Document:

Exclusive Recording Artist Agreement

         This  Agreement  is made as of the  __th day of  January  , 2003 by and
between G2 COMPANIES, INC. (hereinafter "G2") and Neil Swanson and Justin Jones,
both individually and jointly, and p/k/a "OneUp" (hereinafter "Artist").

1. ARTIST'S WARRANTIES AND REPRESENTATIONS

         1.01  Artist  represents  and  warrants  that:  (a)  it is  authorized,
empowered  and able to enter into and fully perform its  obligations  under this
Agreement;  (b) neither this Agreement nor the fulfillment there of by any party
infringes upon the rights of any other person or entity; (c) it has not and will
not do anything  that  impairs  G2's rights  under this  Agreement,  nor will it
permit any other  person or entity to do so; and (d) Artist is  resident  of the
United States of America for income tax purposes.

         1.02. Artist further  represents and warrants that: (a) there now exist
no prior  recorded  performances  by  Artists  other  than  those  listed on the
attached  Exhibit  A; (b) that it owns all of the  rights in and to the  Masters
listed in Exhibit A; (c) none of the Masters delivered to G2 by Artists, nor the
performances  embodied thereon, nor any other Materials,  nor any use thereof by
G2 or its  grantees,  licensees or assigns,  will  violate or infringe  upon the
rights of any third  party.  "Materials,"  as used by this  Paragraph  means all
Controlled Compositions, each name used by Artists, any logo used by Artist, and
all other  musical,  artistic,  literary  and other  materials,  ideas and other
intellectual  properties  furnished by Artist or any other producers  engaged by
Artist and contained or used in connection with any Masters made  hereunder,  or
the packaging, sale, advertising or other exploitation thereof.  Notwithstanding
the foregoing,  the parties  acknowledge that the recordings listed in Exhibit A
are being acquired by G2 under this  Agreement,  and shall count toward Artist's
Minimum Recording Commitment.  In addition,  the parties acknowledge that Artist
has already begun  recording its Minimum  Recording  Commitment  for the Initial
Period.

2. TERM AND RECORDING COMMITMENT

         2.01  The  Term  of  this  Agreement  shall  be for an  Initial  Period
commencing on the date hereof and expiring nine months thereafter.

         2.02.  Artist  hereby  grants G2 three  (3)  separate  and  irrevocable
options to extend the Term of this  Agreement  for further  periods (the "Option
Periods"_  commencing  immediately upon the expiration of the Initial Period and
expiring nine months after  delivery to G2 of the Minimum  Recording  Commitment
for said Option  Period.  Each option shall be exercised when G2 sends a written
notice to Artist that the option is being exercised at least sixty days prior to
the  commencement  of the Option Period;  provided that G2 shall have a right to
cure any  failure  to send  such a notice  at any time up to ten days  following
receipt of a written  notice from Artist that the  deadline  for  exercising  an
option has passed.

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         2.03.  During the Term of this  Agreement (as the same may be extended)
Artist agrees to produce and Artist shall deliver to G2 Masters comprising sound
alone sufficient to comprise the following (the "Minimum Recording Commitment"):

(a)      during the Initial Period- - one (1) Album (the "First Album")

(b)      during the First Option Period- - one (1) Album (the "Second Album")

(c)      during the Second Option Period- - one (1) Album (the "Third Album")

(d)      during the Third Option Period- - one (1) Album (the "Fourth Album")

         2.04. Notwithstanding anything else herein to the contrary:

         (a) Each Album shall be  delivered  to G2 within five (5) months  after
the commencement of the applicable Initial Period or Option Period.

         (b) Artist  shall not commence  the  recording  of any Album  hereunder
earlier than three (3) months following delivery to G2 of the prior album.

         (c) G2 shall not be obliged to accept  delivery of any Album  hereunder
earlier  than nine  months  following  the date of  delivery  to G2 of the prior
album.  If any such  premature  delivery is tendered,  the  contractual  date of
delivery  hereunder  of such  Album  shall  be  deemed  to be the  date one year
following the date of delivery of the prior album, provided that the prior album
has  been  recorded  and  delivered  in all  respects  in  accordance  with  the
provisions  of  this  Agreement  and  comprises  acceptable  Masters  as  herein
provided.

         (d) In the event that, during the Initial Period or the Option Periods,
Artist produces more than the Minimum Recording Commitment, G2 shall as its sole
option be entitled to treat such additional material (or some of it) as counting
towards the Minimum Recording  Commitment (or not) but said additional  material
shall be and  remain  the sole  and  exclusive  property  of G2  subject  to the
provisions of this Agreement.

         (e) Each  Album  delivered  shall  consist  of not  less  than ten (10)
Masters  and not less  than  forty-five  (45) nor more  than  seventy-four  (74)
minutes of Artist's performances. Each Master shall consist of not less than two
minutes and thirty  seconds of Artist's  performances.  No album  consisting  of
Artist's  "live"  performances  shall  be  deemed  to be in  fulfillment  of any
Artist's  obligations  hereunder except that upon mutual consent,  in writing, a
live  recording may be accepted in  fulfillment  of Artist's  Minimum  Recording
Commitment.  If any such  performances are recording during the Term hereof,  G2
shall be the owner  thereof  and shall have the right to exploit  same under the
same terms as contained herein for the First Album,  except that no advance will
be paid to Artist. No Multiple Albums shall be delivered  hereunder without G2's
prior written  consent;  any such Multiple Album delivered to and accepted by G2
shall be deemed a single album for all purposes hereof. No Mini-Album shall form
part of the Minimum  Recording  Commitment unless expressly agreed in writing by
G2 as its absolute discretion.

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         (f) Artist shall  deliver to G2 each Master  hereunder in the form of a
digital  two-track  stereo tape  master,  as well as  reference  discs which are
representative of such tape masters.  Artist shall also deliver at the same time
any multi-track  master tapes recorded in connection with the same project.  The
two-track  stereo  master  tape  shall be fully  edited,  mixed,  equalized  and
leadered for the production of parts from which satisfactory  Phonograph Records
can be manufactured.

         (g) As used in this Agreement, "delivery" shall mean the receipt of all
tape masters as provided herein, as well as Artist's submission to G2 in written
form of all necessary  information,  consents,  licenses and permission  that G2
requires to  manufacture,  distribute  and  release  the  Masters as  Phonograph
Records,  including, but not limited to, mechanical licenses,  credits, musician
and producer releases, and any information required to be delivered to unions or
other third parties.  Payment of funds due at delivery by G2 shall not be deemed
a waiver of information or documents required hereunder.

         (h) Artist shall be available to G2 and shall  perform for the purposes
of making  such music  videos at such  times and  places as G2 shall  reasonable
agree with Artist. The cost of making such music videos shall be deemed advances
hereunder  and  shall be  fifty  percent  (50%)  recoupable  from  all  sources,
excluding  Mechanical  Royalties and merchandise  royalties,  payable to Artists
hereunder.

         (i) G2 shall  release a minimum  of one  thousand  copies of each Album
delivered by Artist,  within ninety days of its delivery.  G2 shall have a right
to cure any  failure  to  timely  make such  release  at any time up to ten days
following the receipt of a written notice from Artists that the deadline release
has passed.  Failure to cure by G2 shall  entitle  Artist to buy the  unreleased
Masters for one hundred ten percent (110%) of the Recording Costs spent by G2 on
the Masters,  provided that Artist delivers  written notice of its intent to buy
the Masters  within ten days of the  expiration of G2's right to cure,  and pays
the  purchase  price in full  within  ninety  days of  delivery of its notice of
intent.

3. GRANT OF RIGHTS

         3.01. During the Term of the Agreement,  Artist shall furnish to G2 its
exclusive recording services throughout the Universe.  Any contract entered into
by Artist or on Artist's behalf during the Term hereof or any extensions thereof
for Artist's  performances in television or radio  broadcasts or motion pictures
or stage productions shall  specifically  exclude the right to use any recording
of such performance for the manufacture and sale of Phonograph  Records or music
videos unless previously  authorized in writing by G2, which authority shall not
be  unreasonably  withheld.  Artist shall  promptly  deliver to G2 copies of the
pertinent  provisions of each such contract and Artist will cooperate fully with
G2 in any controversy  dispute or litigation  which may arise in relation to the
rights of G2 under this Paragraph.

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         3.02.  Artist  hereby grants and assigns to G2 all rights of every kind
and  the  complete,  unconditional,  exclusive,  perpetual,  unencumbered  title
throughout the Universe in and to all results and products of Artist's  services
and performances  hereunder (being the recording of musical performances and the
sound  recordings  in Exhibit A), any and all  Masters,  records,  tapes,  sound
recordings,  music videos,  long form videos,  and other  material of every kind
made or authorized by G2 hereunder or otherwise produced during the Initial Term
and/or  Option Terms and which  include the voice,  instrumental  or other sound
and/or visual effects,  services,  or performances of Artist,  including without
limitation the right to record, reproduce,  broadcast,  transmit, publish, sell,
exhibit, distribute, advertise, exploit, perform, and use the same separately or
in any combination with any other material for any purpose in any manner,  under
any  label,  trademark,  or other  identification  and by any  means or  method,
whether known or not known, invented, used, or contemplated, and to refrain from
all or any part thereof.

