Document:

DIGS, INC.

                            PLACEMENT AGENT AGREEMENT

                                                     Dated as of: March 14, 2000

May Davis Group, Inc.
One World Trade Center - Suite 8735
New York, New York, 10038

Ladies and Gentlemen:

     The undersigned,  Digs, Inc. (the "Company"),  hereby agrees with May Davis
Group, Inc. ("May Davis") as follows:

     1. Offering.

          A. The  Company  hereby  engages  May  Davis  to act as its  exclusive
placement  agent in  connection  with the  issuance and sale by the Company (the
"Offering") of the Company's  Convertible  Series A Preferred  Stock,  $0.01 par
value per share (the "Preferred  Stock"),  at a price of $1,000 per share for an
aggregate offering price of $2,500,000. For every forty (40) shares of Preferred
Stock  purchased  in the  Offering,  an  investor  will  receive a common  stock
purchase warrant  (collectively,  the "Warrants" and individually,  a "Warrant")
for the  purchase of one (1) share of the  Company's  common  stock,  $0.001 par
value per share (the "Common Stock").

<PAGE>

The Preferred  Stock will be convertible by the holder for a period of three (3)
years at any time after the Closing Date (as hereinafter defined) into shares of
Common  Stock  (the  'Conversion  Shares")  in  accordance  with the  terms  and
conditions set forth in the Company's  Certificate of Designations,  Preferences
and Rights  governing  the  Preferred  Stock to be filed by the Company with the
Secretary of State of Delaware on or before the Closing  Date (the  "Certificate
of  Designations").  Each  Warrant  entitles the holder to purchase one share of
Common Stock (the  "Warrant  Shares") for an exercise  price as set forth in the
Warrants.

The Preferred Stock and the Warrants are subject to the terms of the Certificate
of Designations,  the Securities  Purchase  Agreement (the "Securities  Purchase
Agreement") and the  registration  rights  agreement (the  "Registration  Rights
Agreement") to be executed by the Company and all investors who purchase  shares
of Preferred Stock and Warrants in the Offering and all disclosure  materials of
the Company referred to in the Securities Purchase Agreement (collectively,  the
"Offering Materials").  The Preferred Stock, the Conversion Shares, the Warrants
and the Warrant Shares are hereinafter sometimes collectively referred to as the
"Securities."  The Securities  will be offered  without  registration  under the
Securities  Act of 1933, as amended (the  "Securities  Act").  Purchasers of the
Securities  will be granted  certain  registration  rights  with  respect to the
Conversion  Shares  and the  Warrant  Shares  as more  fully  set  forth  in the
Registration  Rights  Agreement,  the Securities  Purchase  Agreement and in the
certificates representing the Preferred Stock and the Warrants.

               B. The Offering of Preferred Stock will be made by May Davis on a
"best efforts,  all or none" basis.  The closing of the Offering (the "Closing")
will occur as soon as  practicable  after the date on which  subscriptions  have
been  received  and  accepted by the Company for all 2,500  shares of  Preferred
Stock being sold in the Offering  (the  "Closing  Date"),  and the Company shall
issue  shares of  Preferred  Stock and  Warrants at the Closing  upon receipt of
investors'  funds that have cleared the banking  system in the normal  course of
business.  The Closing  will take place at the offices of  Silverman,  Collura &
Chernis,  P.C.,  counsel to May Davis, at 381 Park Avenue South, Suite 1601, New
York,  New York 10016,  or such other place as determined by the Company and May
Davis, at such time as shall be determined by May Davis.

               C. The  Offering  shall  commence  on the date  hereof  and shall
terminate on March 31, 2000,  unless extended by the Company and May Davis (such
date,  as  the  same  may  be  extended,  is  hereinafter  referred  to  as  the
"Termination  Date"; the period  commencing on the date hereof and ending on the

<PAGE>

Termination Date is sometimes referred to herein as the "Offering  Period").  If
subscriptions  for all shares of Preferred  Stock being  offered in the Offering
are not received by May Davis prior to the Termination  Date, all funds received
by investors  will be returned  thereto  without  interest  thereon or deduction
therefrom.

     2. Information.

          A.  The  Preferred  Stock  will be  offered  by May  Davis  on a "best
efforts, all or none" basis.

          B.  The Preferred  Stock  shall  have  the  terms  set  forth  in  the
Certificate  of  Designations  and the  Preferred  Stock and  Warrants  shall be
offered by the Company by means of the Securities  Purchase  Agreement and other
Offering  Materials.  Payment for the Preferred  Stock shall be made by check or
wire transfer as more fully described in the Securities Purchase Agreement.  The
minimum  purchase by any purchaser  shall be $50,000,  or 50 shares of Preferred
Stock,  except that  subscriptions  for lesser amounts of Preferred Stock may be
accepted  at the  discretion  of the  Company  and May Davis.  May Davis and the
Company  agree  that the  Preferred  Stock  will be  offered  and  sold  only to
"accredited   investors"  within  the  meaning  of  Rule  501  of  Regulation  D
("Accredited  Investors")  promulgated by the Securities and Exchange Commission
(the "Commission")  under the Securities Act and Rule 506 of Regulation D of the
Securities Act.

          C. In the event that the Closing occurs, the funds received in respect
of the shares of  Preferred  Stock  closed on will be  forwarded to the Company,
against delivery of the appropriate amount of the securities offered, net of (i)
the placement agent  commission equal to ten percent (10%) of the gross proceeds
from the sale of shares of Preferred Stock in the Offering, and (iii) legal fees
and expenses related thereto due to May Davis's counsel.

<PAGE>

          D. In  addition  to the  foregoing  compensation,  at the  Closing the
Company  shall issue to May Davis  common  stock  purchase  warrants to purchase
200,000 shares of Common Stock at an exercise price equal to 110% of the closing
bid  price of the  Common  Stock on the  Closing  Date  (the  Placement  Agent's
Warrants).  The Placement  Agent's  Warrants shall be exercisable at any time by
the  Placement  Agent's for a period of sixty (60) months from the Closing  Date
and shall contain such anti-dilution and other protective provisions as are
contained in the Warrants to be issued to investors in the Offering.

          E. At the  Closing,  the  Company  shall  cause to be paid by,  at the
option of May Davis,  certified or official bank check or wire transfer,  to the
extent not previously  paid by the Company to May Davis (i) the placement  agent
commission  equal to eight  percent (8%) of the gross  proceeds from the sale of
shares Preferred Stock in the Offering, (ii) mailing and related expenses of May
Davis and (iii) and legal fees and expenses  related  thereto due to May Davis's
counsel,  not to exceed $20,000 plus out of pocket expenses.  In addition to the
foregoing, the Company shall be responsible for the fees and expenses identified
in  Sections  6, 7, and 9  hereof,  which  expenses  shall  not be  deemed to be
commissions.

          F. May Davis shall not be  obligated  to sell any shares of  Preferred
Stock and  shall  only be  obligated  to offer  the  Preferred  Stock on a "best
efforts" basis.

          G.  The  Company  and May  Davis  reserve  the  right  to  reject  any
subscriber,  in whole or in part,  in  their  sole  discretion.  Notwithstanding
anything to the contrary  contained in this Section 2(G), the Company's right to
reject a subscriber  shall lapse three (3) days after  receipt by the Company of
the fully completed and duly executed subscription documents from May Davis with
respect to such  subscriber  (unless it is determined  subsequent to such period
that such subscriber does not meet the investor suitability requirements of this
Offering).  Funds received from any subscriber  whose  subscription  is rejected
will be returned to such  subscriber,  without  deduction  therefrom or interest
thereon,  but no sooner than such funds have  cleared the banking  system in the
normal course of business.

     3. Representations, Warranties and Covenants of May Davis.

          A. May Davis represents, warrants and covenants as follows:

               (i)  May  Davis  has the  necessary  power  to  enter  into  this
Agreement,  the Placement Agent's Warrant,  the Placement  Agent's  Registration
Agreement and to consummate the transactions contemplated hereby and thereby.

<PAGE>

               (ii) The execution  and delivery by May Davis of this  Agreement,
the  Placement  Agent's  Warrant,  the  Placement  Agent's  Registration  Rights
Agreement  and the  consummation  of the  transactions  contemplated  herein and
therein  will not  result  in any  violation  of,  or be in  conflict  with,  or
constitute a default under,  any agreement or instrument to which May Davis is a
party or by which  May  Davis or its  properties  are  bound,  or any  judgment,
decree,  order or, to May Davis's  knowledge,  any statute,  rule or  regulation
applicable to May Davis. This Agreement,  the Placement Agent's Warrant, and the
Placement Agent's  Registration  Rights Agreement when executed and delivered by
May Davis,  will  constitute  the legal,  valid and binding  obligations  of May
Davis,  enforceable in accordance  with their  respective  terms,  except to the
extent  that  (a)  the  enforceability  hereof  or  thereof  may be  limited  by
bankruptcy, insolvency, reorganization,  moratorium or similar laws from time to
time in  effect  and  affecting  the  rights  of  creditors  generally,  (b) the
enforceability  hereof or thereof is subject to general principles of equity, or
(c) the indemnification provisions hereof or thereof may be held to be violative
of public policy.

               (iii) May Davis  will  deliver  to each  purchaser,  prior to any
submission  by such person of a written  offer  relating to the  purchase of the
Preferred  Stock, the Securities  Purchase  Agreement,  the Registration  Rights
Agreement, the Warrant and a copy of the Certificate of Designations.

               (iv) Upon receipt of an executed Securities Purchase Agreement, a
Registration  Rights Agreement and the payments  representing  subscriptions for
shares  of  Preferred  Stock,  May Davis  will  promptly  forward  copies of the
Securities  Purchase Agreement and Registration  Rights Agreement to the Company
or its counsel and shall forward all  consideration  received for such shares of
Preferred Stock to be held in escrow.

               (v) May Davis will not  deliver  any  Offering  Materials  to any
person it does not reasonably believe to be an Accredited Investor.

               (vi) May Davis will not  intentionally  take any  action  that it
reasonably  believes  would cause the Offering to violate the  provisions of the
Securities  Act,  the  Securities  and  Exchange  Act of 1934,  as amended  (the
"Exchange  Act"), the respective  rules and regulations  promulgated  thereunder
(the  "Rules and  Regulations")  or  applicable  "Blue Sky" laws of any state or
jurisdiction.

<PAGE>

               (vii) May Davis shall use all reasonable efforts to determine (a)
whether any  prospective  purchaser is an  Accredited  Investor and (b) that any
information furnished by a prospective investor is true and accurate.  May Davis
shall have no  obligation  to insure  that (a) any check,  note,  draft or other
means of payment for the Preferred  Stock will be honored,  paid or  enforceable
against  the  subscriber  in  accordance  with its terms,  or (b) subject to the
performance  of  May  Davis's  obligations  and  the  accuracy  of  May  Davis's
representations  and warranties  hereunder,  (i) the Offering is exempt from the
registration  requirements  of the Securities Act or any applicable  state "Blue
Sky" law or (ii) any prospective purchaser is an Accredited Investor.

               (viii)  May  Davis is a member  of the  National  Association  of
Securities  Dealers,  Inc., and is a broker-dealer  registered as such under the
Exchange Act and under the securities  laws of the states in which the Preferred
Stock will be offered or sold by May Davis,  unless an exemption  for such state
registration  is available  to May Davis.  May Davis is in  compliance  with all
material rules and regulations  applicable to May Davis generally and applicable
to May Davis's participation in the Offering.

               (ix) Placement Agent agrees that Placement Agent shall not engage
in any  transaction  constituting a "short sale" (as defined in Rule 3b-3 of the
1934  Act) of  Common  Stock  for a period  of 12  months  from the date of this
Agreement.

     4. Representations and Warranties of the Company.

          A. The Company represents and warrants as follows:

          (i) The execution, delivery and performance of each of this Agreement,
the Securities  Purchase  Agreements,  the Registration  Rights Agreements,  the
Warrant,  the Placement  Agent's  Warrant,  the Placement  Agent's  Registration
Rights  Agreement and the Certificate of  Designations  has been or will be duly
and validly  authorized by the Company and is, or with respect to the Securities
Purchase  Agreements,  the  Registration  Rights  Agreements,  the Warrant,  the
Placement Agent's Warrant,  the Placement Agent's  Registration Rights Agreement
and the  Certificate of Designations  will be, a valid and binding  agreement of
the Company,  enforceable in accordance with their respective  terms,  except to
the  extent  that (a) the  enforceability  hereof or  thereof  may be limited by
bankruptcy, insolvency, reorganization,  moratorium or similar laws from time to
time in  effect  and  affecting  the  rights  of  creditors  generally,  (b) the
enforceability  hereof or thereof is subject to general  principles of equity or
(c) the indemnification provisions hereof or thereof may be held to be violative
of public policy.  The Securities have been duly authorized and, when issued and

<PAGE>

paid for in accordance with the (x) this Agreement, the Warrant, the Certificate
of  Designations,  the Securities  Purchase  Agreements,  the Placement  Agent's
Warrant the  certificates/instruments  representing each of such Securities, (y)
will be valid and binding obligations of the Company,  enforceable in accordance
with their respective  terms,  except to the extent that (a) the  enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,  moratorium or
similar laws from time to time in effect and  affecting  the rights of creditors
generally,  and (b) the enforceability  thereof is subject to general principles
of equity.  All  corporate  action  required to be taken for the  authorization,
issuance  and sale of the  Securities  has been  duly and  validly  taken by the
Company.

