instrument  signed,  in the case of an amendment,  by the Company and the Holder
or, or, in the case of a waiver,  by the Holder.  No waiver of any default  with
respect to any provision,  condition or requirement of this Note shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or
a waiver of any other provision,  condition or requirement  hereof nor shall any
delay or omission of either party to exercise any right  hereunder in any manner
impair the exercise of any such right.

                                       14
<PAGE>

IN WITNESS  WHEREOF,  the Company has caused this Note to be duly  executed by a
duly authorized officer as of the date first above indicated.

                            GURUNET CORPORATION

                            By:
                                 -----------------------------------------------
                            Name:   Robert S. Rosenschein
                            Title:  President and Chief Executive Officer

                                       15
<PAGE>

                            FORM OF CONVERSION NOTICE

(To be executed by the registered Holder
in order to convert Note)

The undersigned  hereby elects to convert the specified  principal  amount of 8%
Senior Secured  Convertible Notes (the "Notes") into shares of common stock, par
value $0.00 1 per share (the "Common Stock"), of GuruNet Corporation, a Delaware
corporation (the "Company"),  according to the conditions hereof, as of the date
written below.

                -------------------------------------------------------------
                Date to Effect Conversion

                -------------------------------------------------------------
                Principal amount of Notes owned prior to conversion

                -------------------------------------------------------------
                Principal amount of Notes to be Converted

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

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

                -------------------------------------------------------------
                Principal amount of Notes owned subsequent to Conversion

                -------------------------------------------------------------
                Name of Holder
                By:
                   ----------------------------------------------------------
                Name:
                     --------------------------------------------------------
                Title:
                      -------------------------------------------------------

                                       16
<PAGE>

                                   SCHEDULE 1

                               CONVERSION SCHEDULE

8% Senior  Secured  Convertible  Notes due on the  12-month  anniversary  of the
Original  Issue Date in the  aggregate  principal  amount of  $______  issued by
GuruNet  Corporation.  This Conversion Schedule reflects  conversions made under
the above referenced Notes.

                                     Dated:

<TABLE>
<CAPTION>
 ----------------------------------------------------------------------------------------------------------------
      Date of Conversion         Amount of Conversion    Aggregate Principal     Applicable Conversion Price
                                                          Amount Remaining
                                                            Subsequent to
                                                             Conversion
 ----------------------------------------------------------------------------------------------------------------
<S>   <C>                        <C>                     <C>                     <C>

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</TABLE>

                                       17

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