         3.03.  Without in any way limiting  the  generality  of the  foregoing,
Artist hereby grants to G2 the following rights throughout the Universe which G2
may use or refrain from using as it elects in G2's sole discretion:

         (a)  the  exclusive  right  during  the  Term  hereof  to  manufacture,
distribute,  and sell  anywhere  in the  Universe  Phonograph  Records and music
videos produced from Masters made during the Terms hereunder;

         (b)  the  exclusive   right  for  the  full  periods  of  copyright  to
manufacture, distribute, and sell throughout the Universe Phonograph Records and
music videos produced from Masters made during the Terms hereunder;

         (c) the exclusive right in all media and forms to advertise, publicize,
and  exploit  anywhere  in the  Universe  Phonograph  Records  and music  videos
produced  during the Terms hereunder by any and every means,  particularly,  but
without limiting the generality of the foregoing, to use the name, including the
professional  name,   approved  photograph  and/or  likeness  of,  and  approved
biographical  material  concerning  Artist  for  advertising,   publicizing  and
otherwise exploiting said Phonograph Records and music videos, said approval not
to be unreasonably withheld;

         (d)  the  exclusive  right  to  authorize  public  performances  in the
Universe  of  Phonograph  Records  and music  videos  produced  during the Terms
hereunder;

         (e) the right to permit and authorize  others to exercise,  directly or
through persons designated by them, any and all of G2's rights hereunder.

         3.04. (a) Each Master (including all sound recordings embodied thereon)
produced  hereunder or embodying  Artist's  performances and recorded during the
Terms shall,  belong to Artist.  Artist grants G2 a security  interest in and to
its copyright in the First Album to secure recoupment of all sums expended by G2
in the  recording  and promotion of all Albums  recorded  under this  agreement.
Artist  further agrees to execute any document  reasonably  necessary to perfect

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such security interest.  In the event Artist fails to execute any such documents
or instruments Artist hereby irrevocably grants to G2 power of attorney, coupled
with an interest, to execute all such security agreements.

         (b)  Each  Master  (including  all  sound  recording  embodied  thereon
produced hereunder or embodying Artist's  performances recorded during the Terms
shall, from the inception of its creation,  be considered a "work made for hire"
for G2 within the meaning of the U.S.  Copyright Law. If it is determined that a
Master does not so qualify,  then such  Master,  together  with all rights in it
(including  the sound  recording  copyright),  shall be  deemed,  and are hereby
transferred and assigned to G2 by this  Agreement.  Artist agrees to execute and
deliver to G2 any and all documents or instruments which G2 may request in order
to  confirm  G2's  acquisition  and/or  title  to  the  Masters  (including  the
copyright)  as described  herein.  In the event Artist fails to execute any such
documents  or  instruments  Artist  hereby  irrevocably  grants  to G2  power of
attorney, coupled with an interest, to execute all such documents of conveyance.
All Masters  recorded by Artist from the inception of the recording  thereof and
all reproductions  derived  therefrom,  together with the performances  embodied
thereon,  shall be entirely the  property of G2 in  perpetuity,  throughout  the
Universe,  free of any claim  whatsoever  by Artist or any persons  deriving any
rights or interests therefrom.

         3.05. Artist shall not authorize or permit Artist's  performances to be
recorded for any purpose without  obtaining an express  written  approval of G2,
and  Artist  shall  take  reasonable   measures  to  prevent  the   manufacture,
distribution  and sale of  Phonograph  Records or music  videos  containing  its
performances (an the use of Artist's name and likeness in connection  therewith)
by any person or entity other than G2, its successors, licensees and assigns.

         3.06.  Artist  grants G2 the right to include any Master  produced  and
delivered  hereunder in a soundtrack  or  compilation  album,  at any time,  and
without any further advance,  except that royalties shall be payable as provided
herein.

         3.07. As used in this  Agreement,  "Phonograph  Records" shall mean any
and  all  mechanical   reproductions  of  the  Masters  produced  and  delivered
hereunder,  in any  format,  whether  now known or  unknown,  including  but not
limited to compact discs, cassette tapes, vinyl records, DAT tapes or any future
format.

4. RECORDING COSTS AND PROCEDURES

         4.01.  Advances  payable to Artist  pursuant to this  Agreement are and
shall be  inclusive  of all  costs  incurred  in the  course  of  producing  and
recording Masters hereunder  (including without limitation,  the costs of studio
time, musician fees, union payments,  instrument hire,  producer's fees, and the
cost of tape  editing,  mixing,  remixing  and  mastering,  advances,  and other
similar costs  customarily  regarded in the industry as being recording  costs).
All such costs are sometimes  herein referred to as "recording  costs" and shall
be  paid  by G2  and  constitute  advances  recoupable  from  royalties  payable
hereunder. G2 shall, in accordance with the provisions of this Agreement, deduct
and retain out of said  advances  such sums as may be  necessary to pay the said
recording  costs.  In the event that, as a result of an event within the control

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of the Artist, any recording costs shall exceed the amount of the recording fund
specifically  referred to in Paragraph  5.01 below,  then the excess costs shall
(if paid by G2)  constitute  a loan to  Artist  payable  on demand  and  without
prejudice  to G2's  other  rights  and the  same  shall  at  G2's  election,  be
recoverable  by G2 out of any  monies  payable  by G2 to Artist  or on  Artist's
behalf hereunder.

         4.02. G2 and Artist shall,  prior to the commencement of any recording:
(a) mutually designate the producer(s) of all Masters  hereunder;  and (b) agree
on a budget for recording costs. G2 shall not unreasonably  withhold its consent
to any budget for recording  costs that is less than ninety percent (90%) of the
recording fund for that album as specified in Paragraph 5.01.

         4.03. Artist shall be properly  rehearsed and shall appear at the times
and places  designated by G2 after  consultation  with and reasonable  notice to
Artist from time to time for all recording  sessions  required  hereunder and at
each session  Artist shall  tender  their  professional  services to the best of
their  ability.  G2 and Artist  shall  mutually  designate  the  material  to be
recorded  and each  Master  shall be subject  to G2's  approval  as  technically
satisfactory  and similar in style to Artist's current  performances.  Upon G2's
request,  Artist shall re-record any material until a Master, which in G2's sole
judgment is satisfactory, shall have been obtained.

         4.04.  The Masters  delivered to G2 by Artist under this  Agreement and
the performances embodies therein shall be produced in accordance with the rules
and regulations of the American Federation of Musicians, the American Federation
of Television and Radio Artists and all other unions having jurisdiction. Artist
is or will become and remain, to the extent necessary to fulfill this Agreement,
a member in good standing of all labor unions or guilds in which  membership may
be required for the performance of Artist's services hereunder.

         4.05. Artist shall not perform for or in connection with (and shall not
permit any other person or entity to use Artist's name or likeness in connection
with) the  recording or  exploitation  of any  Phonograph  Record  embodying any
Composition recorded by artist under this Agreement prior to date four (4) years
subsequent to the expiration or termination  of the term of this  Agreement,  or
any extensions thereof.

         4.06. Without limiting the foregoing,  G2 shall not be required to make
any payments of any kind for, or in connection with, the  acquisition,  exercise
or  exploitation  of  rights  by G2  except  as  specifically  provided  in this
Agreement.  Artist shall be solely  responsible for all sums due to labor unions
or guilds,  individual  musicians,  producers  and all other persons or entities
entitled to receive  royalties or other payments in connection  with the sale of
Phonograph Records derived from Masters hereunder, although G2 will undertake to
make all such payments to the extent of the recording fun specified in Paragraph
5.01.  None of the persons  whose  performances  are  embodied in the Masters or
whose  services are used in record the Masters  shall be bound by any  agreement

<PAGE>

that would  restrict such  performances  or services,  or to the extent they are
otherwise bound or restricted,  Artist shall obtain all necessary  clearances in
writing.

5. ADVANCES AND RECORDING FUND

         5.01.  As  advances  against  and  recoupable  from  royalties  payable
hereunder,  G2 agrees to pay with respect to each Album constituting the Minimum
Recording Commitment hereunder a sum equal to the amount by which the greater of
(1) the applicable sum set forth below;  or (2) a sum equal to two-thirds of the
royalties  actually  accruing to Artist on the immediate prior Album exceeds (3)
the sum of the  documented  receipts for the recording  costs  concerned and any
other advances made to Artist prior to delivery of the applicable  Album ("Album
Recording Fund"):

Album Recording Fund:      First Album               $10,000
                           Second Album              $20,000
                           Third Album               $35,000
                           Fourth Album              $50,000

         5.02. If net sales through normal retail  channels in the United States
for which  royalties are payable  pursuant to Paragraph  6.01(a)  below,  net of
applicable  reserves of any album shall exceed  seventy-five  thousand  (75,000)
unites as of the date nine (9) months after the initial release of that album in
the United States,  then the Album  Recording Fun on the next  subsequent  album
shall be increased by Ten Thousand Dollars ($10,000).