          (ii)  The  Company  has a  duly  authorized,  issued  and  outstanding
capitalization  as set forth in the  Offering  Materials.  The  Company is not a
party to or bound by any instrument,  agreement or other  arrangement  providing
for  it  to  issue  any  capital  stock,  rights,  warrants,  options  or  other
securities, except for this Agreement and the agreements described herein and as
described in the Offering  Materials.  All issued and outstanding  securities of
the Company, have been duly authorized and validly issued and are fully paid and
non-assessable;  the holders  thereof have no rights of rescission or preemptive
rights with respect thereto and are not subject to personal  liability solely by
reason  of being  securityholders;  and none of such  securities  was  issued in
violation  of the  preemptive  rights  of any  holders  of any  security  of the
Company. The Company has 80,000,000 shares of authorized Common Stock, 6,648,631
of which will be issued and  outstanding as of the date hereof.  The Company has
20,000,000  authorized  shares of  Preferred  Stock,  of which  2,500  shares of
Redeemable  Convertible  Series A Preferred Stock will be outstanding  after the
Offering.

          (iii) The  Securities  have been duly  authorized  and when issued and
paid  for in  accordance  with  the  (x)  this  Agreement,  the  Certificate  of
Designations,  the Securities Purchase Agreements,  the Warrants,  the Placement
Agent's  Warrant,  the   certificates/instruments   representing  each  of  such
Securities,  (y) will be validly  issued,  fully-paid  and  non-assessable;  the
holders  thereof will not be subject to personal  liability  solely by reason of
being  such  holders;  such  securities  are not and will not be  subject to the
preemptive rights of any holder of any security of the Company.

          (iv) The  Company  has good and  marketable  title  to,  or valid  and
enforceable  leasehold  estates  in,  all  items of real and  personal  property
necessary to conduct its business  (including,  without  limitation  any real or
personal property stated in the Offering  Materials to be owned or leased by the
Company), free and clear of all liens, encumbrances,  claims, security interests

<PAGE>

and defects of any material nature whatsoever, other than those set forth in the
Offering Materials and liens for taxes not yet due and payable.

          (v) There is no litigation or governmental  proceeding  pending or, to
the best of the  Company's  knowledge,  threatened  against,  or  involving  the
properties  or  business  of the  Company,  except as set forth in the  Offering
Materials.

          (vi) The Company has been duly organized and is validly  existing as a
corporation in good standing under the laws of the State of Delaware.  Except as
set  forth in the  Offering  Materials,  the  Company  does not own or  control,
directly  or  indirectly,  an interest  in any other  corporation,  partnership,
trust,  joint venture or other business entity. The Company is duly qualified or
licensed and in good standing as a foreign  corporation in each  jurisdiction in
which the character of its operations  requires such  qualification or licensing
and where  failure to so qualify  would  have a material  adverse  effect on the
Company.  The Company has all requisite  corporate power and authority,  and all
material and necessary authorizations, approvals, orders, licenses, certificates
and  permits  of and from  all  governmental  regulatory  officials  and  bodies
(domestic  and foreign) to conduct its  businesses  (and  proposed  business) as
described in the Offering Materials, and the Company is doing business in strict
compliance  with  all  such   authorizations,   approvals,   orders,   licenses,
certificates and permits and all foreign,  federal,  state and local laws, rules
and regulations  concerning the business in which it is engaged. Any disclosures
in the Offering Materials concerning the effects of foreign,  federal, state and
local  regulation  on the  Company's  businesses  as currently  conducted and as
contemplated  are correct in all  material  respects  and do not omit to state a
material fact.  The Company has all corporate  power and authority to enter into
this Agreement,  the Securities  Purchase  Agreements,  the Registration  Rights
Agreements,  the Placement Agent's Warrant,  the Placement Agent's  Registration
Rights  Agreement  and the  Certificate  of  Designations  and to carry  out the
provisions and conditions hereof and thereof, and all consents,  authorizations,
approvals  and orders  required in connection  herewith and therewith  have been
obtained or will have been obtained prior to the  Termination  Date. No consent,
authorization or order of, and no filing with, any court,  government  agency or
other body is  required by the Company  for the  issuance of the  Securities  or
execution and delivery of the Securities  Purchase  Agreements and the Placement
Agent's Warrant,  the Placement Agent's Registration Rights Agreement except for
applicable federal and state securities laws. The Company,  since its inception,
has not incurred any liability  arising under or as a result of the  application
of any of the  provisions of the  Securities  Act, the Exchange Act or the Rules
and Regulations.

<PAGE>

          (vii) There has been no material  adverse  change in the  condition or
prospects of the Company,  financial or  otherwise,  from the latest dates as of
which such condition or prospects,  respectively,  are set forth in the Offering
Materials,  and the  outstanding  debt,  the  property  and the  business of the
Company conform in all material  respects to the descriptions  thereof contained
in the Offering Materials.

          (viii) Except as set forth in the Offering  Materials,  the Company is
not in breach of, or in default  under,  any term or  provision  of any material
indenture, mortgage, deed of trust, lease, note, loan or credit agreement or any
other  material  agreement or instrument  evidencing an obligation  for borrowed
money,  or any other material  agreement or instrument to which it is a party or
by which it or any of its  properties  may be bound or affected.  The Company is
not in  violation  of any  provision of its charter or Bylaws or in violation of
any franchise,  license, permit,  judgment,  decree or order, or in violation of
any statute,  rule or  regulation.  Neither the  execution  and delivery of this
Agreement,   the  Securities  Purchase   Agreements,   the  Registration  Rights
Agreements, the Placement Agent's Warrant, or the Placement Agent's Registration
Rights Agreement, or the Certificate of Designations,  nor the issuance and sale
or delivery of the Securities,  nor the  consummation of any of the transactions
contemplated herein or in the Securities Purchase Agreements,  Placement Agent's
Warrant,  or the  Placement  Agent's  Registration  Rights  Agreement,  nor  the
compliance by the Company with the terms and provisions  hereof or thereof,  has
conflicted  with or will  conflict  with, or has resulted in or will result in a
breach  of,  any of the terms and  provisions  of,  or has  constituted  or will
constitute a default under, or has resulted in or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or  pursuant  to the terms of any  indenture,  mortgage,  deed of trust,
note, loan or credit  agreement or any other agreement or instrument  evidencing
an obligation for borrowed  money, or any other agreement or instrument to which
the  Company  may be bound or to which  any of the  property  or  assets  of the
Company is subject  except (a) where such default,  lien,  charge or encumbrance
would not have a material  adverse effect on the Company and (b) as described in
the  Offering  Materials;  nor will such action  result in any  violation of the
provisions  of the  charter or the Bylaws of the Company  or,  assuming  the due
performance by May Davis of its obligations hereunder, any statute or any order,
rule or  regulation  applicable  to the Company of any court or of any  foreign,
federal,  state or other  regulatory  authority or other  government body having
jurisdiction over the Company.

          (ix)  Subsequent to the dates as of which  information is given in the
Offering  Materials,  and except as may  otherwise be indicated or  contemplated
herein or therein, the Company has not (a) issued any securities or incurred any
liability  or  obligation,  direct or  contingent,  for borrowed  money,  or (b)
entered into any transaction  other than in the ordinary course of business,  or

<PAGE>

(c)  declared  or paid any  dividend  or made any  other  distribution  on or in
respect of its capital stock. Except as described in the Offering Materials, the
Company  has no  outstanding  obligations  to any  officer  or  director  of the
Company.

          (x) There are no claims  for  services  in the  nature of a finder' or
origination  fee with  respect to the sale of the  Preferred  Stock or any other
arrangements,   agreements  or  understandings   that  may  affect  May  Davis's
compensation,  as determined by the National  Association of Securities Dealers,
Inc.

          (xi) The  Company  owns or  possesses,  free and clear of all liens or
encumbrances  and rights  thereto or therein  by third  parties,  the  requisite
licenses  or other  rights to use all  trademarks,  service  marks,  copyrights,
service names, trade names, patents,  patent applications and licenses necessary
to conduct its business  (including,  without  limitation,  any such licenses or
rights  described in the  Offering  Materials as being owned or possessed by the
Company) and, except as set forth in the Offering  Materials,  there is no claim
or action by any person  pertaining  to, or  proceeding,  pending or threatened,
which  challenges  the  exclusive  rights of the  Company  with  respect  to any
trademarks,  service marks,  copyrights,  service names,  trade names,  patents,
patent applications and licenses used in the conduct of the Company's businesses
(including,  without  limitation,  any such licenses or rights  described in the
Offering  Materials as being owned or possessed by the Company) except any claim
or action  that would not have a material  adverse  effect on the  Company;  the
Company's  current  products,  services or processes do not infringe or will not
infringe on the patents currently held by any third party.

          (xii) Except as described  in the Offering  Materials,  the Company is
not under any obligation to pay royalties or fees of any kind  whatsoever to any
third party with respect to any trademarks,  service marks, copyrights,  service
names, trade names, patents, patent applications,  licenses or technology it has
developed,  uses,  employs  or  intends  to use or  employ,  other than to their
respective licensors.

          (xiii)  Subject  to the  performance  by May Davis of its  obligations
hereunder,  the  Offering  Materials  and the offer  and sale of the  Securities
comply,  and will continue to comply, up to the Termination Date in all material
respects with the  requirements  of Rule 506 of Regulation D promulgated  by the
Commission  pursuant to the Securities Act and any other applicable  federal and
state laws,  rules,  regulations  and  executive  orders.  Neither the  Offering
Materials nor any amendment or supplement  thereto nor any documents prepared by
the Company in connection with the Offering will contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made,  not  misleading.  All statements of material facts in the

<PAGE>

Offering Materials are true and correct as of the date of the Offering Materials
and will be true and correct on the date of the Closing.

          (xiv) All taxes which are due and payable  from the Company  have been
paid in full  and the  Company  does  not  have  any  tax  deficiency  or  claim
outstanding assessed or proposed against it.

          (xv) The financial information of the Company included in the Offering
Materials  fairly  presents the financial  position of the Company in accordance
with generally accepted accounting principles  consistently  applied.  There has
been no adverse change or development involving a material prospective change in
the  condition,   financial  or  otherwise,  or  in  the  earnings,   prospects,
stockholders'  equity,  value,  operations,  properties,  business or results of
operations of the Company on a consolidated basis, whether or not arising in the
ordinary  course  of  business,  since  the  date of the most  recent  financial
information  included in the Offering  Materials;  and the outstanding debt, the
property,  both  tangible  and  intangible,  and the  businesses  of the Company
conform in all material  respects to the descriptions  thereof  contained in the
Offering Materials.

          (xvi)  None  of  the  Company  nor  any of  its  officers,  directors,
employees or agents, nor any other person acting on behalf of the Company,  has,
directly  or  indirectly,  given or agreed to give any  money,  gift or  similar
benefit (other than legal price  concessions to customers in the ordinary course
of  business)  to any  customer,  supplier,  employee  or agent of a customer or
supplier,  or official or employee of any governmental agency or instrumentality
of any government  (domestic or foreign) or any political party or candidate for
office  (domestic  or foreign) or other person who is or may be in a position to
help or hinder the business of the Company (or assist it in connection  with any
actual or  proposed  transaction)  which (A) might  subject  the  Company to any
damage  or  penalty  in  any  civil,  criminal  or  governmental  litigation  or
proceeding, or (B) if not given in the past, might have had a materially adverse
effect on the assets,  business or operations of the Company as reflected in any
of the financial statements  contained in the Offering Materials,  or (C) if not
continued in the future, might adversely affect the assets, business, operations
or prospects of the Company in the future.

     5. Certain Covenants and Agreements of the Company.

          The  Company  covenants  and agrees at its  expense  and  without  any
     expense to May Davis as follows:

          A. To advise May Davis of any material adverse change in the Company's
financial  condition,  prospects  or business or of any  development  materially
affecting the Company or rendering  untrue or misleading any material  statement

<PAGE>

in the Offering Materials  occurring at any time prior to the Closing as soon as
the Company is either informed or becomes aware thereof.

         B. To use its best efforts to cause the  Securities  to be qualified or
registered  for  sale,  or to  obtain  exemptions  from  such  qualification  or
registration requirements, on terms consistent with those stated in the Offering
Materials  under the securities  laws of such  jurisdictions  as May Davis shall
reasonably  request,  provided that such states and jurisdictions do not require
the Company to qualify as a foreign corporation. Qualification, registration and
exemption charges and fees shall be at the sole cost and expense of the Company.

         C. Upon  written  request,  to provide and  continue to provide to each
holder of Securities participating in the Offering, so long as such holder shall
remain a security  holder of the Company,  for a period ending on the earlier of
(i) the  registration  of the  Conversion  Shares and Warrant  Shares  under the
Securities Act and (ii) three (3) years from the Termination Date, copies of all
quarterly financial  statements and audited annual financial statements prepared
by or on behalf of the Company,  other  reports  prepared by or on behalf of the
Company for public  disclosure  and all  documents  delivered  to the  Company's
stockholders.