         5.03. The advances due under  Paragraph 5.01 shall be payable  promptly
following the delivery to G2 of: (a) the Minimum Recording  Commitment;  (b) the
documents required under the Paragraph 2.04(g);  and (c) all invoices pertaining
to the recording of the Minimum Recording  Commitment.  With respect to payments
to be made  following  delivery G2 shall have the right to withhold  ten percent
(10%) for ninety  (90) days to provide for  anticipated  costs which have no yet
been paid.

         5.04.  All  advances  paid to Artist  or on  Artist's  behalf  shall be
recoupable against the royalties payable under this Agreement, from whatever the
source,  except  that  advances  shall  not  be  recoupable  against  Mechanical
Royalties except as provided for in Paragraph 8.01.

6. ROYALTIES

         6.01. Subject to Artist's  compliance with all obligations  required of
Artist  hereunder and subject as otherwise  granted  herein,  G2 will pay to the
Artist for the rights granted  percentages of one hundred  percent (100%) of the
G2's published  wholesale price,  exclusive of taxes and duties actually paid by
G2, and the container cost deductions  specified below for all records and music
videos  manufactured,  sold  and  not  returned,  and  for  which  G2  is  paid,
reproducing exclusively Masters recorded hereunder, namely:

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         (a) With  respect to sales for  distribution  in the  United  States of
Albums reproducing  exclusively  Masters  hereunder:  Twenty Four percent (24%).
This royalty  reverts to Twenty percent (20%) if this Agreement is assigned to a
Major Record Label or a label distributed by a Major Record Label.

         (b) The royalty  rate with respect to 12-inch  singles  shall be twenty
percent (20%).  This royalty  reverts to fifteen percent (15%) if this Agreement
is assigned to a Major  Record  Label or a label  distributed  by a Major Record
Label.

         (c) The royalty rate with respects of 7-inch  singles and other records
shall be fifteen percent (15%).  This royalty reverts to twelve percent (12%) if
this  Agreement is assigned to a Major Record Label or a label  distributed by a
Major Record Labor.

         (d) The royalty rate with respect to the  following is fifteen  percent
(15%)  [thirteen  percent (13%) if this  Agreement is assigned to a Major Record
Label or a label  distributed  by a Major  Record  Label]:  records  sold to any
government  body, PX sales,  sales to  educational  institutions,  record clubs,
soundtrack  records,  compilation  records,  budget records (defined as a record
which is sold at a  wholesale  price of at least  fifty  percent  but less  than
eighty percent of G2's published  wholesale  price),  and EP records (defined as
records containing between three and nine Masters); except that the royalty rate
for  compilations  released  exclusively  on the G2 label  shall be  twenty-five
percent  (25%) [twenty  percent  (20%) if this  Agreement is assigned to a Major
Record Label or a label  distributed  by a Major Record  Label.]  Royalties  for
soundtracks and compilations on which Artist appears with other performers shall
be pro-rated in the same proportion  that Artist's  Master(s) bear to the entire
album.

         (e) Foreign  royalty rate: The rate for the records  manufactured by G2
or G2's  affiliates and sold in Canada will be eighty-five  percent (85%) of the
applicable  royalty rate, and sales outside the United States and Canada will be
seventy-five  percent (75%) of the applicable royalty rate. The royalty rate for
masters licensed by G2 outside the United States shall be fifty percent (50%) of
the net income  therefrom.  Net income shall mean all income received less third
party our of pocket expenses to establish the license, third party out of pocket
collection costs,  foreign currency exchange,  wire transfer fees and applicable
taxes.

         (f) Royalty rate for music videos sold and not returned shall be twenty
percent (20%) of G2's  published  wholesale  price.  The royalty rate for videos
licensed by G2 shall be fifty percent (50%) of the net income therefrom.

7. ROYALTY PAYMENTS

         7.01.  Royalties  earned  hereunder will be accrued  semi-annually  and
paid,  less all advances,  taxes,  and any other charges,  within sixty (6) days
following  each  June 30th and  December  31st for the  preceding  six (6) month
period, in accordance with G2's regular accounting practices. G2 shall, however,
have the right to establish reasonable reserves for returns and exchanges,  said
reserves not to exceed thirty percent (30%). Each reserve established  hereunder

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shall be liquidated at the end of the following  semi-annual period. If G2 makes
any overpayment of royalties  (e.g., by reason of an accounting  error or paying
royalties  on Records  returned  later),  G2 shall have the right to offset such
overpayment  against any  subsequent  payment  due to Artist from G2,  excluding
mechanical royalties and merchandise royalties.

         7.02.  Each  royalty  payment  hereunder  shall  be  accompanied  by  a
statement in accordance with G2's regular accounting  practices.  Each statement
shall  become  binding  upon Artist and Artist  shall  neither have nor make any
claim  against G2 with respect to such a statement,  unless  Artist shall advise
G2, in writing,  of the specific  basis of such claim within two (2) years after
the date G2 mails such statement.  G2's  accounting  books and records will kept
and maintained in accordance  with  generally  accepted  accounting  principles,
consistently applied.

         7.03.  Artist shall not be entitled to recover  damages or to terminate
this  Agreement for any reason because of a claimed breach by G2 of its material
obligations  hereunder,  unless G2 has failed to remedy such breach within sixty
(60) days following receipt of written notice thereof.  Artist will not have the
right  to  sue G2 in  connection  with  any  royalty  accounting,  or sue G2 for
royalties  accrued  by Artist  during the  period a royalty  accounting  covers,
unless  Artist  commences  the suit within two (2) years after the date when the
statement  in question is rendered to Artist.  If Artist  commences  suit on any
controversy or claim  concerning  royalty  accountings  rendered to Artist under
this Agreement, the scope of the proceeding will be limited to the determination
of the amount of royalties due for the accounting periods covered and reasonable
attorney fees, and the court will have no authority to consider any other issues
or award any relief  except  recovery of any  royalties  found  owing.  Artist's
recovery  of any such  royalties  and  attorney's  fees will be the sole  remedy
available to Artist by reason of G2's royalty  accounting.  Without limiting the
generality  of the  preceding  sentence,  Artist will not have the right to seek
termination  of this  Agreement or avoid the  performance  of their  obligations
under it by reason of any such claim.  However, in the event that G2 is found by
a court to have  breached  its  obligation  to account for an pay  royalties  to
Artist,  then any unexercised options to extend the term of this agreement shall
be void.  Artist's  remedy for G2's  willful  refusal to permit it to record its
Minimum Recording Contract shall be an option to terminate this Agreement.

         7.04. G2 agrees that Artist may, not more than once during any calendar
year, but only once with respect to any statement rendered hereunder,  audit its
books and records for the purpose of determining the accuracy of G2's statements
to Artist.  If Artist wishes to perform any such audit,  Artist will be required
to notify G2 at least ten (10) days before the date when  Artist  plans to being
the audit.  If Artist's audit has not been  completed  within one (1) month from
the time Artist  begins in, G2 may require  Artist to  terminate it on seven (7)
days notice to Artist and G2 will not be  required to permit  Artist to continue
the examination after the end of that seven (7) day period.  Artist shall not be
entitled to examine any  manufacturing  records or any other records which do no
report sales of Records or  calculation  of net receipts on which  royalties are
accruable hereunder. All audits shall be made during regular business hours, and
shall be  conducted  on  Artist's  behalf  by an  independent  Certified  Public
Accountant and/or licensed attorney.  Each examination shall be made at Artist's
sole expense at G2's regular place of business in United States, where the books
and records are maintained.

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8. MECHANICAL LICENSE AND ROYALTIES

         8.01.  All  Controlled  Compositions  (defined as musical  compositions
composed  in whole or in part by any  individual  member of  Artist)  are hereby
licensed to g2 and its licensees for reproduction on Phonograph Records anywhere
in the Universe. Royalties for the mechanical license herein granted shall be at
a rate equal to seventy-five percent (75%) of the minimum U.S. statutory rate in
effect at the time the recording is first  released  (including  the "long work"
rate, if applicable) for  royalty-bearing  records sold and not returned and for
which G2 is paid,  excluding any instance where G2 and Artist are sharing income
under  Paragraph  6.01(e)  above.  In no event  shall the  mechanical  royalties
payable  hereunder for any album exceed ten (10) times the rate set forth above.
The  foregoing  also applies to music videos,  as well as to any instance  where
such a  license  must be  executed  in favor of G2,  G2 shall  not  recoup  from
mechanical  royalties  due to Artist any advances  payable to Artist  except any
advances of cash or consigned materials (or the like) to Artist.