         D.  To  deliver,  for a  period  ending  on  the  earlier  of  (i)  the
registration  of the  Conversion  Shares and Warrant Shares under the Securities
Act and (ii) three (3) years following the Termination  Date, to May Davis, upon
May Davis's request,  in the manner provided in Section 10(B) of this Agreement:
(i)  within  forty  five  (45) days  after  the end of each of the  first  three
quarters of each fiscal year of the Company,  commencing  with the first quarter
ending  after the  Termination  Date,  a  statement  of its income for each such
quarterly  period,  and  its  balance  sheet  and  a  statement  of  changes  in
stockholders'  equity as of the end of such quarterly period,  all in reasonable
detail,  certified by its principal financial or accounting officer; (ii) within
ninety (90) days after the close of each fiscal  year,  its balance  sheet as of
the close of such fiscal year,  together with a statement of income, a statement
of changes in stockholders'  equity and a statement of cash flow for such fiscal
year,  such  balance  sheet,  statement  of  income,  statement  of  changes  in
stockholders'  equity and statement of cash flow to be in reasonable  detail and
accompanied  by a copy of the  certificate  or  report  thereon  of  independent
auditors if audited financial  statements are prepared;  and (iii) a copy of all
documents,  reports and  information  furnished to its  stockholders at the time
that such documents, reports and information are furnished to its stockholders.

         E. To apply the proceeds of the Offering  substantially  in  accordance
with the Offering Materials.

<PAGE>

         F. To provide May Davis with as many copies of the  Offering  Materials
as May Davis may reasonably request.

         G. To comply with the terms of the Securities Purchase Agreements,  the
Registration  Rights Agreements,  the Placement Agent's Warrants,  the Placement
Agent's  Registration Rights Agreement,  the Certificate of Designations and the
Warrants.

         H. To keep available out of its authorized  Common Stock solely for the
purpose of issuance upon the conversion of the Preferred  Stock, the exercise of
the Warrants and the Placement Agent's Warrant,  such number of shares of Common
Stock as shall then be issuable upon the exercise or conversion thereof.

         I. To issue to May Davis, or May Davis's designee,  at the Closing, the
Placement  Agent  Warrant  to  purchase  200,000  shares of Common  Stock.  Each
Placement  Agent Warrant shall entitle the holder  thereof to purchase one share
of Common  Stock at an exercise  price equal to 110% of the closing bid price of
the Common  Stock on the Closing  Date  (subject  to  adjustment  under  certain
circumstances)  at any time  commencing  from  issuance  until sixty (60) months
thereafter.  The  Placement  Agent's  Warrants  shall not be  redeemable  by the
Company.  The terms of the Placement  Agent's  Warrants  shall be more fully set
forth in the certificate(s) representing the Placement Agent's Warrants.

         J. To ensure that any transactions between or among the Company, or any
of its officers, directors and affiliates be on terms and conditions that are no
less  favorable  to the  Company,  than the terms and  conditions  that would be
available in an "arm's length" transaction with an independent third party.

     6. Indemnification.

         A. The Company  hereby agrees that it will indemnify and hold May Davis
and each  officer,  director,  shareholder,  employee or  representative  of May
Davis, and each person  controlling,  controlled by or under common control with
May Davis within the meaning of Section 15 of the  Securities  Act or Section 20
of the Exchange Act or the Rules and Regulations,  harmless from and against any
and all loss, claim, damage,  liability,  cost or expense whatsoever (including,
but not limited to, any and all  reasonable  legal fees and other  expenses  and
disbursements incurred in connection with investigating,  preparing to defend or
defending   any  action,   suit  or   proceeding,   including   any  inquiry  or
investigation,  commenced or threatened, or any claim whatsoever or in appearing
or preparing  for  appearance  as a witness in any action,  suit or  proceeding,
including  any  inquiry,   investigation  or  pretrial   proceeding  such  as  a
deposition)  to which  May  Davis or such  indemnified  person  of May Davis may

<PAGE>

become  subject  under the  Securities  Act,  the  Exchange  Act,  the Rules and
Regulations,  or any other  federal  or state law or  regulation,  common law or
otherwise,  arising  out of or based  upon (i) any untrue  statement  or alleged
untrue  statement  of a  material  fact  contained  in  (A)  Section  4 of  this
Agreement,  (B) the Offering Materials (except those written statements relating
to May Davis given by an  indemnified  person for  inclusion  therein),  (C) any
application or other document or written  communication  executed by the Company
or  based  upon  written  information  furnished  by the  Company  filed  in any
jurisdiction  in order to qualify the Preferred  Stock under the securities laws
thereof,  or any state  securities  commission  or agency;  (ii) the omission or
alleged omission from documents  described in clauses (A), (B) or (C) above of a
material fact required to be stated  therein or necessary to make the statements
therein not  misleading;  or (iii) the breach of any  representation,  warranty,
covenant or agreement made by the Company in this Agreement. The Company further
agrees that upon demand by an  indemnified  person,  at any time or from time to
time, it will promptly  reimburse such indemnified  person for any loss,  claim,
damage,  liability,  cost  or  expense  actually  and  reasonably  paid  by  the
indemnified  person as to which the Company has indemnified such person pursuant
hereto.  Notwithstanding  the foregoing  provisions of this Paragraph  6(A), any
such payment or reimbursement by the Company of fees,  expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent  jurisdiction  (after all appeals or the expiration of time
to appeal) is entered against May Davis or such  indemnified  person as a direct
result of May Davis or such person's  gross  negligence  or willful  misfeasance
will be promptly repaid to the Company.

         B. May Davis hereby agrees that it will  indemnify and hold the Company
and each  officer,  director,  shareholder,  employee or  representative  of the
Company, and each person controlling, controlled by or under common control with
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or the Rules and Regulations,  harmless from and against any
and all loss, claim, damage,  liability,  cost or expense whatsoever (including,
but not limited to, any and all  reasonable  legal fees and other  expenses  and
disbursements incurred in connection with investigating,  preparing to defend or
defending   any  action,   suit  or   proceeding,   including   any  inquiry  or
investigation,  commenced or threatened, or any claim whatsoever or in appearing
or preparing  for  appearance  as a witness in any action,  suit or  proceeding,
including  any  inquiry,   investigation  or  pretrial   proceeding  such  as  a
deposition) to which the Company or such  indemnified  person of the Company may
become  subject  under the  Securities  Act,  the  Exchange  Act,  the Rules and
Regulations,  or any other  federal  or state law or  regulation,  common law or
otherwise,  arising  out of or based  upon (i) the  conduct  of May Davis or its
officers,  employees or representatives in its acting as Placement Agent for the
Offering  or (ii)  the  breach  of any  representation,  warranty,  covenant  or

<PAGE>

agreement made by May Davis in this Agreement.

         C.  Promptly  after  receipt  by an  indemnified  party  of  notice  of
commencement  of any action  covered by  Section  6(A) or 6(B),  the party to be
indemnified shall,  within five (5) business days, notify the indemnifying party
of the commencement  thereof; the omission by one indemnified party to so notify
the  indemnifying  party  shall  not  relieve  the  indemnifying  party  of  its
obligation to indemnify any other  indemnified  party that has given such notice
and shall not relieve the  indemnifying  party of any liability  outside of this
indemnification  if not  materially  prejudiced  thereby.  In the event that any
action is brought against the indemnified  party, the indemnifying party will be
entitled to participate  therein and, to the extent it may desire, to assume and
control  the  defense  thereof  with  counsel  chosen by it which is  reasonably
acceptable to the indemnified party. After notice from the indemnifying party to
such  indemnified  party of its election to so assume the defense  thereof,  the
indemnifying  party  will not be liable to such  indemnified  party  under  such
Section 6(A) or 6(B) for any legal or other  expenses  subsequently  incurred by
such  indemnified  party  in  connection  with  the  defense  thereof,  but  the
indemnified  party  may,  at its own  expense,  participate  in such  defense by
counsel  chosen by it,  without,  however,  impairing the  indemnifying  party's
control  of  the  defense.   Subject  to  the  proviso  of  this   sentence  and
notwithstanding  any other  statement  to the  contrary  contained  herein,  the
indemnified  party or  parties  shall  have the right to choose its or their own
counsel  and  control  the  defense  of any  action,  all at the  expense of the
indemnifying  party if,  (i) the  employment  of such  counsel  shall  have been
authorized in writing by the  indemnifying  party in connection with the defense
of  such  action  at  the  expense  of  the  indemnifying  party,  or  (ii)  the
indemnifying  party shall not have employed counsel  reasonably  satisfactory to
such  indemnified  party to have charge of the  defense of such action  within a
reasonable  time  after  notice of  commencement  of the  action,  or (iii) such
indemnified  party or parties shall have reasonably  concluded that there may be
defenses available to it or them which are different from or additional to those
available  to one  or  all  of the  indemnifying  parties  (in  which  case  the
indemnifying  parties  shall not have the right to direct  the  defense  of such
action on behalf of the  indemnified  party or parties),  in any of which events
such  fees  and  expenses  of one  additional  counsel  shall  be  borne  by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially  similar or related
actions in the same jurisdiction  arising out of the same general allegations or
circumstance,  be liable for the  reasonable  fees and expenses of more than one
separate  firm of attorneys  at any time for all such  indemnified  parties.  No
settlement of any action or  proceeding  against an  indemnified  party shall be
made without the consent of the indemnifying party.

<PAGE>

         D.  In  order  to  provide  for  just  and  equitable  contribution  in
circumstances in which the indemnification  provided for in Section 6(A) or 6(B)
is due in accordance  with its terms but is for any reason held by a court to be
unavailable  on grounds of policy or otherwise,  the Company and May Davis shall
contribute to the aggregate losses,  claims,  damages and liabilities (including
legal or other expenses reasonably incurred in connection with the investigation
or defense  of same)  which the other may incur in such  proportion  so that May
Davis shall be  responsible  for such  percent of the  aggregate of such losses,
claims,  damages  and  liabilities  as shall equal the  percentage  of the gross
proceeds paid to May Davis and the Company shall be responsible for the balance;
provided, however, that no person guilty of fraudulent  misrepresentation within
the  meaning  of  Section  11(f) of the  Securities  Act  shall be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  For purposes of this Section 6(D),  any person  controlling,
controlled by or under common control with May Davis, or any partner,  director,
officer,  employee,  representative or any agent of any thereof,  shall have the
same rights to contribution as May Davis and each person controlling, controlled
by or under common  control with the Company within the meaning of Section 15 of
the  Securities  Act or Section 20 of the  Exchange  Act and each officer of the
Company  and  each  director  of the  Company  shall  have the  same  rights  to
contribution as the Company.  Any party entitled to contribution will,  promptly
after  receipt  of notice of  commencement  of any  action,  suit or  proceeding
against  such  party in respect  of which a claim for  contribution  may be made
against  the other party under this  Section  6(D),  notify such party from whom
contribution  may be sought,  but the omission to so notify such party shall not
relieve the party from whom  contribution may be sought from any obligation they
may have  hereunder  or  otherwise  if the party from whom  contribution  may be
sought is not  materially  prejudiced  thereby.  The indemnity and  contribution
agreements  contained in this Section 6 shall remain operative and in full force
and  effect  regardless  of  any  investigation  made  by or on  behalf  of  any
indemnified person or any termination of this Agreement.

     7. Payment of Expenses.

Whether or not the Offering is successfully completed, the Company hereby agrees
to bear all of the expenses in connection with the Offering,  including, but not
limited  to  the  following:   filing  fees,  printing  and  duplicating  costs,
advertisements, postage and mailing expenses with respect to the transmission of
Offering  Materials,  registrar and transfer  agent fees,  escrow agent fees and
expenses,  fees of the  Company's  counsel and  accountants,  issue and transfer
taxes,  if any, and counsel fees and expenses  (such  counsel fees not to exceed
$20,000 plus out of pocket expenses).

<PAGE>

     8. Conditions of the Closing

         The Closing  shall be held at the offices of May Davis or its  counsel.
The  obligations  of May Davis  hereunder  shall be  subject  to the  continuing
accuracy of the  representations  and warranties of the Company herein as of the
date hereof and as of the Closing  with respect to the Company as if it had been
made on and as of the  Closing;  the  accuracy  on and as of the  Closing of the
statements  of the  officers of the  Company  made  pursuant  to the  provisions
hereof;  and the  performance  by the  Company  on and as of the  Closing of its
covenants and obligations hereunder and to the following further conditions:

          A. At the Closing,  May Davis shall  receive the opinion of William B.
Barnett,  Esq.,  counsel to the  Company,  dated as of the date of the  Closing,
which opinion shall be in form and substance reasonably  satisfactory to counsel
for May Davis.

         B. At or prior to the  Closing,  counsel  for May Davis shall have been
furnished  such  documents,  certificates  and  opinions as they may  reasonably
require  for the  purpose of  enabling  them to review or pass upon the  matters
referred  to in this  Agreement  and the  Offering  Materials,  or in  order  to
evidence   the   accuracy,   completeness   or   satisfaction   of  any  of  the
representations, warranties or conditions herein contained.