         8.02.  If any record  contains one of more  compositions  which are not
Controlled  Compositions,  then G2 will have the right to reduce  the  amount of
Mechanical  Royalties payable on the Controlled  Compositions by an amount equal
to the amount of mechanical royalties payable on non-Controlled Compositions.

9. TRADEMARKS

         9.01. Artist shall perform under the professional name, "OneUp." Artist
warrants  and  represents  that it is the sole owner of such name in  connection
with Phonograph Records during the term hereof. Artist shall not use a different
name in connection with  Phonograph  records unless Artist and G2 mutually agree
in  writing.  Artist  agrees  that G2 may cause a search to  instituted  for the
purpose of determining  whether any professional name used by Artist has been or
is being used by another person in connection  with Phonograph  Records.  G2 may
require Artist to file a federal application for trademark protection to be made
in favor of Artist for  Phonograph  Record and/or  entertainment  purposes.  Any
amounts up to One Thousand Seven Hundred Dollars ($1,700.00)  expended by Artist
in successfully  obtaining a requested trademark  registration  pursuant to this
Paragraph  shall be  reimbursed  by G2 and  deemed  Advances  hereunder.  If the
trademark  search  indicates  that such name  should not be used,  G2 and Artist
shall mutually agree on a substitute name for Artist.  Nothing  contained herein
shall release Artist from its indemnification of G2 with respect to Artist's use
of such name.

10. FREE GOODS

         10.01. No royalties shall be payable with respect to records given away
or furnished on a "no charge"  basis to one-stops,  rack jobbers,  distributors,

<PAGE>

dealers,  radio  stations,  television  stations or film  companies,  theatrical
hooking agencies,  print media, music publishers or the like, provided that such
records do not exceed one hundred (100) non-royalty bearing Singles out of every
one thousand  (1,000)  Singles  distributed  and one hundred  (100)  non-royalty
bearing  Albums out of every one thousand  (1,000)  Albums.  Any record sold for
less  than  fifty  percent  (50%)  of G2's  published  wholesale  price  will be
non-royalty bearing record.

         10.02.  During each applicable contract period, G2 shall provide Artist
with thirty (30 ) non-royalty  bearing  copies of Artist's then current Album at
no charge to the Artist.

11. CONTAINER COSTS

         11.01.  G2's  container  deduction  shall be a sum equal to: one dollar
($1.00) for singles,  one dollar and fifty cents ($1.50) for LPs and  cassettes,
two dollars ($2.00) for double LP sets and compact discs,  three dollars ($3.00)
for double  cassettes,  and four dollars  ($4.00) for other  formats,  including
double compact disks, and all video formats.

12. INDEMNIFICATION

         12.01. Artist agrees to and does hereby indemnify, save and hold G2 and
its licensees harmless of and from any and all liability, loss, damage, cost, or
expense (including all legal expenses and reasonable  attorney fees) arising out
of or  connected  with  any  breach  of this  Agreement  or any  claim  which is
inconsistent  with any of the  warranties or  representations  made by Artist in
this Agreement, and Artist agrees to reimburse G2 on demand for any payment made
or  incurred  by G2 with  respect to the  foregoing  if the claim  concerned  is
settled or has resulted in a final judgment against G2 or its licensees. Pending
the  determination of any claim with respect to which G2 is entitled  indemnity,
G2 may  withhold  monies  which would be  otherwise  payable to Artist up to the
amount of it's potential liability.

         12.02.  G2 agrees to defend and does  hereby  indemnify,  save and hold
Artist  harmless  of and from any and all  liability,  loss,  damage,  cost,  or
expense (including all legal expenses and reasonable  attorney fees) arising out
of or connected with any claim which is inconsistent  with any of the warranties
or  representations  made by G2 in this  Agreement,  and G2 agrees to  reimburse
Artist on demand for any payment  made or incurred by Artist with respect to the
foregoing if the claim  concerned is settled or has resulted in a final judgment
against Artist.

13. DEFAULT AND TERMINATION

         13.01.  In  the  event  of any  default  or  breach  by  Artist  in the
performance of any of Artist's obligations hereunder,  G2 may, without prejudice
to its other rights,  claims or remedies,  suspend its obligations hereunder for
the  duration  of such  default  or breach and until the same has been cured and
may, at its option, extend the Term for a period equal to all or any part of the
period of such  default or breach,  and in such event the dates for the exercise
by G2 of the Option  Periods  hereunder  and the dates of  commencement  of each
subsequent Option Period shall be extended accordingly.

<PAGE>

14. FORCE MAJEUR

         14.01.  If G2's  material  performance  hereunder is delayed or becomes
impossible or impractical because of any act of God, fire,  earthquake,  strike,
act of government or any order, regulation, ruling, or action of any labor union
or  association of artists  effecting G2 or Artist under the  phonograph  record
industry,  G2,  upon notice to Artist may  suspend  its  obligations  under this
Agreement for a period not to exceed  ninety days,  and in such event the number
of days equal to the number of days of such suspension  shall be added on to the
then-current  period  of the Term  thereof.  In the  event  that  G2's  material
performance hereunder is delayed or becomes impossible or impractical because of
any civil strife, G2, upon notice to Artist, may suspend its obligation of under
this Agreement for the duration of such delay, impossibility or impracticability
and in such  event  the  number  of days  equal to the  numbers  of days of such
suspension shall be added to the then-current period of the Term thereof.

15. MERCHANDISING

         15.01.  Artist  hereby grants G2 the  exclusive  right to  manufacture,
sell, license, distribute and exploit, throughout the Universe and by mail-order
and through retail sources of, without limitation, all merchandise of every kind
featuring the Artist (name/logo/likeness), during the Term of this Agreement.

         15.02. It is expressly  agreed and understood that any contract for the
purpose  of  merchandising  Artist  entered  into by G2  during  the Term  shall
continue in full force and effect in accordance with the provisions  thereof for
a period not to exceed one (1) year following the expiration of the term of this
Agreement.

         15.03.  In the case of any such products or property  manufactured  and
sold by G2 or by an associated company, Artist shall be entitled to a royalty of
thirty-four percent (34%) of the adjusted gross receipts  therefrom.  As used in
this  paragraph,  the term  "adjusted  gross" shall mean gross revenues from the
sale of  applicable  merchandise,  less venues  commissions  and state sales tax
where  collected and actually  paid. In the event that G2 licenses to others any
of its rights under this clause,  then Artist shall  receive sixty percent (60%)
of the  net  receipts  therefrom.  As  used in this  paragraph,  the  term  "net
receipts"  shall be calculated as gross revenues from the sale of the applicable
merchandise,  less the cost  actually  incurred and paid by G2 or its  licensing
company for manufacturing;  sales personnel salaries and/or  commissions,  venue
commissions and state sales tax where collected and actually paid.

         15.04.  Artist has the right of approval of all merchandising  artwork,
so long as said approval is not unreasonable  withheld.  During the Term of this
Agreement,  Artist  shall cause the  inclusion of G2's logo and proper name at a
reasonable size and position on all merchandise.

<PAGE>

         15.05. No royalties shall be payable with respect to merchandise  given
away or furnished on a no-charge basis. Upon Artist's request,  G2 shall provide
Artist with twenty (20) non-royalty-bearing  samples of each item of merchandise
at no charge.

         15.06.  The  parties  agree  to  negotiate  in good  faith a  long-form
agreement  for the  sale  of  merchandise  that is  consistent  with  the  terms
contained herein.

16. ARTWORK

         16.01.  Artist  agrees that G2 is the owner of any and all artwork,  LP
jacket art, and promotional  artistic renderings  undertaken or completed within
the Term of this Agreement. Artist shall have the right to use artwork which has
been mutually approved by G2 and Artist for the purpose of merchandising.

17. NOTICES

         17.01. All notices,  demands or the like which are required to be given
hereunder shall be in writing and may be served upon the other party  personally
by Registered Mail, Return Receipt Requested, or by telecopy (facsimile). Notice
to Artist will be received by:
________________________________________________________________________________

________________________________________________________________________________
and notice to G2 will be received by: Gust Kepler, G2 Companies,  Inc., 14110 N.
Dallas Parkway, Suite 365, Dallas, TX 75254.

18. PROMOTIONS AND ADVERTISING CAMPAIGNS

         18.01. Any promotional monies spent by G2 on behalf of Artist are fifty
percent (50%)  recoupable from movies otherwise due to Artist from G2, excluding
Mechanical  Royalties and  merchandise  royalties,  notwithstanding  the source.
Container  costs shall not be considered  promotional  monies.  Any  promotional
monies spent on behalf of Artist in  combination  with other G2 Artists shall be
recoupable from Artists on a pro-rata basis.

         18.02.  G2 is not obligated to produce a promotional  video for Artist,
but if G2  undertakes  to produce said video,  the cost is fifty  percent  (50%)
recoupable  from  royalties,  excluding  Mechanical  Royalties  and  merchandise
royalties,  not  withstanding the source.  The cost of producing  nonpromotional
videos intended for resale are fully recoupable.