         C. At and prior to the  Closing,  (i) there shall have been no material
adverse change nor development  involving a prospective  change in the condition
or prospects or the business activities,  financial or otherwise, of the Company
from the latest  dates as of which such  condition  is set forth in the Offering
Materials; (ii) there shall have been no transaction, not in the ordinary course
of  business,  entered into by the Company  which has not been  disclosed in the
Offering Materials or to May Davis in writing;  (iii) except as set forth in the
Offering  Materials,  the Company shall not be in default under any provision of
any instrument  relating to any outstanding  indebtedness  for which a waiver or
extension  has not been  otherwise  received;  (iv)  except  as set forth in the
Offering Materials, the Company shall not have issued any securities (other than
those set forth in the Offering  Materials)  or declared or paid any dividend or
made any distribution of its capital stock of any class and there shall not have
been any  change in the  indebtedness  (long or short  term) or  liabilities  or
obligations of the Company (contingent or otherwise);  (v) no material amount of
the assets of the  Company  shall  have been  pledged  or  mortgaged,  except as
indicated in the Offering Materials;  and (v) no action, suit or proceeding,  at
law or in equity,  against the Company or  affecting  any of its  properties  or
businesses  shall be pending or threatened  before or by any court or federal or
state commission,  board or other  administrative  agency,  domestic or foreign,
wherein an unfavorable  decision,  ruling or finding could materially  adversely
affect  the  businesses,  prospects  or  financial  condition  or  income of the
Company, except as set forth in the Offering Materials.

<PAGE>

         D. At the Closing,  May Davis shall have received a certificate  of the
Company signed by its chief executive officer and chief financial officer, dated
as of the date of the Closing,  to the effect that the  conditions  set forth in
subparagraph (C) above have been satisfied and that, as of the Closing Date, the
representations  and  warranties  of the Company  set forth  herein are true and
correct.

         E. At the Closing,  the Company  shall have duly executed and delivered
to May Davis, or its designees, the Placement Agent's Warrants, in the names and
denominations specified by May Davis.

          9. Termination.

         This Agreement shall terminate if the Closing specified in Section 1(B)
does  not take  place  on or  before  seven  (7)  business  days  following  the
Termination Date or as soon thereafter as the funds received from  subscriptions
have cleared the banking  system in the normal  course of  business.  Either May
Davis or the Company may terminate the Offering in its sole discretion  prior to
the Closing.  In the event that the Company determines to terminate the Offering
from and after the date hereof  through the end of the  Offering  Period for any
reason  other than May Davis's  breach of the terms of this  Agreement,  and May
Davis is willing to proceed, then the Company shall immediately pay to May Davis
the amount of its out-of-pocket expenses. Upon such termination,  the Securities
Purchase  Agreements,  Registration  Rights  Agreements  and  payments  for  the
Preferred  Stock not  previously  delivered to the purchasers  thereof,  without
interest  thereon or deduction  therefrom,  shall be returned to the  respective
subscribers,  May Davis shall have no further obligation to the Company, and the
Company shall have no obligation to May Davis. If May Davis does not or fails to
complete  the  Offering and the reasons  therefor  are  reasonably  related to a
material  adverse  change in the  business or  financial  results,  prospects or
condition of the Company,  factors beyond May Davis control and through no fault
of its own or a material  adverse change in market  conditions then, in any such
case,  the  Company  agrees to promptly  pay May Davis its actual  out-of-pocket
expenses, including the fees and disbursements of May Davis's legal counsel.

          10. Miscellaneous.

         A. This Agreement may be executed in any number of  counterparts,  each
of which shall be deemed to be an original,  but all which shall be deemed to be
one and the same instrument.

<PAGE>

         B. Any notice  required or  permitted  to be given  hereunder  shall be
given in writing  and shall be deemed  effective  when  deposited  in the United
States mail, postage prepaid, or when received if personally delivered or faxed,
addressed as follows:

         To May Davis:

                  May Davis Group, Inc.
                  One World Trade Center - Suite 8735
                  New York, New York  10048
                  Attention:

         with a copy to:

                  Silverman, Collura & Chernis, P.C.
                  Martin C. Licht, Esq.
                  381 Park Avenue South B Suite 1601
                  New York, New York  10016
                  Fax: (212) 779-8858

         To the Company:

                  Digs, Inc.
                  17327 Ventura Blvd., Suite 200
                  Encino CA 91316
                  Attention: Peter Dunn

or to such other address of which written notice is given to the others.

         C. This  Agreement  shall be governed by and  construed in all respects
under the laws of the State of New York,  without  reference  to its conflict of
laws rules or principles. Any suit, action, proceeding or litigation arising out
of or relating to this Agreement shall be brought and prosecuted in such federal
or state  court or courts  located  within the State of New York as  provided by
law.  The  parties  hereby  irrevocably  and  unconditionally   consent  to  the
jurisdiction  of each such court or courts  located within the State of New York
and to service of  process by  registered  or  certified  mail,  return  receipt
requested,  or by any other  manner  provided  by  applicable  law,  and  hereby
irrevocably and unconditionally  waive any right to claim that any suit, action,
proceeding  or litigation  so commenced  has been  commenced in an  inconvenient
forum.

<PAGE>

         D. This Agreement and the other  agreements  referenced  herein contain
the entire  understanding  between the parties hereto and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.

         E. If any  provision of this  Agreement  shall be held to be invalid or
unenforceable,  such invalidity or  unenforceability  shall not affect any other
provision of this Agreement.

<PAGE>

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the date first written above.

                                   DIGS, INC.

                                                   By: /s/ PETER B. DUNN
                                                           --------------
                                                    Name:  Peter B. Dunn
                                                    Title: President

MAY DAVIS GROUP, INC.

By:      ________________________
         Name:
         Title:SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (the "Agreement"),  dated as of March 14,
2000, by and among Digs, Inc. a Delaware corporation,  with headquarters located
at 17327 Ventura  Blvd.,  Suite 200,  Encino CA 91316 (the  "Company"),  and the
investors  listed on the Schedule of Buyers  attached  hereto  (individually,  a
"Buyer" and collectively, the "Buyers").

         WHEREAS:

         A. The  Company  and the  Buyers  are  executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act") and/or Rule 4(2) thereof;

         B. The Company has authorized the following new series of its preferred
stock, par value $0.01 per share:  the Company's Series A Convertible  Preferred
Stock (the  "Preferred  Stock"),  which shall be convertible  into shares of the
Company's  common  stock,  par value  $0.01 per share (the  "Common  Stock") (as
converted,  the  "Conversion  Shares"),  in  accordance  with  the  terms of the
Company's  Certificate of Designations,  Preferences and Rights of the Preferred
Stock,  substantially in the form attached hereto as Exhibit A (the "Certificate
of Designations");

         C. The Buyers wish to purchase, upon the terms and conditions stated in
this  "agreement,  initially an aggregate of up to 2,500 shares of the Preferred
Stock (the "Preferred  Shares") in the  respective  amounts set forth  opposite
each Buyer's name on the  Schedule of Buyers and warrants  substantially  in the
form  attached  hereto as  Exhibit B (the  "Warrants"  ) to acquire 40 shares of
Common Stock (the "Warrant  Shares") for each share of Preferred Stock purchased
by the Buyer.

         D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration  Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement")  pursuant  to which  the  Company  has  agreed  to  provide  certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

         NOW THEREFORE, the Company and the Buyers hereby agree as follows:

1.   PURCHASE AND SALE OF PREFERRED SHARES.

     a. Purchase of Preferred Shares. Subject to the satisfaction (or waiver) of
the  conditions  set forth in Sections  6(a) and 7(a) below,  the Company  shall
issue and sell to each Buyer and each Buyer  severally  agrees to purchase  from
the Company the  respective  number of Preferred  Shares set forth opposite such

<PAGE>

Buyer's name on the  Schedule of Buyers,  along with the related  Warrants  (the
"Closing").  The purchase price (the "Purchase  Price") of each Preferred  Share
and the related Warrants shall be an aggregate of $1,000.  "Business Days" means
any day other than Saturday,  Sunday or other day on which  commercial  banks in
the City of New York are authorized or required by law to remain closed.

     b. The Closing Date. The date and time of the Closing (the "Closing  Date")
shall be 10:00 a.m.  Central Time,  within three (3) Business Days following the
date hereof,  subject to the  satisfaction  (or waiver) of the conditions to the
Closing set forth in  Sections  6(a) and 7(a) (or such later date as is mutually
agreed to by the Company and the Buyers). The Closing shall occur on the Closing
Date at the offices of  Silverman,  Collura,  & Chernis,  P.C.,  381 Park Avenue
South, New York, New York 10016.

     c. Form of  Payment.  On the  Closing  Date,  (i) each Buyer  shall pay the
Purchase Price to the Company for the Preferred  Shares,  along with the related
Warrants to be issued and sold to such Buyer at such  Closing,  by wire transfer
of immediately  available  funds in accordance  with the Company's  written wire
instructions,  less any amount  withheld for expenses  pursuant to Section 4(i),
and (ii) the Company shall  deliver to each Buyer,  stock  certificates  (in the
denominations as such Buyer shall request) (the "Preferred Stock  Certificates")
representing  such  number of the  Preferred  Shares  which  such  Buyer is then
purchasing hereunder along with the related Warrants, duly executed on behalf of
the Company and registered in the name of such Buyer or its designee.

2.   BUYER'S REPRESENTATIONS AND WARRANTIES.

Each Buyer represents and warrants with respect to only itself that:

     a. Investment Purpose. Such Buyer (i) is acquiring the Preferred Shares and
(ii) upon conversion of the Preferred Shares, will acquire the Conversion Shares
issuable upon conversion thereof (the Preferred Shares and the Conversion Shares
collectively  are referred to herein as the  "Securities"),  for its own account
for  investment  only and not with a view  towards,  or for resale in connection
with,  the  public  sale or  distribution  thereof,  except  pursuant  to  sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations  herein, such Buyer does not agree to hold any of the Securities
for any minimum or other  specific term and reserves the right to dispose of the
Securities  at any  time  in  accordance  with  or  pursuant  to a  registration
statement or an exemption under the 1933 Act.

     b. Accredited  Investor  Status.  Such Buyer is an accredited  investor" as
that term is defined in Rule 501(a)(3) of Regulation D.

     c. Reliance on Exemptions.  Such Buyer  understands that the Securities are
being  offered  and  sold to it in  reliance  on  specific  exemptions  from the
registration requirements of the United States federal and state securities laws

<PAGE>

and that the Company is relying in part upon the truth and accuracy of, and such
Buyer's   compliance   with,  the   representations,   warranties,   agreements,
acknowledgments  and  understandings  of such Buyer set forth herein in order to
determine the  availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

     d.  Information.  Such Buyer and its advisors,  if any, have been furnished
with all  materials  relating to the  business,  finances and  operations of the
Company and  materials  relating to the offer and sale of the  Securities  which
have been  requested by such Buyer.  Such Buyer and its  advisors,  if any, have
been  afforded the  opportunity  to ask  questions of the Company.  Neither such
inquiries nor any other due diligence  investigations conducted by such Buyer or
its advisors,  if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's  representations and warranties contained
in Sections 3 and 9(m) below.  Such Buyer understands that its investment in the
Securities  involves  a  high  degree  of  risk.  Such  Buyer  has  sought  such
accounting,  legal and tax  advice  as it has  considered  necessary  to make an
informed investment decision with respect to its acquisition of the Securities.

     e. No Governmental  Review.  Such Buyer  understands  that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed on or made any  recommendation  or  endorsement  of the Securities or the
fairness  or  suitability  of the  investment  in the  Securities  nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Securities.

     f. Transfer or Resale.  Such Buyer  understands  that except as provided in
the Registration Rights Agreement:  (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered  for  sale,  sold,  assigned  or  transferred  unless  (A)  subsequently
registered  thereunder,  (B) such Buyer shall have  delivered  to the Company an
opinion of counsel,  in a  generally  acceptable  form,  to the effect that such
Securities  to be  sold,  assigned  or  transferred  may be  sold,  assigned  or
transferred  pursuant to an exemption from such registration,  or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred  pursuant to Rule 144 promulgated under the 1933 Act, as
amended,  (or a  successor  rule  thereto)  ("Rule  144");  (ii) any sale of the
Securities  made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable,  any resale of the
Securities  under  circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require  compliance  with some other  exemption under the 1933
Act or the rules and  regulations of the SEC  thereunder;  and (iii) neither the
Company nor any other person is under any  obligation to register the Securities
under the 1933 Act or any state  securities laws or to comply with the terms and
conditions of any  exemption  thereunder.  Notwithstanding  the  foregoing,  the
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the securities.

<PAGE>

     g.  Legends.   Such  Buyer  understands  that  the  certificates  or  other
instruments  representing  the Preferred Shares and the Warrants and, until such
time as the sale of the  Conversion  Shares  and the  Warrant  Shares  have been
registered  under  the  1933  Act as  contemplated  by the  Registration  Rights
Agreement,  the stock  certificates  representing the Conversion  Shares and the
Warrant Shares,  except as set forth below,  shall bear a restrictive  legend in
substantially  the  following  form  (and a  stop-transfer  order  may be placed
against transfer of such stock certificates):

     THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
     STATE  SECURITIES  LAWS.  THE  SECURITIES MAY NOT BE OFFERED FOR SALE,
     SOLD,  TRANSFERRED  OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
     REGISTRATION  STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
     1933,  AS  AMENDED,  OR  APPLICABLE  STATE  SECURITIES  LAWS OR (B) AN
     OPINION OF COUNSEL, IN A GENERALLY  ACCEPTABLE FORM, THAT REGISTRATION
     IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE  STATE SECURITIES LAWS OR
     (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING
     THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
     FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.

The legend  set forth  above  shall be removed  and the  Company  shall  issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by federal or state securities laws, that
(i) such  Securities  are  registered  for  resale  under the 1933 Act,  (ii) in
connection  with a sale  transaction,  such holder  provides the Company with an
opinion of counsel, in a generally  acceptable form, to the effect that a public
sale,  assignment or transfer of the Securities may be made without registration
under the 1933 Act, or (iii) such holder  provides the Company  with  reasonable
assurances  that the  Securities  can be sold  pursuant  to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold.

     h.   Authorization;   Enforcement;   Validity.   This   Agreement  and  the
Registration  Rights Agreement have been duly and validly  authorized,  executed
and  delivered on behalf of such Buyer and are valid and binding  agreements  of
such Buyer  enforceable  against  such  Buyer in  accordance  with their  terms,

<PAGE>

subject as to enforceability  to general  principles of equity and to applicable
bankruptcy,  insolvency,  reorganization,   moratorium,  liquidation  and  other
similar laws relating to, or affecting generally,  the enforcement of applicable
creditors' rights and remedies.

     i.  Residency.  Such Buyer is a resident of that  country  specified in its
address on the Schedule of Buyers.

     1.  Compensation.  Such Buyer  acknowledges that May Davis Group, Inc. will
receive compensation in connection with the offering of the Preferred Shares and
the  Warrants in an amount equal to 10% of the gross  proceeds  from the sale of
the  Preferred  Shares  together  with a warrant to purchase  200,000  shares of
Common Stock.

3.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to each of the Buyers that:

     a.  Organization  and  Qualification.  The Company  and its  "Subsidiaries"
(which for  purposes of this  Agreement  means any entity in which the  Company,
directly  or  indirectly,  owns  capital  stock or holds an  equity  or  similar
interest) are corporations  duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated,  and have the
requisite corporate power and authorization to own their properties and to carry
on  their  business  as now  being  conducted.  Each  of  the  Company  and  its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good  standing in every  jurisdiction  in which its ownership of property or the
nature of the  business  conducted  by it makes  such  qualification  necessary,
except to the extent that the failure to be so qualified or be in good  standing
would not have a Material Adverse Effect.  As used in this Agreement,  "Material
Adverse Effect" means any material  adverse effect on the business,  properties,
assets, operations,  results of operations,  financial condition or prospects of
the  Company  and  its  Subsidiaries,  if  any,  taken  as a  whole,  or on  the
transactions  contemplated  hereby or by the  agreements  and  instruments to be
entered  into in  connection  herewith,  or on the  authority  or ability of the
Company to perform its obligations  under the Transaction  Documents (as defined
below). The Company has no Subsidiaries except as set forth on Schedule 3(a).

<PAGE>

     b. Authorization;  Enforcement; Validity. (i) The Company has the requisite
corporate  power and authority to enter into and perform its  obligations  under
this Agreement,  the Registration  Rights  Agreement,  the Irrevocable  Transfer
Agent Instructions (as defined in Section 5), the Warrants and each of the other
agreements   entered  into  by  the  parties  hereto  in  connection   with  the
transactions  contemplated  by this Agreement  (collectively,  the  "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof,  (ii) the execution and delivery of the  Transaction  Documents and the
execution and filing of the  Certificate of  Designations by the Company and the
consummation  by  it  of  the  transactions  contemplated  hereby  and  thereby,
including  without  limitation  the  issuance  of the  Preferred  Shares and the
reservation  for  issuance  and the  issuance of the  Conversion  Shares and the
Warrant  Shares  issuable  upon  conversion  or exercise  thereof have been duly
authorized and  unanimously  approved by the Company's Board of Directors and no
further  consent or  authorization  is  required  by the  Company,  its Board of
Directors or its stockholders,  (iii) this Agreement and the Registration Rights
Agreement  have  been duly  executed  and  delivered  by the  Company,  (iv) the
Transaction Documents,  upon execution and delivery thereof, will constitute the
valid and binding  obligations of the Company enforceable against the Company in
accordance  with their terms,  except as such  enforceability  may be limited by
general   principles   of   equity   or   applicable   bankruptcy,   insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting generally,  the enforcement of creditors' rights and remedies, and (v)
prior to the Closing Date, the Certificate of  Designations  has been filed with
the  Secretary  of State of the State of Delaware  and will be in full force and
effect,  enforceable  against the Company in accordance with its terms and shall
not have been amended unless in compliance with its terms.

     c.  Capitalization.  As of the date hereof, the authorized capital stock of
the Company  consists of (i) 80,000,000  shares of Common Stock,  of which as of
the date hereof, 6,648,631 shares are issued and outstanding, 750,000 shares are
reserved for issuance  pursuant to the Company's stock option and purchase plans
and -0- shares are issuable and  reserved  for issuance  pursuant to  securities
(other than the Preferred  Shares and the Warrants)  exercisable or exchangeable
for, or convertible  into,  shares of Common Stock and (ii) 20,000,000 shares of
Preferred  Stock,  of which as of the date  hereof,  no shares  are  issued  and
outstanding. All of such outstanding shares have been, or upon  issuance  will

<PAGE>

be, validly issued and are fully paid and nonassessable.  Except as disclosed in
Schedule  3(c),  (A) no shares of the  Company's  capital  stock are  subject to
preemptive  rights or any  other  similar  rights  or any liens or  encumbrances
suffered  or  permitted  by the  Company;  (B)  there  are no  outstanding  debt
securities  issued  by  the  Company;  (C)  there  are no  outstanding  options,
warrants,  scrip,  rights to subscribe to, calls or commitments of any character
whatsoever  relating to, or securities or rights convertible into, any shares of
capital  stock  of  the  Company  or  any of  its  Subsidiaries,  or  contracts,
commitments,  understandings  or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional  shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company or any of its Subsidiaries;  (D) there are no agreements or arrangements
under which the Company or any of its  Subsidiaries is obligated to register the
sale of any of their  securities  under the 1933 Act  (except  the  Registration
Rights Agreement); (E) there are no outstanding securities or instruments of the
Company or any of its  Subsidiaries  which  contain  any  redemption  or similar
provisions,  and  there  are  no  contracts,   commitments,   understandings  or
arrangements  by which the Company or any of its  Subsidiaries  is or may become
bound to redeem a security of the Company or any of its Subsidiaries;  (F) there
are no securities or instruments containing  anti-dilution or similar provisions
that will be triggered by the  issuance of the  Securities  as described in this
Agreement;  and (G) the Company does not have any stock  appreciation  rights or
"phantom  stock"  plans or  agreements  or any similar  plan or  agreement.  The
Company  has  furnished  to the Buyer true and correct  copies of the  Company's
Certificate  of  Incorporation,  as amended  and as in effect on the date hereof
(the "Certificate of  Incorporation"),  and the Company's Bylaws, as amended and
as in effect on the date hereof (the "Bylaws"),  and the terms of all securities
convertible  into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.

     d. Issuance of Securities.  The Preferred  Shares are duly  authorized and,
upon issuance in accordance with the terms hereof,  shall be (i) validly issued,
fully paid and non-assessable,  (ii) free from all taxes, liens and charges with
respect to the issue  thereof and (iii)  entitled to the rights and  preferences
set forth in the Certificate of Designations.  80,000,000 shares of Common Stock
(subject to adjustment  pursuant to the Company's  covenant set forth in Section

<PAGE>

4(f) below) have been duly  authorized and reserved for issuance upon conversion
of the Preferred  Shares and upon exercise of the Warrants.  Upon  conversion or
exercise in accordance with the Certificate of Designations or the Warrants,  as
the case may be, the  Conversion  Shares and the Warrant  Shares will be validly
issued,  fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded  to a holder  of Common  Stock.  The  issuance  by the  Company  of the
Securities  is exempt from  registration  under the 1933 Act,  assuming that the
representations  and warranties of each of the Buyers contained in Section 2 are
true and correct as to factual matters.

     e. No  Conflicts.  Except as disclosed  in Schedule  3(e),  the  execution,
delivery and  performance  of the  Transaction  Documents  by the  Company,  the
performance  by  the  Company  of  its  obligations  under  the  Certificate  of
Designations   and  the   consummation  by  the  Company  of  the   transactions
contemplated hereby and thereby (including,  without limitation, the reservation
for issuance and issuance of the Conversion  Shares and the Warrant Shares) will
not  (i)  result  in a  violation  of  the  Certificate  of  Incorporation,  any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the Bylaws;  (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default)  under,  or  give to  others  any  rights  of  termination,  amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its  Subsidiaries  is a party;  (iii) result in a
violation of any law, rule,  regulation,  order,  judgment or decree  (including
federal and state  securities laws and regulations and the rules and regulations
of the Principal Market (as defined below))  applicable to the Company or any of
its  Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e), neither
the Company nor its  Subsidiaries is in violation of any term of its Certificate
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding  series  of  preferred  stock  of the  Company  or  Bylaws  or their
organizational charter or bylaws, respectively.  Except as disclosed in Schedule
3(e), neither the Company or any of its Subsidiaries is in violation of any term
of  or  in  default  under  any  contract,  agreement,  mortgage,  indebtedness,
indenture,  instrument,  judgment,  decree  or  order  or any  statute,  rule or
regulation  applicable  to the Company or its  Subsidiaries,  except  where such
violation  would not  result,  either  individually  or in the  aggregate,  in a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted,  and shall not be conducted, in violation of any law, ordinance
or regulation of any governmental entity. Except as specifically contemplated by

<PAGE>

this  Agreement and as required  under the 1933 Act, the Company is not required
to  obtain  any  consent,  authorization  or order  of,  or make any  filing  or
registration  with,  any  court or  governmental  agency  or any  regulatory  or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents or to perform its
obligations  under the Certificate of  Designations,  in each case in accordance
with the terms  hereof or thereof.  Except as disclosed  in Schedule  3(e),  all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain  pursuant to the  preceding  sentence  have been  obtained or
effected on or prior to the date hereof.  The Company and its  Subsidiaries  are
unaware  of any  facts or  circumstances  which  might  give  rise to any of the
foregoing.  The Company is not in violation of the listing  requirements  of the
Principal  Market (as defined below),  and has no actual  knowledge of any facts
which would  reasonably  lead to delisting or  suspension of the Common Stock by
the Principal Market in the foreseeable future.

     f. SEC Documents;  Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing  filed prior to the date
hereof and all exhibits included therein and financial  statements and schedules
thereto and  documents  incorporated  by  reference  therein  being  hereinafter
referred to as the ASEC  Documents".  The Company has delivered to the Buyers or
their respective  representatives true and complete copies of the SEC Documents.
As of  their  respective  dates,  the SEC  Documents  complied  in all  material
respects with the  requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents,  and none of the
SEC  Documents,  at the time they were filed with the SEC,  contained any untrue
statement of a material  fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the  circumstances  under  which they were  made,  not  misleading.  As of their
respective  dates,  the financial  statements of the Company included in the SEC
Documents  complied  as  to  form  in  all  material  respects  with  applicable
accounting  requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally  accepted  accounting  principles,  consistently  applied,  during the
periods  involved  (except (i) as may be otherwise  indicated in such  financial
statements  or the  notes  thereto,  or (ii) in the  case of  unaudited  interim
statements,  to the extent they may exclude  footnotes  or may be  condensed  or
summary statements) and fairly present in all material respects the financial

<PAGE>

position  of  the  Company  as of the  dates  thereof  and  the  results  of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited   statements,   to  normal  year-end  audit  adjustments).   No  other
information  provided by or on behalf of the Company to the Buyers  which is not
included in the SEC Documents,  contains any untrue statement of a material fact
or omits to state any material  fact  necessary in order to make the  statements
therein, in the light of the circumstance under which they are or were made, not
misleading.  Neither  the Company  nor any of its  Subsidiaries  or any of their
officers,  directors,  employees  or agents  have  provided  the Buyers with any
material, nonpublic information.

     g. Absence of Certain Changes.  Except as disclosed in Schedule 3(g), since
January  1, 1999  there has been no  material  adverse  change  and no  material
adverse development in the business,  properties, assets, operations, results of
operations,   financial   conditions   or   prospects  of  the  Company  or  its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps,  to seek  protection  pursuant to any bankruptcy law nor does
the Company or any of its  Subsidiaries  have any knowledge or reason to believe
that its creditors intend to initiate involuntary  bankruptcy proceedings or any
actual  knowledge of any fact which would  reasonably  lead a creditor to do so.
Except as disclosed in Schedule 3(g),  since January 1, 1999 the Company has not
declared or paid any dividends,  sold any assets in excess of $25,000 outside of
the  ordinary  course  of  business  or had  capital  expenditures  in excess of
$25,000.

     h. Absence of Litigation. There is no action, suit, proceeding,  inquiry or
investigation  before  or  by  any  court,  public  board,   government  agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its  Subsidiaries,  threatened  against or affecting the Company,  the
Common  Stock  or any  of the  Subsidiaries  or  any  of  the  Company's  or the
Subsidiaries'  officers or  directors  in their  capacities  as such,  except as
expressly set forth in Schedule  3(h).  Except as set forth in Schedule 3(h), to
the  knowledge of the Company  none of the  directors or officers of the Company
have been involved in securities related litigation during the past five years.

     i.  Acknowledgment  Regarding  Buyer's  Purchase of Preferred  Shares.  The
Company  acknowledges and agrees that each of the Buyers is acting solely in the
capacity of an arm's length purchaser with respect to the Transaction  Documents
and the Certificate of Designation and the transactions  contemplated hereby and
thereby. The Company further acknowledges that each Buyer is not acting as a