19. CONTROLLING LAW

         19.01.  The Agreement is entered into and performable in Dallas County,
Texas and the validity,  interpretation and legal effect of this Agreement shall
be governed by Texas law.  Venue for any legal action shall be in Dallas County,
Texas.

20. REMEDIES

<PAGE>

         20.01.  Artist  acknowledges,  recognizes  and agrees that his services
hereunder are of a special,  unique,  unusual,  extraordinary  and  intellectual
character  which  gives  them a  peculiar  value,  the loss of which  cannot  be
reasonably  or  adequately  compensated  for by  damages  in an  action  of law.
Inasmuch as a breach of such  services  will cause G2  irreparable  damages,  G2
shall be entitled  to  injunctive  and other  equitable  relief,  in addition to
whatever  legal  remedies are  available,  to prevent or cure any such breach or
threatened breach.

21. HEADINGS

         21.01.  The headings of the clauses herein are intended for convenience
only,  and  shall  not be of any  effect  in  construing  the  contents  of this
Agreement.

22. RELATIONSHIP

         22.01.  Artist has the status of an independent  contractor and nothing
herein contained shall  contemplate or constitute  Artist or its members as G2's
agents or  employees.  This  Agreement  does not and shall not be  construed  to
create a partnership or joint venture between the parties to this Agreement.

23. VALIDITY AND MODIFICATIONS

         23.01.  The invalidity or  unenforceability  of any provision shall not
affect the validity or  enforceability  of any other  provision.  This Agreement
contains the entire understanding of the parties relating to its subject matter.
No change of this  Agreement will be binding unless signed by all parties hereto
or their  duly  authorized  representatives.  A waiver  by  either  party of any
provision of this  Agreement in any instance shall not be deemed to waive it for
the future. All remedies, rights, undertakings and obligations contained in this
Agreement  shall be  cumulative  and none of them shall limit any other  remedy,
right, undertaking or obligation.

24. ASSIGNMENT

         24.01.  G2 may assign its rights  under this  Agreement  in whole or in
part to any Major  Record Label or its  subsidiary  or legal  successor.  G2 may
assigns its rights under this Agreement in whole or in part to any other Company
with Artist's consent, such consent not to be unreasonably withheld.

25. LEGAL REPRESENTATION

         25.01. Artist, by their signature hereto,  confirms that G2 has advised
Artist to take independent legal counsel,  from a lawyer specializing  generally
in  the  music  business  and  specifically  in  the  negotiation  of  recording
agreements, on the terms and conditions of this Agreement and on the obligations
being undertaken by Artist in executing the Agreement.

<PAGE>

26. COOPERATION

         26.01.  Artist shall  execute such other  documentation  and shall give
such further  assurances  as may  reasonably  be necessary or desirable  for the
purpose of vesting, confirming, protecting or further assuring any of the rights
granted herein.

27. DISCLAIMER

         27.01. G2 has not made and does not hereby make any  representation  or
warranty  with respect to the extent of the sale of records or the  exploitation
of music videos hereunder.

SIGNED THIS ___ DAY OF JANUARY, 2003.

G2 COMPANIES, INC.

By:______________________________
   Gust Kepler, President

14110 North Dallas Parkway
Suite 365
Dallas, TX 75254

ARTIST

p/k/a____________________________

By:______________________________
Printed Name: Neil Swanson
SSN: ###-##-####

By:____________________________
Printed Name: Justin Jones
SSN: ###-##-####

Artist Address:__________________
_________________________________
_________________________________

<PAGE>

                                    EXHIBIT A

                    Appendix Of Existing Commercial Releases

Date              Title             Song Title                Label

<PAGE>

                                    EXHIBIT B

                                 APPROVED LABELS<PAGE>

                                                                     EXHIBIT 4.4

                           Irvine Sensors Corporation
     Shares of Series E Convertible Preferred Stock and Common Stock Warrant

                             SUBSCRIPTION AGREEMENT

                                                               December 23, 2002

MERCATOR MOMENTUM FUND, LP
555 South Flower Street, Suite 4500
Los Angeles, California 90071

Ladies and Gentlemen:

             Irvine Sensors Corporation, a Delaware corporation (the "Company"),
hereby confirms its agreement with you (the "Purchaser"), as set forth below.

             1.  The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to Purchaser (a) 10,000 shares
(the "Shares") of its Series E Convertible Preferred Stock, par value $0.01 per
share (the "Series E Stock") which shall be convertible into not less than
800,000 and no more than 1,411,675 shares (the "Conversion Shares") of the
Company's Common Stock, par value $0.01 per share (the "Common Stock") and (b) a
warrant, substantially in the form attached hereto at Exhibit A (the "Warrant"),
to acquire up to 250,000 shares of Common Stock (the "Warrant Shares"). The
rights, preferences and privileges of the Series E Stock are as set forth in the
Certificate of Designation of Series E Preferred Stock as filed with the
Secretary of State of the State of Delaware (the "Certificate of Designation").
The number of Conversion Shares and the number of Warrant Shares are both
subject to adjustment as set forth in the Certificate of Designation and in the
Warrant, so that the aggregate number of shares of Common Stock issuable upon
such conversion and exercise shall in no event equal more than 19.99% of the
Company's then outstanding Common Stock.

             The Shares and the Warrant are sometimes herein collectively
referred to as the "Securities." This Agreement and the Warrant are sometimes
herein collectively referred to as the "Transaction Documents."

             The Securities will be offered and sold to the Purchaser without
such offers and sales being registered under the Securities Act of 1933, as
amended (together with the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, the "Securities Act"), in
reliance on exemptions therefrom.

             In connection with the sale of the Securities, the Company has made
available to Purchaser its periodic and current reports filed with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") since October 1, 2001. These reports (as amended),
filings and amendments, are collectively referred to as the "Disclosure
Documents." All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Disclosure Documents (or other references of like import) shall be deemed to
mean and include all such

<PAGE>

financial statements and schedules and other information which is incorporated
by reference in the Disclosure Documents.

             2.  Representations and Warranties of the Company. The Company
represents and warrants to Purchaser as follows:

                 (a)  The Disclosure Documents as of their respective dates did
not (after giving effect to any updated disclosures therein), and as of the
Closing Date as defined in Section 3 below will not, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. Company has filed all reports required to be filed by it
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since
October 1, 2001, on a timely basis or has received a valid extension of such
time of filing and has filed any such reports prior to the expiration of any
such extension. The Disclosure Documents and the documents incorporated or
deemed to be incorporated by reference therein, at the time they were filed
(after giving effect to any updated disclosures therein) or hereafter are filed
with the Commission, complied and will comply in all material respects with the
requirements of the under the Securities Act of 1933, as amended (the
"Securities Act") and/or the Exchange Act, as the case may be, as applicable.

                 (b)  Each of the Company and its subsidiaries set forth on
Schedule A attached hereto (the "Subsidiaries") has been duly incorporated and
each of the Company and the Subsidiaries is validly existing in good standing as
a corporation under the laws of its jurisdiction of incorporation, with the
requisite corporate power and authority to own its properties and conduct its
business as now conducted as described in the Disclosure Documents and is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, condition (financial or other), properties, prospects or
results of operations of the Company and the Subsidiaries, taken as a whole (any
such event, a "Material Adverse Effect"); the Company has the authorized, issued
and outstanding capitalization set forth in the Disclosure Documents (subject to
the issuance of shares pursuant to options outstanding under the Company's stock
option plans, employee stock purchase plans or outstanding warrants or other
rights to acquire shares described in the Disclosure Documents, and subject to
the filing of the Certificate of Designation); except as set forth in the
Disclosure Documents, the Company does not have any subsidiaries or own directly
or indirectly any of the capital stock or other equity or long-term debt
securities of or have any equity interest in any other person; all of the
outstanding shares of capital stock of the Company and the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights and are owned
free and clear of all liens, encumbrances, equities, and restrictions on
transferability (other than those imposed by the Securities Act and the state
securities or "Blue Sky" laws) or voting; except as set forth in the Disclosure
Documents, all of the outstanding shares of capital stock of the Subsidiaries
are owned, directly or indirectly, by the Company; except as set forth in the
Disclosure Documents, no options, warrants or other rights to purchase from the
Company or any Subsidiary, agreements or other obligations of the Company or any
Subsidiary to issue or

                                       2

<PAGE>

other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents,
there is no agreement, understanding or arrangement among the Company or any
Subsidiary and each of their respective stockholders or any other person
relating to the ownership or disposition of any capital stock of the Company or
any Subsidiary or the election of directors of the Company or any Subsidiary or
the governance of the Company's or any Subsidiary's affairs, and, if any, such
agreements, understandings and arrangements will not be breached or violated as
a result of the execution and delivery of, or the consummation of the
transactions contemplated by, the Transaction Documents.