<PAGE>

financial  advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction  Documents and the Certificate of Designation and the
transactions  contemplated hereby and thereby and any advice given by any of the
Buyers or any of their respective  representatives  or agents in connection with
the   Transaction   Documents  and  the   Certificate  of  Designation  and  the
transactions  contemplated  hereby  and  thereby  is merely  incidental  to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the  Company's  decision to enter into the  Transaction  Documents has been
based   solely  on  the   independent   evaluation   by  the   Company  and  its
representatives.

     j. No  Undisclosed  Events,  Liabilities,  Developments  or  Circumstances.
Except for the issuance of the Preferred  Stock  contemplated by this Agreement,
no event,  liability,  development or circumstance has occurred or exists, or is
contemplated to occur,  with respect to the Company or its Subsidiaries or their
respective business, properties,  prospects,  operations or financial condition,
that  would  be  required  to be  disclosed  by  the  Company  under  applicable
securities  laws on a  registration  statement  on Form S-1  filed  with the SEC
relating  to an issuance  and sale by the Company of its Common  Stock and which
has not been publicly disclosed.

     k. No General Solicitation. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has engaged in any form of general
solicitation  or general  advertising  (within the meaning of Regulation D under
the 1933 Act) in connection with the offer or sale of the Securities.

     l. No Integrated Offering.  Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under  circumstances  that would require  registration  of any of the Securities
under the 1933 Act or cause this  offering of the  Securities  to be  integrated
with  prior  offerings  by the  Company  for  purposes  of the  1933  Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the  securities  of the  Company are listed or  designated,  nor will the
Company or any of its  Subsidiaries  take any action or steps that would require
registration  of any of the Securities  under the 1933 Act or cause the offering
of the Securities to be integrated with other offerings.

     m. Dilutive  Effect.  The Company  understands  and  acknowledges  that the
number of Conversion Shares issuable upon conversion of the Preferred Shares and

<PAGE>

the Warrant  Shares  issuable upon the exercise of the Warrants will increase in
certain  circumstances.  The Company further acknowledges that its obligation to
issue  Conversion  Shares upon conversion of the Preferred  Shares in accordance
with this Agreement and the  Certificate of  Designations  and its obligation to
issue the Warrant  Shares upon exercise of the Warrants in accordance  with this
Agreement  and the  Warrants,  is,  in each  case,  absolute  and  unconditional
regardless  of the dilutive  effect that such issuance may have on the ownership
interests of other stockholders of the Company.

     n. Employee  Relations.  Neither the Company nor any of its Subsidiaries is
involved in any union labor  dispute nor, to the knowledge of the Company or any
of its Subsidiaries,  is any such dispute  threatened.  None of the Company's or
its  Subsidiaries'  employees  is a  member  of a union  which  relates  to such
employee's  relationship  with the  Company,  neither the Company nor any of its
Subsidiaries is a party to a collective  bargaining  agreement,  and the Company
and its Subsidiaries believe that their relations with their employees are good.
No  executive  officer (as defined in Rule 501(f) of the 1933 Act) has  notified
the  Company  that such  officer  intends  to leave  the  Company  or  otherwise
terminate such officer's  employment with the Company.  No executive officer, to
the best knowledge of the Company and its  Subsidiaries,  is, or is now expected
to  be,  in  violation  of  any  material  term  of  any  employment   contract,
confidentiality,    disclosure    or    proprietary    information    agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant,  and the continued  employment of each such executive officer does not
subject the Company or any of its  Subsidiaries to any liability with respect to
any of the foregoing matters.

     o.  Intellectual  Property Rights.  The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks,  trade names, service
marks,  service mark  registrations,  service  names,  patents,  patent  rights,
copyrights, inventions, licenses, approvals, governmental authorizations,  trade
secrets  and other  intellectual  property  rights  necessary  to conduct  their
respective  businesses as now  conducted.  Except as set forth on Schedule 3(o),
none of the  Company's  trademarks,  trade names,  service  marks,  service mark
registrations,  service names, patents, patent rights,  copyrights,  inventions,
licenses,  approvals,  governmental  authorizations,   trade  secrets  or  other
intellectual  property  rights have  expired or  terminated,  or are expected to
expire or  terminate  within  two  years  from the date of this  Agreement.  The
Company and its  Subsidiaries  do not have any knowledge of any  infringement by
the Company or its  Subsidiaries  of  trademarks,  trade names,  service  marks,
service mark registrations,  service names, patents, patent rights,  copyrights,
inventions,  licenses,  trade secrets or other  intellectual  property rights of
others, or of any development of similar or identical trade secrets or technical
information  by others and,  except as set forth on Schedule  3(o),  there is no
claim,  action or proceeding being made or brought against,  or to the Company's
knowledge,  being threatened against, the Company or its Subsidiaries  regarding
its trademarks, trade names, service marks, service mark registrations,  service
names, patents, patent rights, copyrights,  inventions, licenses, trade secrets,

<PAGE>

or infringement of other  intellectual  property rights; and the Company and its
Subsidiaries are unaware of any facts or circumstances  which might give rise to
any of the foregoing.  The Company and its  Subsidiaries  have taken  reasonable
security  measures to protect the secrecy,  confidentiality  and value of all of
their intellectual properties.

     p.  Environmental  Laws.  Except in such  instances  as could  not,  either
individually or in the aggregate,  have a Material  Adverse Effect,  the Company
and its Subsidiaries (i) are in compliance with any and all applicable  foreign,
federal,  state and local laws and  regulations  relating to the  protection  of
human health and safety,  the  environment  or hazardous or toxic  substances or
wastes, pollutants or contaminants ("Environmental Laws"("Environmental Laws"

     q. Title. The Company and its  Subsidiaries  have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property  owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except  such as are  described  in  Schedule  3(q) or such as do not  materially
affect the value of such  property  and do not  interfere  with the use made and
proposed to be made of such property by the Company and any of its Subsidiaries.
Any real property and facilities  held under lease by the Company and any of its
Subsidiaries  are held by them under valid,  subsisting and  enforceable  leases
with such  exceptions as are not material and do not interfere with the use made
and proposed to be made of such  property and  facilities by the Company and its
Subsidiaries.

     r.  Insurance.  The  Company  and each of its  Subsidiaries  are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such  amounts as  management  of the  Company  believes to be prudent and
customary  in the  businesses  in which the  Company  and its  Subsidiaries  are
engaged.  Neither  the  Company  nor any such  Subsidiary  has been  refused any
insurance  coverage  sought or applied  for and neither the Company nor any such
Subsidiary  has any  reason  to  believe  that it will not be able to renew  its
existing  insurance  coverage  as and when such  coverage  expires  or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its

<PAGE>

business  at a cost that would not have a Material  Adverse  Effect,  taken as a
whole.

     s.  Regulatory  Permits.  The  Company  and its  Subsidiaries  possess  all
certificates,  authorizations  and permits  issued by the  appropriate  federal,
state or foreign  regulatory  authorities  necessary to conduct their respective
businesses,  and neither the Company nor any such  Subsidiary  has  received any
notice of  proceedings  relating to the revocation or  modification  of any such
certificate, authorization or permit.

     t. Internal Accounting  Controls.  The Company and each of its Subsidiaries
maintain  a  system  of  internal  accounting  controls  sufficient  to  provide
reasonable  assurance  that (i)  transactions  are executed in  accordance  with
management's general or specific authorizations,  (ii) transactions are recorded
as necessary to permit  preparation of financial  statements in conformity  with
generally accepted accounting  principles and to maintain asset  accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific  authorization  and (iv) the recorded  accountability  for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

     u. No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment,  decree,  order,  rule or regulation  which in the judgment of the
Company's  officers has or is expected in the future to have a Material  Adverse
Effect.  Neither  the  Company  nor any of its  Subsidiaries  is a party  to any
contract or agreement which in the judgment of the Company's  officers has or is
expected to have a Material Adverse Effect.

     v. Tax Status.  The Company  and each of its  Subsidiaries  (i) has made or
filed all  federal  and state  income  and all other tax  returns,  reports  and
declarations  required by any  jurisdiction  to which it is subject  (unless and
only to the extent that the Company and each of its  Subsidiaries  has set aside
on its books  provisions  reasonably  adequate for the payment of all unpaid and
unreported taxes),  (ii) has paid all taxes and other  governmental  assessments
and charges that are material in amount,  shown or  determined to be due on such
returns,  reports and  declarations,  except those being contested in good faith
and for which the Company has made  appropriate  reserves for on its books,  and
(iii) has set aside on its books provisions  reasonably adequate for the payment
of all taxes for  periods  subsequent  to the  periods  to which  such  returns,
reports or  declarations  (referred to in clause (i) above) apply.  There are no

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unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction,  and the officers of the Company know of no basis for any such
claim.

     w. Transactions  With Affiliates.  Except as set forth on Schedule 3(w) and
in the SEC Documents  filed at least ten days prior to the date hereof,  none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees,  officers and  directors),  including  any contract,  agreement or
other  arrangement  providing for the furnishing of services to or by, providing
for rental of real or  personal  property  to or from,  or  otherwise  requiring
payments to or from any such officer,  director or employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

     x.  Application  of  Takeover  Protections.  The  Company  and its board of
directors  have  taken  all  necessary  action,  if  any,  in  order  to  render
inapplicable any control share acquisition,  business  combination,  poison pill
(including  any  distribution   under  a  rights  agreement)  or  other  similar
anti-takeover  provision under the Certificate of  Incorporation  or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result  of the  transactions  contemplated  by this  Agreement,  including,
without  limitation,  the Company's  issuance of the  Securities and the Buyers'
ownership of the Securities.

     y. Rights Agreement.  The Company has not adopted a shareholder rights plan
or similar  arrangement  relating to  accumulations  of beneficial  ownership of
Common Stock or a change in control of the Company.

     z.  Foreign  Corrupt  Practices.  Neither  the  Company,  nor  any  of  its
Subsidiaries,  nor any director, officer, agent, employee or other person acting
on behalf of the  Company or any of its  Subsidiaries  has, in the course of its
actions  for, or on behalf of, the  Company,  used any  corporate  funds for any
unlawful contribution,  gift,  entertainment or other unlawful expenses relating
to  political  activity;  made any direct or  indirect  unlawful  payment to any
foreign or  domestic  government  official  or employee  from  corporate  funds;
violated  or is in  violation  of any  provision  of the  U.S.  Foreign  Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe,  rebate,  payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

<PAGE>

     aa. No Other Agreements. The Company has not, directly or indirectly,  made
any  agreements  with any  Buyers  relating  to the terms or  conditions  of the
transactions  contemplated by the Transaction  Documents  except as set forth in
the Transaction Documents.

4.   COVENANTS.

     a. Best  Efforts.  Each party shall use its best efforts to timely  satisfy
each of the  conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.

     b. Form D and Blue Sky. The Company agrees to file a Form D with respect to
the Securities as required  under  Regulation D and to provide a copy thereof to
each Buyer  promptly  after such  filing.  The Company  shall,  on or before the
Closing  Dates,  take such action as the Company shall  reasonably  determine is
necessary in order to obtain an exemption for or to qualify the  Securities  for
sale to the Buyer at the Closing  pursuant to this  Agreement  under  applicable
securities  or "Blue  Sky" laws of the states of the  United  States,  and shall
provide  evidence  of any such  action so taken to the Buyers on or prior to the
Closing  Date.  The Company  shall make all filings and reports  relating to the
offer and sale of the Securities  required under applicable  securities or "Blue
Sky" laws of the states of the United States following the Closing Date.

     c.  Reporting  Status.  Until the  later of (i) the date  which is one year
after  the date as of  which  the  Investors  (as that  term is  defined  in the
Registration  Rights  Agreement) may sell all of the  Conversion  Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor  thereto) and (ii) the date which is three (3) years from
the Closing Date (the  "Reporting  Period"),  the Company shall file all reports
required  to be filed with the SEC  pursuant  to the 1934 Act,  and the  Company
shall not terminate  its status as an issuer  required to file reports under the
1934 Act even if the 1934 Act or the  rules  and  regulations  thereunder  would
otherwise permit such termination.

     d. Use of Proceeds.  The Company will use the proceeds from the sale of the
Preferred Shares for  substantially  the same purposes and in substantially  the
same amounts as indicated in Schedule 4(d).

     e. Financial Information.  The Company agrees to send the following to each
Buyer  during  the  Reporting  Period:  (i) within two (2) days after the filing
thereof with the SEC (unless available on the EDGAR System, in which case within
seven (7) days  after the  filing  thereof  with the SEC),  a copy of its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on

<PAGE>

Form 8-K and any registration  statements (other than on Form S-8) or amendments
filed  pursuant to the 1933 Act,  provided  that if any such report is not filed
with the SEC through  EDGAR then the Company shall deliver a copy of such report
to each Buyer by facsimile on the same day it is filed with the SEC; (ii) on the
same day as the release  thereof,  facsimile copies of all press releases issued
by the Company or any of its  Subsidiaries;  and (iii) copies of any notices and
other  information  made available or given to the  stockholders  of the Company
generally,  contemporaneously with the making available or giving thereof to the
stockholders.

     f. Reservation of Shares. The Company shall take all action necessary to at
all times have  authorized,  and reserved  for the purpose of issuance,  no less
than 200% of the  number of shares of Common  Stock  needed to  provide  for the
issuance  of the  shares of Common  Stock  upon  conversion  of all  outstanding
Preferred Shares (without regard to any limitations on conversions).