                 (c)  The Company has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Transaction
Documents. Each of the Transaction Documents has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms except as the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally or (B) general principles of equity
and the discretion of the court before which any proceeding therefore may be
brought (regardless of whether such enforcement is considered in a proceeding at
law or in equity) (collectively, the "Enforceability Exceptions").

                 (d)  The Shares and the Warrant have been duly authorized and,
when issued upon payment thereof in accordance with this Agreement, will have
been validly issued, fully paid and nonassessable. The Conversion Shares have
been duly authorized and validly reserved for issuance, and when issued upon
conversion of the Shares in accordance with the terms of the Certificate of
Designation, will have been validly issued, fully paid and nonassessable. The
Warrant Shares have been duly authorized and validly reserved for issuance, and
when issued upon exercise of the Warrant in accordance with the terms thereof,
will have been validly issued, fully paid and nonassessable. The Common Stock of
the Company conforms to the description thereof contained in the Disclosure
Documents. The rights, preferences and privileges of the Shares are as stated in
the Certificate of Designation. The stockholders of the Company have no
preemptive or similar rights with respect to the Common Stock.

                 (e)  No consent, approval, authorization, license,
qualification, exemption or order of any court or governmental agency or body or
third party is required for the performance of the Transaction Documents by the
Company or for the consummation by the Company of any of the transactions
contemplated thereby, or the application of the proceeds of the issuance of the
Securities as described in the this Agreement, except for such consents,
approvals, authorizations, licenses, qualifications, exemptions or orders (i) as
have been obtained or (ii) the failure to obtain which would not have a Material
Adverse Effect; all such consents, approvals, authorizations, licenses,
qualifications, exemptions and orders will be in full force and effect as of the
Closing Date and not the subject of any pending or, to the knowledge of the
Company, threatened termination.

                                       3

<PAGE>

                 (f)  None of the Company or the Subsidiaries is (i) in material
violation of its certificate of incorporation or bylaws (or similar
organizational document), (ii) in breach or violation of any statute, judgment,
decree, order, rule or regulation applicable to it or any of its properties or
assets, which breach or violation would, individually or in the aggregate, have
a Material Adverse Effect, or (iii) in default (nor has any event occurred which
with notice or passage of time, or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate or agreement or
instrument to which it is a party or to which it is subject, which default would
have a Material Adverse Effect.

                 (g)  The execution, delivery and performance by the Company of
the Transaction Documents and the consummation by the Company of the
transactions contemplated thereby and the fulfillment of the terms thereof will
not (a) violate, conflict with or constitute or result in a breach of or a
default under (or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or provisions of
any contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the certificate of
incorporation or bylaws of any of the Company or the Subsidiaries (or similar
organizational document) or (iii) any statute, judgment, decree, order, rule or
regulation of any court or governmental agency or other body applicable to the
Company or the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or any of
the Subsidiaries, which violation, conflict, breach, default or lien would have
a Material Adverse Effect.

                 (h)  The audited consolidated financial statements included in
the Disclosure Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in stockholders' equity of the
entities, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis; the interim unaudited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at the dates and
for the periods to which they relate subject to year-end audit adjustments and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with the audited consolidated financial statements
included therein; the selected financial and statistical data included in the
Disclosure Documents present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein; and Grant
Thornton LLP, which has examined certain of such financial statements as set
forth in its report included in the Disclosure Documents, is an independent
certified public accountant as required by the Securities Act for an offering
registered thereunder.

                 (i)  Except as described in the Disclosure Documents, there is
not pending or, to the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which any of
the Company or the Subsidiaries is a

                                       4

<PAGE>

party, or to which their respective properties or assets are subject, before or
brought by any court, arbitrator or governmental agency or body, that, if
determined adversely to the Company or any such Subsidiary, would, individually
or in the aggregate, have a Material Adverse Effect or that seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the issuance or sale
of the Securities to be sold hereunder or the application of the proceeds
therefrom or the other transactions described in the Disclosure Documents.

                 (j)  The Company and the Subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights, know-how and other intellectual property rights that are
necessary to conduct their businesses as described in the Disclosure Documents.
None of the Company or the Subsidiaries has received any written notice of
infringement of (or knows of any such infringement of) asserted rights of others
with respect to any patents, trademarks, service marks, trade names, copyrights,
know-how or other intellectual property rights that, if such assertion of
infringement or conflict were sustained, would, individually or in the
aggregate, have a Material Adverse Effect.

                 (k)  Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Disclosure Documents ("Permits"), except where the failure to
obtain such Permits would not have a Material Adverse Effect and none of the
Company or the Subsidiaries has received any notice of any proceeding relating
to revocation or modification of any such Permit, except as described in the
Disclosure Documents and except where such revocation or modification would not
have a Material Adverse Effect.

                 (l)  Subsequent to the respective dates as of which information
is given in the Disclosure Documents and except as described therein, (i) the
Company and the Subsidiaries have not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions not
in the ordinary course of business, (ii) the Company and the Subsidiaries have
not purchased any of their respective outstanding capital stock, or declared,
paid or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of such
Subsidiaries, the purchase of capital stock by the Company), (iii) there has not
been any material increase in the long-term indebtedness of the Company or any
of the Subsidiaries, (iv) there has not occurred any event or condition that
has, or could reasonably be expected to have, a Material Adverse Effect, and (v)
the Company and the Subsidiaries have not sustained any material loss or
interference with respect to their respective businesses or properties from
fire, flood, hurricane, earthquake, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or governmental
proceeding.

                 (m)  There are no material legal or governmental proceedings
nor are there any material contracts or other documents required by the
Securities Act to be described in a prospectus that are not described in the
Disclosure Documents. Except as described in the

                                       5

<PAGE>

Disclosure Documents, none of the Company or the Subsidiaries is in default
under any of the contracts described in the Disclosure Documents, has received a
notice or claim of any such default or has knowledge of any breach of such
contracts by the other party or parties thereto, except for such defaults or
breaches as would not, individually or in the aggregate, have a Material Adverse
Effect.

                 (n)  Each of the Company and the Subsidiaries has good and
marketable fee simple title to all real property and good and marketable title
to all personal property described in the Disclosure Documents as being owned by
it and good and marketable title to the leasehold estate in the real property
described therein as being leased by it, free and clear of all liens, charges,
encumbrances or restrictions, except, in each case, as described in the
Disclosure Documents or such as would not, individually or in the aggregate,
have a Material Adverse Effect. All material leases, contracts and agreements to
which the Company or any of the Subsidiaries is a party or by which any of them
is bound are valid and enforceable against the Company or any such Subsidiary,
are, to the knowledge of the Company, valid and enforceable against the other
party or parties thereto and are in full force and effect.

                 (o)  Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or any Subsidiary that
would, individually or in the aggregate, have a Material Adverse Effect.

                 (p)  None of the Company or the Subsidiaries is, or immediately
after the Closing Date will be, required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act").

                 (q)  None of the Company or the Subsidiaries or, to the
knowledge of the Company, any of such entities' directors, officers, employees,
agents or controlling persons, has taken, directly or indirectly, any action
designed, or that might reasonably be expected, to cause or result, under the
Securities Act or the Exchange Act, or otherwise, in, or that has constituted,
stabilization or manipulation of the price of the Common Stock.

                 (r)  None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Securities or
in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act. Assuming the accuracy of the representations and warranties
of the Purchaser in Section 6 hereof, it is not necessary in connection with the
offer, sale and delivery of the Securities to the Purchaser in the manner
contemplated by this Agreement to register any of the Securities under the
Securities Act.

                                       6

<PAGE>

                 (s)  Except as set forth in the Disclosure Documents, there is
no strike, labor dispute, slowdown or work stoppage with the employees of the
Company or any of the Subsidiaries which is pending or, to the knowledge of the
Company or any of the Subsidiaries, threatened.

                 (t)  Each of the Company and the Subsidiaries is insured by
insurers of recognized financial responsibility against such losses and in such
amounts that are reasonably prudent and comparable to other companies of its
size and similar business. 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.

                 (u)  Except as set forth in the Disclosure Documents, 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 such services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments in excess
of $50,000 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.

                 (v)  Each of the Company and the Subsidiaries maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
material assets is permitted only in accordance with management's authorization
and (D) the reported accountability for its material assets is compared with
existing assets at reasonable intervals.

                 (w)  Except the $100,000 fee payable to Mercator Group, LLC
(and the $20,000 fee payable to Peter Benz), the Company does not know of any
claims for services, either in the nature of a finder's fee or financial
advisory fee, with respect to the offering of the Shares and the transactions
contemplated by the Transaction Documents.

                 (x)  The Common Stock is listed on the Nasdaq SmallCap Market.
The Company currently is not in violation of, and the consummation of the
transactions contemplated by the Transaction Documents will not violate, any
rule of the National Association of Securities Dealers.

                 (y)  The Company has filed a Listing of Additional Shares
Notification Form with the Nasdaq Stock Market with respect to the Conversion
Shares and the Warrant Shares. The Conversion Shares and the Warrant Shares will
be listed on the Nasdaq SmallCap Market immediately following their issuance.