     g. Additional Financing;  Right of First Refusal. Subject to the exceptions
described below, the Company and its Controlled  Subsidiaries (as defined below)
agrees that  during the period  beginning  on the date hereof and ending  twelve
(12) months  following  the  Closing,  neither  the  Company nor its  Controlled
Subsidiaries  will negotiate or contract with any party for any equity financing
(including  any debt  financing  with an equity  component)  or issue any equity
securities of the Company or any Controlled Subsidiary or securities convertible
or exchangeable  into or for equity  securities of the Company or any Controlled
Subsidiary  (including debt securities with an equity  component) in any form (a
"Future  Offering").  unless it shall  have first  delivered  to each Buyer or a
designee  appointed by such Buyer written notice (the "Future Offering  Notice")
describing  the  proposed  Future  Offering,  including  the buyer and terms and
conditions  thereof,  and  providing  each Buyer an option to purchase up to its
Aggregate  Percentage  (as defined below) of the securities to be issued in such
Future Offering (the limitations  referred to in this and the preceding sentence
are collectively referred to as the "Capital Raising Limitations"). For purposes
of this Section 4(g), "Aggregate  Percentage" shall mean the percentage obtained
by dividing (i) the aggregate  number of Preferred  Shares  initially  issued to
such Buyer by (ii) the aggregate  number of Preferred Shares initially issued to
all the  Buyers.  A Buyer can  exercise  its option to  participate  in a Future
Offering by delivering  written  notice to the Company within ten (10) Busi ness
Days after receipt of a Future Offering Notice, which notice shall state the

<PAGE>

quantity of securities being offered in the Future Offering that such Buyer will
purchase,  up to its Aggregate  Percentage,  and that number of securities it is
willing to purchase in excess of its Aggregate Percentage. In the event that one
or more  Buyers  fail to elect to  purchase  up to each such  Buyer's  Aggregate
Percentage, then each Buyer which has indicated that it is willing to purchase a
number  of  securities  in such  Future  Offering  in  excess  of its  Aggregate
Percentage shall be entitled to purchase its pro rata portion (determined in the
same manner as described in the  preceding  sentence) of the  securities  in the
Future Offering which one or more of the Buyers have not elected to purchase. In
the event the Buyers fail to elect to fully  participate in the Future  Offering
within the periods  described in this Section  4(g),  the Company  shall have 45
days  thereafter to sell the  securities in the Future  Offering that the Buyers
did not elect to purchase,  upon terms and conditions,  no more favorable to the
purchasers  thereof than specified in the Future Offering  Notice.  In the event
the Company has not sold such  securities of the Future  Offering within such 45
day  period,  the Company  shall not  thereafter  issue or sell such  securities
without first offering such  securities to the Buyers in the manner  provided in
this Section 4(g). The Capital Raising Limitations shall not apply to (i) a loan
from a  commercial  bank  which  does  not  have any  equity  feature,  (ii) any
transaction involving the Company's issuances of securities (A) as consideration
in a merger or consolidation,  (B) in connection with any strategic  partnership
or joint venture (the primary purpose of which is not to raise equity  capital),
or (C) as consideration for the acquisition of a business,  product,  license or
other  assets  by  the  Company,  (iii)  the  issuance  of  Common  Stock  in an
underwritten  public offering,  (iv) the issuance of securities upon exercise or
conversion of the Company's  options,  warrants or other convertible  securities
outstanding  as of the date  hereof and (v) the grant of  additional  options or
warrants,  or the issuance of  additional  securities,  under any Company  stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees,  consultants or directors. The Buyers shall not be required
to  participate  or exercise  their  right of first  refusal  with  respect to a
particular  Future  Offering in order to exercise  their right of first  refusal
with  respect to later Future  Offerings.  "Controlled  Subsidiaries"  means any
entity in which the Company,  directly or  indirectly,  owns at least 50% of the
capital stock, equity or similar interest of such entity.

     h.  Listing.  The Company shall  promptly  secure the listing of all of the
Registrable  Securities (as defined in the Registration  Rights  Agreement) upon
each national  securities  exchange and automated quotation system, if any, upon
which  shares of Common  Stock are then listed  (subject  to official  notice of
issuance) and shall maintain,  so long as any other shares of Common Stock shall
be so listed,  such  listing  of all  Registrable  Securities  from time to time
issuable  under the terms of the  Transaction  Documents and the  Certificate of
Designations.  The Company shall maintain the Common Stock's  authorization  for

<PAGE>

quotation on National  Association  of  Securities  Dealers  Inc.'s OTC Bulletin
Board on Nasdaq or NYSE or AMEX. Neither the Company nor any of its Subsidiaries
shall  take any  action  which  would be  reasonably  expected  to result in the
delisting or  suspension  of the Common  Stock from the  Principal  Market.  The
Company  shall pay all fees and  expenses  in  connection  with  satisfying  its
obligations under this Section 4(h).

     i. Expenses.  The Company shall pay the legal fees in the amount of $20,000
and out of pocket  expenses to Silverman  Collura & Chernis,  P.C.  which amount
shall be disbursed  from the net proceeds from the sale of the Preferred  Shares
on the Closing Date.

     j. Filing of Form 8-K. On or before the third (3rd)  Business Day following
the Closing Date,  the Company shall file a Form 8-K with the SEC describing the
terms  of  the  transactions  contemplated  by  the  Transaction  Documents  and
including  as  exhibits  to  such  8-K  this   Agreement,   the  Certificate  of
Designation, the Registration Rights Agreement, in the form required by the 1934
Act.

     k.  Transactions  With  Affiliates.  So long as (i) any Preferred Shares or
Warrants are  outstanding  or (ii) any Buyer owns  Conversion  Shares or Warrant
Shares with a market value equal to or greater than $100,000,  the Company shall
not,  and shall cause each of its  Controlled  Subsidiaries  not to, enter into,
amend,   modify  or  supplement  any  agreement,   transaction,   commitment  or
arrangement with any of its or any Controlled Subsidiary's officers,  directors,
persons who were  officers or  directors  at any time  during the  previous  two
years,  stockholders  who  beneficially  own 5% or more of the Common Stock,  or
affiliates of the Company or its Controlled  Subsidiaries or with any individual
related by blood, marriage or adoption to any such individual or with any entity
in which any such entity or  individual  owns a 5% or more  beneficial  interest
(each a "Related Party"),  except for (a) customary employment  arrangements and
benefit programs on reasonable terms, (b) any agreement, transaction, commitment
or  arrangement  on an  arms-length  basis on terms no less favorable than terms
which would have been obtainable from a person other than such Related Party, or
(c) any agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof, any
director  who is also an officer of the  Company  or any  Controlled  Subsidiary
shall  not be a  disinterested  director  with  respect  to any such  agreement,
transaction,  commitment or arrangement.  "Affiliate" for purposes hereof means,
with respect to any person or entity, another person or entity that, directly or
indirectly,  (i) has a 5% or more equity interest in that person or entity, (ii)
has 5% or more common ownership with that person or entity,  (iii) controls that

<PAGE>

person or entity,  or (iv)  shares  common  control  with that person or entity.
"Control" or  "controls"  for purposes  hereof means that a person or entity has
the power,  direct or  indirect,  to conduct or govern the  policies  of another
person or entity.

     l.  Capital and  Surplus;  Special  Reserves.  The Company  agrees that the
capital  of the  Company  (as such term is used in  Section  154 of the  General
Corporation  Law of Delaware) in respect of the Preferred  Shares shall be equal
to the  aggregate  par  value of such  Preferred  Shares  and that it shall  not
increase the capital of the Company with respect to any shares of the  Company's
capital  stock at anytime on or after the date of this  Agreement.  The  Company
also agrees that it shall not create any special  reserves  under Section 171 of
the General  Corporation  Law of Delaware  without the prior written  consent of
each  holder  of  Preferred  Shares.  As long  as any  Preferred  Shares  remain
outstanding,  the  Company  shall not  account  for as surplus or transfer to or
otherwise allocate to the Company's surplus account for purposes of the Delaware
General  Corporation Law any of the capital represented by the Preferred Shares,
including,  without  limitation,  for the purpose of reducing any of its capital
stock as contemplated by Section 244 of the Delaware  General  Corporation  Law.
The amount to be represented in the capital  account for the Preferred  Stock at
all times for each  outstanding  Preferred Share shall be an amount equal to the
product of (i) the  Liquidation  Preference  (as defined in the  Certificate  of
Designations) and (ii) the 133%.

     m. Corporate Existence.  So long as a Buyer beneficially owns any Preferred
Shares or Warrants, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's  assets,  except in the event
of a  merger  or  consolidation  or  sale  of  all or  substantially  all of the
Company's  assets,  where the surviving or successor  entity in such transaction
(i) assumes the Company's  obligations  hereunder and under the  agreements  and
instruments  entered into in connection  herewith and (ii) is a publicly  traded
corporation  whose  common  stock is quoted on or listed for  trading on Nasdaq,
AMEX or NYSE.

     n.  Restriction on Short Sales.  Each Buyer agrees that the Buyer shall not
engage in any  transaction  constituting a "short sale" (as defined in Rule 3b-3
of  the  1934  Act)  of  the  Common  Stock   (collectively,   "Short   Sales").
Notwithstanding  the foregoing,  the restriction on Short Sales set forth in the
first sentence of this Section 4(n) shall not apply (a) on and after any date on
which the Common  Stock is not listed or quoted on the  Bulletin  Board,  Nasdaq
SmallCap or  National  Market or The New York Stock  Exchange,  Inc. or has been

<PAGE>

suspended from trading on any such exchange  (excluding  suspensions of not more
than one day resulting from business  announcements by the Company), or any such
delisting or suspension  is  threatened or pending;  (b) on or after any date on
which there shall have occurred an event  constituting  a Change of Control or a
Triggering  Event or an event that with the  passage of time and  without  being
cured would  constitute  a Triggering  Event;  (c) on or after any date on which
there shall have been an announcement of a pending,  proposed or intended Change
of Control;  (d) on or after any date on which the Company issues or sells or is
deemed to have issued or sold any  Convertible  Securities  or Options  (both as
defined  in the  Certificate  of  Designations)  that  are  convertible  into or
exercisable  or  exchangeable  for  shares of Common  Stock at a  conversion  or
exercise  price  which  varies or may vary with the  market  price of the Common
Stock,  including by way of one or more  reset(s) to a fixed price;  or (e) with
respect to a short sale so long as the Buyer  delivers a  Conversion  Notice (as
defined in the  Certificate  of  Designations)  within two Business Days of such
Short Sale entitling such Buyer to receive a number of shares of Common Stock at
least equal to the number of shares of Common Stock sold in such Short Sale.

5.   TRANSFER AGENT INSTRUCTIONS.

     The Company shall issue irrevocable instructions to its transfer agent, and
any subsequent transfer agent, to issue certificates,  registered in the name of
each Buyer or its respective  nominee(s),  for the Conversion Shares and Warrant
Shares in such  amounts  as  specified  from  time to time by each  Buyer to the
Company upon conversion of the Preferred Shares or exercise of the Warrants (the
"Irrevocable  Transfer  Agent  Instructions").  Prior  to  registration  of  the
Conversion  Shares  under the 1933 Act,  all such  certificates  shall  bear the
restrictive  legend  specified in Section  2(g).  The Company  warrants  that no
instruction other than the Irrevocable  Transfer Agent Instructions  referred to
in this Section 5 and stop transfer  instructions to give effect to Section 2(f)
(in  the  case of the  Conversion  Shares  and  the  Warrant  Shares,  prior  to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely  transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration  Rights Agreement.
If a Buyer  provides  the  Company  with an opinion of  counsel,  in a generally
acceptable form, to the effect that a public sale, assignment or transfer of the
Securities  may be made  without  registration  under  the 1933 Act or the Buyer
provides the Company with reasonable  assurances that the Securities can be sold

<PAGE>

pursuant  to Rule 144  without any  restriction  as to the number of  securities
acquired as of a particular date that can then be immediately  sold, the Company
shall permit the  transfer,  and, in the case of the  Conversion  Shares and the
Warrant  Shares,  promptly  instruct  its  transfer  agent to issue  one or more
certificates in such name and in such  denominations  as specified by such Buyer
and without any restrictive legend. The Company acknowledges that a breach by it
of its  obligations  hereunder  will  cause  irreparable  harm to the  Buyers by
vitiating  the  intent  and  purpose  of the  transaction  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations  under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened  breach by the Company of the  provisions of this Section
5, that the  Buyers  shall be  entitled,  in  addition  to all  other  available
remedies,  to an order and/or  injunction  restraining  any breach and requiring
immediate issuance and transfer,  without the necessity of showing economic loss
and without any bond or other security being required.

6.   CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

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

     (i) Such Buyer shall have  executed  each of the  Transaction  Documents to
which it is a party and delivered the same to the Company.

     (ii) The  Certificate  of  Designations  shall  have  been  filed  with the
Secretary of State of the State of Delaware.

     (iii) Such Buyer shall have delivered to the Company the Purchase Price for
the Preferred Shares (net of the amounts withheld pursuant to Section 4(i))being
purchased by such Buyer at the Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.

     (iv) The  representations  and  warranties  of such Buyer shall be true and
correct as of the date when made and as of the  Closing  Date as though  made at
that time (except for representations and warranties that speak as of a specific
date),  and such Buyer  shall have  performed,  satisfied  and  complied  in all

<PAGE>

material respects with the covenants,  agreements and conditions required by the
Transaction Documents to be performed,  satisfied or complied with by such Buyer
at or prior to the Closing Date.

7.   CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

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

     (i) The Company shall have executed each of the  Transaction  Documents and
delivered the same to such Buyer.

     (ii) The  Certificate  of  Designations,  shall  have been  filed  with the
Secretary  of State of the State of Delaware,  and a copy  thereof  certified by
such Secretary of State shall have been delivered to such Buyer.

     (iii) The Common Stock (x) shall be  designated  for quotation or listed on
the  Principal  Market and (y) shall not have been  suspended  by the SEC or the
Principal  Market from trading on the Principal  Market nor shall  suspension by
the SEC or the Principal  Market have been  threatened  either (A) in writing by
the SEC or the  Principal  Market or (B) by falling  below the  minimum  listing
maintenance  requirements  of the Principal  Market;  and the Conversion  Shares
issuable and Warrant Shares shall be listed upon the Principal Market.

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

<PAGE>

     (v) Such Buyer  shall have  received  the  opinion  dated as of the Closing
Date, in form, scope and substance reasonably  satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.

     (vi) The  Company  shall  have  executed  and  delivered  to such Buyer the
Preferred Stock  Certificates  and the Warrants (in such  denominations  as such
Buyer shall request) for the Preferred  Shares and Warrants  being  purchased by
such Buyer at the Closing.

     (vii) The Board of Directors of the Company shall have adopted  resolutions
consistent with Section  3(b)(ii) above and in a form  reasonably  acceptable to
such Buyer (the "Resolutions").

     (viii) As of the Closing  Date,  the Company shall have reserved out of its
authorized  and unissued  Common Stock,  solely for the purpose of effecting the
conversion  of the Preferred  Shares and the exercise of the Warrants,  at least
_______________ shares of Common Stock.

     (ix) The Irrevocable Transfer Agent Instructions,  in the form of Exhibit E
attached hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent.

     (x) The Company shall have delivered to such Buyer a certificate evidencing
the  incorporation  and good standing of the Company and each Subsidiary in such
entity's state of incorporation or organization issued by the Secretary of State
of such state of  incorporation  or organization as of a date within ten days of
the Closing Date.

     (xi) The Company shall have delivered to such Buyer a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware as of a date within ten days of the Closing Date.

     (xii)  The  Company  shall  have  delivered  to such  Buyer  a  secretary's
certificate,  dated as the  Closing  Date,  as to (A) the  Resolutions,  (B) the
Certificate  of  Incorporation  and (C) the  Bylaws,  each as in  effect  at the
Initial Closing.

<PAGE>

     (xiii) The Company shall have made all filings under all applicable federal
and state securities laws necessary to consummate the issuance of the Securities
pursuant to this Agreement in compliance with such laws.

     (xiv) Each Buyer shall have  delivered the Purchase Price for the Preferred
Shares and the Warrants  purchased by such Buyer at the Closing pursuant to this
Agreement.

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

8.   INDEMNIFICATION. In consideration of each Buyer's execution and delivery of
the  Transaction  Documents  and  acquiring  the  Securities  thereunder  and in
addition  to  all of the  Company's  other  obligations  under  the  Transaction
Documents  and the  Certificate  of  Designations,  the  Company  shall  defend,
protect,  indemnify  and hold  harmless  each Buyer and each other holder of the
Securities and all of their  stockholders,  officers,  directors,  employees and
direct or indirect  investors and any of the foregoing  persons' agents or other
representatives  (including,  without  limitation,  those retained in connection
with  the  transactions  contemplated  by  this  Agreement)  (collectively,  the
"Indemnitees")  from and against any and all actions,  causes of action,  suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith  (irrespective of whether any such Indemnitee is a party to
the  action  for which  indemnification  hereunder  is  sought),  and  including
reasonable  attorneys' fees and disbursements  (the "Indemnified  Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any  misrepresentation  or breach of any  representation or warranty made by the
Company in the  Transaction  Documents or any other  certificate,  instrument or
document  contemplated  hereby  or  thereby,  (b) any  breach  of any  covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate,  instrument or document  contemplated  hereby or thereby,
(c) any cause of action,  suit or claim brought or made against such  Indemnitee
and arising out of or resulting  from the  execution,  delivery,  performance or
enfo rcement of the Transaction  Documents or any other certificate,  instrument
or document  contemplated hereby or thereby,  (d) any transaction financed or to
be financed in whole or in part,  directly or  indirectly,  with the proceeds of
the issuance of the  Securities or (e) the status of such Buyer or holder of the
Securities  as an investor  in the  Company.  To the extent  that the  foregoing
undertaking  by the Company  may be  unenforceable  for any reason,  the Company

<PAGE>

shall make the maximum  contribution to the payment and  satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein,  the  mechanics and  procedures  with respect to the
rights and obligations under this Section 8 shall be the same as those set forth
in  Sections  6(a)  and (d) of the  Registration  Rights  Agreement,  including,
without  limitation,  those  procedures with respect to the settlement of claims
and the Company's rights to assume the defense of claims.

<PAGE>

9.   GOVERNING LAW; MISCELLANEOUS.

     a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of the State
of  Delaware  shall  govern all issues  concerning  the  relative  rights of the
Company and its stockholders.  All other questions  concerning the construction,
validity,  enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York,  without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other  jurisdictions)  that would cause the  application  of the laws of any
jurisdictions  other than the State of New York.  Each party hereby  irrevocably
submits  to the  non-exclusive  jurisdiction  of the  state and  federal  courts
sitting in the City of New York,  borough of Manhattan,  for the adjudication of
any  dispute  hereunder  or in  connection  herewith  or  with  any  transaction
contemplated  hereby or discussed herein,  and hereby  irrevocably  waives,  and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or  proceeding  is  brought in an  inconvenient  forum or that the venue of such
suit,  action or proceeding is improper.  Each party hereby  irrevocably  waives
personal  service of process and  consents to process  being  served in any such
suit,  action or  proceeding  by  mailing a copy  thereof  to such  party at the
address for such notices to it under this Agreement and agrees that such service
shall  constitute  good and  sufficient  service of process and notice  thereof.
Nothing  contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,  A JURY TRIAL FOR THE ADJUDICATION
OF ANY  DISPUTE  HEREUNDER  OR IN  CONNECTION  HEREWITH  OR ARISING  OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

<PAGE>

     b. Counterparts. This  Agreement  may be executed in two or more  identical
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
delivered  to the other  party;  provided  that a facsimile  signature  shall be
considered  due execution  and shall be binding upon the signatory  thereto with
the same force and effect as if the signature were an original,  not a facsimile
signature.

     c.  Headings.  The  headings  of  this  Agreement  are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

     d.  Severability.  If any provision of this  Agreement  shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction  or the  validity  or  enforceability  of  any  provision  of  this
Agreement in any other jurisdiction.

     e. Entire Agreement;  Amendments. This Agreement supersedes all other prior
oral or written agreements between the Buyers, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this  Agreement  and  the  instruments  referenced  herein  contain  the  entire
understanding  of the parties  with  respect to the matters  covered  herein and
therein and,  except as  specifically  set forth herein or therein,  neither the
Company  nor  any  Buyer  makes  any  representation,   warranty,   covenant  or
undertaking with respect to such matters.  No provision of this Agreement may be
amended  other than by an  instrument  in writing  signed by the Company and the
holders of at least  two-thirds  (b) of the Preferred  Shares,  and no provision
hereof may be waived other than by an instrument in writing  signed by the party
against whom enforcement is sought.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the  Preferred  Shares
then  outstanding.  No  consideration  shall be offered or paid to any person to
amend or  consent to a waiver or  modification  of any  provision  of any of the
Transaction  Documents  or the  Certificate  of  Designations  unless  the  same
consideration also is offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.

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

<PAGE>

party to  receive  the  same.  The  addresses  and  facsimile  numbers  for such
communications shall be:

         If to the Company:

                  Digs, Inc.
                  17327 Ventura Blvd., Suite 200
                  Encino, CA 91316

         With a copy to:

                  Silverman, Collura & Chernis, P.C.
                  381 Park Avenue South, Suite 1601
                  New York, New York 10016
                  Telephone:    (212) 779-8600
                  Facsimile:    (212) 779-8858
                  Attention:     Martin C. Licht

 If to the Transfer Agent:

                  [To be supplied ]

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

     g.  Successors and Assigns.  This Agreement shall be binding upon and inure
to the benefit of the  parties  and their  respective  successors  and  assigns,
including any purchasers of the Preferred  Shares.  The Company shall not assign

<PAGE>

this Agreement or any rights or obligations  hereunder without the prior written
consent of the holders of at least  two-thirds (b) of the Preferred  Shares then
outstanding,  including by merger or consolidation,  except pursuant to a Change
of Control (as defined in the Certificate of Designations) with respect to which
the Company is in compliance with Section 4 of the Certificate of  Designations.
A Buyer may assign  some or all of its rights  hereunder  without the consent of
the Company, provided,  however, that any such assignment shall not release such
Buyer from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption,  which
consent  shall not be  unreasonably  withheld.  Notwithstanding  anything to the
contrary contained in the Transaction Documents, the Buyers shall be entitled to
pledge the  Securities  in connection  with a bona fide margin  account or other
loan secured by Securities.

     h. No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit  of, nor may any  provision  hereof be  enforced  by, any
other person.

     i. Survival.  Unless this  Agreement is terminated  under Section 9(l), the
representations  and  warranties  of the  Company  and the Buyers  contained  in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the  indemnification  provisions  set forth in Section 8, shall  survive the
Closings.  Each Buyer  shall be  responsible  only for its own  representations,
warranties, agreements and covenants hereunder.

     j.  Publicity.  The  Company and each Buyer shall have the right to approve
before  issuance any press releases or any other public  statements with respect
to the transactions  contemplated hereby;  provided,  however,  that the Company
shall be entitled,  without the prior  approval of any Buyer,  to make any press
release or other  public  disclosure  with  respect to such  transactions  as is
required by applicable law, regulation,  or rule of the NASD or Principal Market
(although  each Buyer shall be consulted by the Company in  connection  with any
such press release or other public  disclosure prior to its release and shall be
provided with a copy thereof).

     k. Further Assurances. Each party shall do and perform, or cause to be done
and performed,  all such further acts and things,  and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the

<PAGE>

purposes of this Agreement and the consummation of the transactions contemplated
hereby.

     l. Termination.  In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business  Days from the date hereof due
to the Company's or such Buyer's  failure to satisfy the conditions set forth in
Sections 6(a) and 7(a) above (and the nonbreaching party's failure to waive such
unsatisfied  condition(s)),  the  nonbreaching  party  shall  have the option to
terminate this  Agreement  with respect to such breaching  party at the close of
business  on such  date  without  liability  of any  party to any  other  party;
provided, however, that if this Agreement is terminated pursuant to this Section
9(l), the Company shall remain  obligated to reimburse any  nonbreaching  Buyers
for the expenses described in Section 4(i) above.

     m. Placement Agent. The Company  acknowledges that it has engaged May Davis
Group,  Inc. as placement  agent in  connection  with the sale of the  Preferred
Shares,  which  placement  agent may have formally or  informally  engaged other
agents on its behalf.  The Company shall be  responsible  for the payment of any
placement agent's fees and consultant's fees in an aggregate amount equal to 10%
of the gross  proceeds  from the sale of the  Preferred  Shares  together with a
warrant to purchase  200,000 shares of Common Stock.  The Company shall pay, and
hold each Buyer harmless  against,  any liability,  loss or expense  (including,
without  limitation,  attorneys'  fees and out of pocket  expenses)  arising  in
connection with any such claim.

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

     o. Remedies.  Each Buyer and each holder of the  Securities  shall have all
rights and remedies set forth in the  Transaction  Documents and the Certificate
of Designations and all rights and remedies which such holders have been granted
at any time under any other  agreement  or contract  and all of the rights which
such  holders  have  under any law.  Any  person  having  any  rights  under any
provision  of  this   Agreement   shall  be  entitled  to  enforce  such  rights
specifically  (without posting a bond or other security),  to recover damages by
reason of any breach of any  provision  of this  Agreement  and to exercise  all
other rights granted by law.

<PAGE>

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

<PAGE>

         IN WITNESS  WHEREOF,  the  Buyers  and the  Company  have  caused  this
Securities  Purchase  Agreement to be duly executed as of the date first written
above.

COMPANY:                                             BUYERS:
DIGS, INC.

By: /s/       PETER B. DUNN                          By:
              ---------------------
    Name:     Peter B. Dunn                          Name:
    Title:    President                              Title:

<PAGE>

                                    SCHEDULES

Schedule 3(a)              Subsidiaries
Schedule 3(c)              Capitalization
Schedule 3(e)              Conflicts
Schedule 3(g)              Material Changes
Schedule 3(o)              Intellectual Property
Schedule 3(q)              Liens
Schedule 3(w)              Certain Transactions
Schedule 4(d)              Use of Proceeds

                                    EXHIBITS

Exhibit A - Form of Certificate of Designations, Preferences and Rights of the
            Series A Convertible Preferred Stock

Exhibit B - Form of Warrant

Exhibit C - Form of Registration Rights Agreement

Exhibit D - Form of Company Counsel Opinion

Exhibit E - Form of Irrevocable Transfer Agent Instructions

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