                                       7

<PAGE>

                 (z)  The Company is eligible to use Form S-3 for the resale of
the Conversion Shares and the Warrant Shares by Purchaser or its transferees.
The Company has no reason to believe that it is not capable of satisfying the
registration or qualification requirements (or an exemption therefrom) necessary
to permit the resale of the Conversion Shares and the Warrant Shares under the
securities or "blue sky" laws of any jurisdiction within the United States that
is the residence or domicile of any Purchaser.

                 (aa) Assuming the accuracy of the Purchaser's representations
and warranties set forth in Section 6, no registration under the Securities Act
is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby.

             3.  Purchase, Sale and Delivery of the Shares. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchaser, and Purchaser agrees to purchase from the
Company, the 10,000 Shares of Series E Stock at $120.00 per share. In connection
with the purchase and sale of Shares hereunder, Purchaser will receive, for no
additional consideration, a Warrant to purchase up to 250,000 shares of Common
Stock, subject to adjustment as set forth in the Warrant.

             One or more certificates in definitive form for the Shares that the
Purchaser has agreed to purchase hereunder, as well as the Warrant registered in
the name of Purchaser or its nominee, shall be delivered by or on behalf of the
Company, against payment by or on behalf of the Purchaser, of the purchase price
therefor by wire transfer of immediately available funds to the account of the
Company previously designated by it in writing. Such delivery of and payment for
the Series E Stock and the Warrant shall be made at the offices of Brobeck,
Phleger & Harrison LLP, 38 Technology Drive, Irvine, California 92618, on
December 23, 2002, or at such date as the Purchaser and the Company may agree
upon, such time and date of delivery against payment being herein referred to as
the "Closing Date."

             4.  Certain Covenants of the Company. The Company covenants and
agrees with Purchaser as follows:

                 (a)  None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated with the
sale of the Securities in a manner which would require the registration of the
Securities under the Securities Act.

                 (b)  The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the Investment
Company Act.

                 (c)  None of the proceeds of the Series E Stock shall be used
to reduce or retire any insider note or convertible debt held by any officer of
director of the Company.

                 (d)  The Company will perform its obligations under this
Agreement and the other Transaction Documents prior to or after the Closing Date
and will satisfy all

                                       8

<PAGE>

conditions precedent on its part to the obligations of the Purchaser to purchase
and accept delivery of the Securities.

             5.  Conditions of the Purchaser's Obligations. The obligation of
each Purchaser to purchase and pay for the Securities is subject to the
following conditions unless waived in writing by the Purchaser:

                 (a)  The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(other than representations and warranties with a Material Adverse Effect
qualifier, which shall be true and correct as written) on and as of the Closing
Date; the Company shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date.

                 (b)  None of the issuance and sale of the Securities pursuant
to this Agreement or any of the transactions contemplated by any of the other
Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser's activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the Disclosure Documents.

                 (c)  The Purchaser shall have received certificates, dated the
Closing Date and signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, to the effect of paragraphs 5(a) and (b).

                 (d)  The Purchaser shall have received an opinion of Brobeck,
Phleger & Harrison LLP, counsel to the Company, with respect to the
authorization of the Shares, the Warrant and the Warrant Shares and other
customary matters in the form attached hereto as Exhibit B.

                 (e)  The Company shall have obtained any and all consents,
permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Transaction Documents.

                 (f)  The Certificate of Designation shall have been filed with
the Secretary of State of the State of Delaware and shall continue to be in full
force and effective as of the Closing Date.

                 (g)  The Company shall have paid the fees and expenses set
forth in Section 15.

                 (h)  All proceedings in connection with the transactions
contemplated at the Closing Date and all documents incident to such transactions
shall be reasonably satisfactory in form and substance to the Purchasers and its
special counsel.

                                       9

<PAGE>

             6.  Representations and Warranties of the Purchaser.

                 (a)  Purchaser represents and warrants to the Company that the
Securities to be acquired by it hereunder (including the Conversion Shares and
the Warrant Shares that it may acquire upon conversion or exercise thereof, as
the case may be) are being acquired for its own account for investment (and/or
on behalf of managed accounts who are purchasing solely for their own accounts
for investment) and with no intention of distributing or reselling such
Securities (including the Conversion Shares and the Warrant Shares that it may
acquire upon conversion or exercise thereof, as the case may be) or any part
thereof or interest therein in any transaction which would be in violation of
the securities laws of the United States of America or any State, without
prejudice, however, to a 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
Shares or Warrant Shares under an effective registration statement under the
Securities Act and in compliance with applicable state securities laws or under
an exemption from such registration, and subject, nevertheless, to the
disposition of a Purchaser's property being at all times within its control. By
executing this Agreement, each Purchaser further represents that such Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to any Person with respect to
any of the Securities.

                 (b)  Purchaser understands and acknowledges that the Shares may
not be sold, assigned, pledged or otherwise transferred prior to their
conversion. Purchaser agrees to the imprinting of the following legend on the
Shares, but not the Conversion Shares or the Warrant Shares:

         This certificate and the shares of Series E Preferred Stock evidenced
         by this certificate may not be offered, sold, pledged or otherwise
         transferred in any manner prior to the conversion of said shares into
         Common Stock.

                 (c)  Purchaser understands that the Securities (including the
Conversion Shares and the Warrant Shares that it may acquire upon conversion or
exercise thereof, as the case may be) have not been registered under the
Securities Act and may not be offered, resold, pledged or otherwise transferred
except (a) pursuant to an exemption from registration under the Securities Act
(and, if requested by the Company, based upon an opinion of counsel acceptable
to the Company) or pursuant to an effective registration statement under the
Securities Act and (b) in accordance with all applicable securities laws of the
states of the United States and other jurisdictions.

                 Purchaser agrees to the imprinting, so long as appropriate, of
the following legend on the Securities (including the Conversion Shares and the
Warrant Shares that it may acquire upon conversion or exercise thereof, as the
case may be):

         The shares of common stock evidenced by this certificate have not been
         registered under the U.S. Securities Act of 1933, as amended, and may
         not be offered, sold, pledged or otherwise transferred ("transferred")
         in the absence of such registration or an applicable exemption
         therefrom. In the absence of such registration, such shares may not be
         transferred unless, if the Company

                                       10

<PAGE>

         requests, the Company has received a written opinion from counsel in
         form and substance satisfactory to the Company stating that such
         transfer is being made in compliance with all applicable federal and
         state securities laws.

                 The legend set forth above may be removed if and when the
Conversion Shares or the Warrant Shares, as the case may be, are disposed of
pursuant to an effective registration statement under the Securities Act or in
the opinion of counsel reasonably acceptable to the Company experienced in the
area of United States Federal securities laws such legends are no longer
required under applicable requirements of the Securities Act. The Shares, the
Conversion Shares and the Warrant Shares shall also bear any other legends
required by applicable Federal or state securities laws, which legends may be
removed when in the opinion of counsel to the Company experienced in the
applicable securities laws, the same are no longer required under the applicable
requirements of such securities laws. The Company agrees that it will provide
each Purchaser, upon request, with a substitute certificate, not bearing such
legend at such time as such legend is no longer applicable. Each Purchaser
agrees that, in connection with any transfer of the Conversion Shares or the
Warrant Shares by it pursuant to an effective registration statement under the
Securities Act, such Purchaser will comply with all prospectus delivery
requirements of the Securities Act. The Company makes no representation,
warranty or agreement as to the availability of any exemption from registration
under the Securities Act with respect to any resale of the Shares, the
Conversion Shares or the Warrant Shares.

                 (d)  Purchaser is an "accredited investor" within the meaning
of Rule 501(a) of Regulation D under the Securities Act.

                 (e)  Purchaser represents and warrants to the Company that it
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, having been represented by counsel,
and has so evaluated the merits and risks of such investment and is able to bear
the economic risk of such investment and, at the present time, is able to afford
a complete loss of such investment.

                 (f)  Purchaser represents and warrants to the Company that (i)
the purchase of the Securities to be purchased by it has been duly and properly
authorized and this Agreement has been duly executed and delivered by it or on
its behalf and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principals of equity; (ii) the
purchase of the Securities to be purchased by it does not conflict with or
violate its charter, by-laws or any law, regulation or court order applicable to
it; and (iii) the purchase of the Securities to be purchased by it does not
impose any penalty or other onerous condition on Purchaser under or pursuant to
any applicable law or governmental regulation.

                 (g)  Purchaser represents and warrants to the Company that
neither it nor any of its directors, officers, employees, agents, partners,
members, or controlling persons has taken, directly or indirectly, any actions
designed, or might reasonably be expected to cause

                                       11

<PAGE>

or result, under the Securities Act or Exchange Act or otherwise, in, or that
has constituted, stabilization, or manipulation of the price of the Common
Stock.

               (h)  Purchaser acknowledges it has reviewed the Disclosure
Documents and further acknowledges that it has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy and completeness of the information contained
in the Disclosure Documents.

               (i)  Purchaser represents and warrants to the Company that it has
based its investment decision solely upon the information contained in the
Disclosure Documents and such other information as may have been provided to it
by the Company in response to its inquiries, and has not based its investment
decision on any research or other report regarding the Company prepared by any
third party ("Third Party Reports"). Purchaser understands and acknowledges that
(i) the Company does not endorse any Third Party Reports and (ii) its actual
results may differ materially from those projected in any Third Party Report.

               (j)  Purchaser understands and acknowledges that (i) any
forward-looking information included in the Disclosure Documents supplied to
Purchaser by the Company or its management is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.

               (k)  Purchaser understands and acknowledges that (i) the
Securities are offered and sold without registration under the Securities Act in
a private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption depends in part on,
and that the Company and its counsel will rely upon, the accuracy and
truthfulness of the foregoing representations and Purchaser hereby consents to
such reliance.

          7.   Covenants of Purchaser Not to Short Stock. Purchaser and its
affiliates and assigns agree not to short the Company Common Stock as long as
shares of the Series E Stock are outstanding.

          8.   Survival of Representations. The respective representations,
warranties, agreements and covenants of the Company and the Purchaser set forth
in this Agreement shall survive until the second anniversary of the Closing
Date.

          9.   Termination.

               (a)  This Agreement may be terminated in the sole discretion of
the Company by notice to Purchaser if at the Closing Date:

                                       12

<PAGE>

                    (i)   the representations and warranties made by Purchaser
          in Section 6 are not true and correct in all material respects; or

                    (ii)  as to the Company, the sale of the Securities
          hereunder (i) is prohibited or enjoined by any applicable law or
          governmental regulation or (ii) subjects the Company to any penalty,
          or in its reasonable judgment, other onerous condition under or
          pursuant to any applicable law or government regulation that would
          materially reduce the benefits to the Company of the sale of the
          Securities to such Purchaser, so long as such regulation, law or
          onerous condition was not in effect in such form at the date of this
          Agreement.

               (b)  This Agreement may be terminated in the sole discretion of
Purchaser by notice to the Company given in the event that the Company shall
have failed, refused or been unable to satisfy all conditions on its part to be
performed or satisfied hereunder on or prior to the Closing Date or if after the
execution and delivery of this Agreement and prior to the Closing Date trading
in securities of the Company or in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National or Small Cap Market
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange.

               (c)  This Agreement may be terminated by mutual written consent
of both parties.

          10.  Registration. Within 30 days from the Closing Date, the Company
shall prepare and file with the Securities and Exchange Commission (the "SEC") a
Registration Statement covering the resale of the Conversion Shares and the
Warrant Shares (collectively, the "Registrable Securities") for an offering to
be made on a continuous basis pursuant to Rule 415 (the "Registration
Statement"). Notwithstanding the forgoing, it is hereby agreed that the Company
will, to the extent feasible and acceptable to the SEC, amend its currently
pending Registration Statement to include these Registrable Securities, and that
the Company will file such amendment as soon as reasonably practicable after the
Closing Date. The Registration Statement required hereunder shall be on Form S-3
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form). The Company shall use its best efforts to cause such
Registration Statement to become effective within 120 days after the Registrable
Securities are first included in a Registration Statement filed with the SEC,
but shall not be liable for any damages should such effectiveness be delayed
solely by reason of the SEC review process. The Company shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) as determined by the counsel reasonably acceptable to the Company
pursuant to a written opinion to such effect addressed and acceptable to the
Company's transfer agent.

          11.  Furnishing of Information. As long as Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof

                                       13

<PAGE>

pursuant to the Exchange Act. Upon the request of any such Person, the Company
shall deliver to such Person a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
any Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.

          12.  Securities Laws Disclosure; Publicity; Non-Public Information.
The Company may, following the Closing Date, issue a press release or file a
Current Report on Form 8-K, in each case reasonably acceptable to the Purchaser
disclosing the transactions contemplated hereby and (ii) make such other filings
and notices in the manner and time required by the Commission. The Company and
the Purchaser shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither party shall issue
any such press release or otherwise make any such public statement without the
prior consent of the other, which consent shall not unreasonably be withheld,
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 or communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Purchaser, or include the name of Purchaser in any
filing with the Commission or any regulatory agency or trading market, without
the prior written consent of such Purchaser, except to the extent such
disclosure is required by law or trading market regulations, in which case the
Company shall provide the Purchaser with prior notice of such disclosure. The
Company covenants and agrees that neither it nor any other person acting on its
behalf will provide Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company.

          13.  Indemnification of Purchaser. The Company will indemnify and hold
the Purchaser and its directors, officers, shareholders, partners, employees and
agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
misrepresentation, breach or inaccuracy of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the Transaction Documents; (b) any cause of action, suit or claim brought or
made against such Purchaser Party and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any of the
other Transaction Documents as of the Closing Date or (c) any material
misstatement or omission in the Registration Statement. The Company will
reimburse Purchaser for its reasonable legal and other expenses (including the
cost of any investigation, preparation and travel in connection therewith)
incurred in connection with this Section 13, as such expenses are incurred.

                                       14

<PAGE>

          14.  Notices. All communications hereunder shall be in writing and
shall be hand delivered, mailed by first-class mail, couriered by next-day air
courier or by facsimile and confirmed in writing (i) if to the Company, at the
addresses set forth below, or (ii) if to Purchaser, to the address(es) set forth
on the signature page hereto.

                         If to the Company:

                         Irvine Sensors Corporation
                         3001 Redhill Avenue
                         Costa Mesa, California 92650
                         Attention: Chief Financial Officer
                         Facsimile: (714) 444-8773

                         with a copy to:

                         Brobeck, Phleger & Harrison LLP
                         38 Technology Drive
                         Irvine, California 92618
                         Attention: Ellen S. Bancroft, Esq.
                         Facsimile: (949) 790-6301

          All such notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section or the signature page hereof prior to 6:00 p.m. on a business
day, or (v) the business day following the date of transmission if sent via
facsimile at a facsimile number set forth in this Section or on the signature
page hereof after 6:00 p.m. or on a date that is not a business day. Change of a
party's address or facsimile number may be designated hereunder by giving notice
to all of the other parties hereto in accordance with this Section.

          15.  Expense Reimbursement. The Company agrees to pay Purchaser up to
an aggregate of $15,000 for all out-of-pocket expenses incurred in connection
with the preparation and negotiation of the Transaction Documents, including the
fees and expenses of Sheppard, Mullin, Richter & Hampton, LLP.

          16.  Successors. This Agreement shall inure to the benefit of and be
binding upon Purchaser and the Company and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person. Neither the Company nor Purchaser may assign
this Agreement or any rights or obligation hereunder without the prior written
consent of the other party.

                                       15

<PAGE>

          17.  No Waiver; Modifications in Writing. No failure or delay on the
part of the Company or Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or Purchaser at law or in equity
or otherwise. No waiver of or consent to any departure by the Company or
Purchaser from any provision of this Agreement shall be effective unless signed
in writing by the party entitled to the benefit thereof, provided that notice of
any such waiver shall be given to each party hereto as set forth below. Except
as otherwise provided herein, no amendment, modification or termination of any
provision of this Agreement shall be effective unless signed in writing by or on
behalf of each of the Company and the Purchaser. Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure by the Company or
Purchaser from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances.

          18.  Entire Agreement. This Agreement, together with Transaction
Documents constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.

          19.  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.

          20.  APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

          21.  Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

          22.  Attorney's Fees. If either party to this Agreement shall bring
any action, suit, counterclaim, appeal, arbitration, or mediation for any relief
against the other, declaratory or otherwise, to enforce the terms hereof or to
declare rights hereunder, the losing party shall pay to the prevailing party a
reasonable sum for attorneys' fees and costs incurred in bringing and
prosecuting such action and/or enforcing any judgment, order, ruling, or award.

                                       16

<PAGE>

          If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this Agreement shall constitute a binding agreement among the Company
and the Purchaser.

                                    Very truly yours,

                                    Irvine Sensors Corporation

                                    By:  /s/ John J. Stuart, Jr.
                                        ____________________________________
                                        Name:   John J. Stuart, Jr.
                                        Title:  Chief Financial Officer

ACCEPTED AND AGREED:

Mercator Momentum Fund, LP

By: /s/ David Firestone
   ____________________________
Name: David Firestone
     __________________________
Title: Managing Partner
      _________________________

Address for Notice:

555 South Flower Street, Suite 4500
Los Angeles, California 90071
Attention: David Firestone
Facsimile: (213) 553-9285

with a copy to

Sheppard, Mullin, Richter & Hampton, LLC
333 South Hope Street, 48/th/ Floor
Los Angeles, California 90071
Attention: David Ulich, Esq.
Facsimile: (213) 620-1398

                   [SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]

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