<PAGE>




                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 8-K

                                 CURRENT REPORT
                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


Date of Report (Date of earliest event reported): April 7, 1999


                                 MODACAD, INC. 
--------------------------------------------------------------------------------
        (Exact name of registrant as specified in its charter)


          California                    33-31166                 95-4145930
-------------------------------     ----------------    ------------------------
(State or other jurisdiction of        (Commission             (IRS Employer
incorporation or organization)          File Number)         Identification No.)



    3861 Sepulveda Blvd., Culver City                            90230
----------------------------------------                ------------------------
(Address of principal executive offices)                      (Zip Code)


Registrant's telephone number, including area code            (310) 751-2100   
                                                        ------------------------

                               Not Applicable
--------------------------------------------------------------------------------
          (Former name or former address, if changed since last report)

<PAGE>

Item 5.  Other Events

ModaCAD,  Inc.  ("ModaCAD")  reports  its  transaction  with  Intel  Corporation
("Intel")  pursuant to an  agreement  under which  Intel  Corporation  purchased
455,218 shares of ModaCAD's common stock and,  subject to shareholder  approval,
warrants to purchase  538,674  shares of ModaCAD's  common  stock.  See attached
press  release  issued on April 9, 1999 and the Stock and Warrant  Purchase  and
Investor Rights Agreement  between ModaCAD and Intel, both of which are, by this
reference, incorporated herein.

                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.


                                                ModaCAD, INC.


Date: April 14, 1999                           By:   /s/  LEE FREEDMAN
                                                     ---------------------------
                                                     Lee Freedman
                                                     Vice President, Finance and
                                                     Chief Financial Officer

<PAGE>

                                 PRESS RELEASE

Modacad Closes Investment Round

LOS ANGELES,  CALIFORNIA, April 9, 1999 . . . . Modacad, Inc. (NASDAQ: MODA), an
e-Commerce solutions provider for the fashion industry,  today announced that it
has completed a privately placed  investment of common stock and warrants valued
at $8.5  million.  The lead  financial  investor  was  Castle  Creek  Technology
Partners,   LLC,  and  other  financial   investors  included  Marshall  Capital
Management,  Inc.,  an affiliate of Credit  Suisse First  Boston.  Concurrently,
Modacad  announced that Intel Corporation has taken a $5 million equity position
in Modacad in exchange for its right to present and future royalty streams under
an existing business agreement.  

The financial  investors,  led by Castle Creek,  received $8.5 million of common
stock priced at $10.98 per share.  Additionally,  these investors  received five
year  warrants to purchase  271,889  shares of Modacad stock at a premium of 25%
above  the  common  stock  purchase  price,  as well as one  year  cash-exercise
warrants to purchase  323,678  shares of Modacad stock at a premium of 20% above
the common stock purchase price and 15-month  cash-exercise warrants to purchase
323,678  shares of Modacad stock also at a premium of 20% above the common stock
purchase price.  The  exerciseability  of the warrants is subject to shareholder
approval.  

"This  investment  will expand our  institutional  shareholder  base and give us
access to the capital  necessary  to  accelerate  our  expansion in the Internet
e-Commerce  marketplace,"  stated Maurizio  Vecchione,  Modacad's  president and
chief operating officer.

In return for its royalty  streams,  Intel received $5 million of Modacad common
stock, also priced at $10.98 per share. Intel also received warrants to purchase
a  proportionate  number of shares of Modacad  stock  with  terms  substantially
similar  to the  warrants  issued  to the  investors  led by Castle  Creek.  The
agreement  with Intel enables  Modacad to apply its revenue toward the execution
of its internet strategy while maintaining its working relationship with Intel.

"Provided  the  value  of  Modacad   stock   increases   sufficiently   and  the
cash-exercise  warrants  are  exercised,  we  would  have  access  to  up  to an
additional  $13.5  million  in  cash,"  stated  Maurizio  Vecchione,   Modacad's
president and chief operating officer.

As the result of this transaction,  Intel and Castle Creek will each become 6.2%
shareholders in Modacad. PaineWebber Incorporated and ING Baring Furman Selz LLC
acted as placement agents and advisors to Modacad.  

Founded  in 1988,  Modacad is an enabler of  e-Commerce  for  manufacturers  and
consumers.  With more than 11 years of  experience,  the Company is a recognized
leader in 3D rendering and digital content management. Modacad recently launched
a new apparel e-commerce site at www.styleclick.com,  featuring fashion, fitness
and beauty products,  that allows users to comparison shop among leading brands.
The  investment  will  increase  Modacad's  ability  to  develop  the market for
styleclick.com and to enhance its web-based  merchandising products. 

For further  information,  or a complete  investor  kit,  contact  Gail  Laguna,
Investor  Relations  manager,  at  310-751-2100  or visit  ModaCAD's web site at
www.modacad.com.

<PAGE>                                                                  

MODACAD, INC.

            STOCK AND WARRANT PURCHASE AND INVESTOR RIGHTS AGREEMENT

     This  Stock and  Warrant  Purchase  and  Investor  Rights  Agreement  (this
"Agreement")  is made and  entered  into as of  April 7,  1999,  by and  between
ModaCAD, Inc., a California corporation (the "Company"),  and Intel Corporation,
a Delaware corporation (the "Investor").

                                    RECITALS

     WHEREAS, the Company and the Investor entered into that certain Development
Agreement, dated as of November 12, 1997 (the "Development Agreement");

     WHEREAS, pursuant to the terms hereof, the parties have agreed to terminate
the  future  royalty  obligations  under  the  Development  Agreement,  and,  in
consideration thereof, the Company has agreed to grant to the Investor an equity
stake in the Company on the terms and conditions of this Agreement;

     WHEREAS,  the Company  desires to sell to the  Investor,  and the  Investor
desires to purchase from the Company,  shares of Common Stock,  no par value, of
the Company (the "Common Stock"),  on the terms and conditions set forth in this
Agreement; and

     WHEREAS,  the Company has agreed to issue to the  Investor  three  separate
warrants,   in  the  forms  attached  hereto  as   Exhibits A-1,   A-2  and  A-3
(respectively,  the  "First  Warrants,"  the  "Second  Warrants"  and the "Third
Warrants"  and,  collectively,  the  "Warrants"),  to purchase an  aggregate  of
538,673  shares of Common  Stock (the  "Warrant  Shares"),  subject to the terms
thereof and to the terms of this Agreement.

     NOW,  THEREFORE,  in  consideration of the foregoing  recitals,  the mutual
promises hereinafter set forth, and other good and valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

     1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS

          (a) Authorization. The Company's Board of Directors will, prior to the
     Closing,  authorize the issuance,  pursuant to the terms and  conditions of
     this Agreement,  of shares of Common Stock in an amount equal to the number
     of Purchased Shares (as defined in Section 1(b)), and shall further reserve
     for issuance the number of shares of Common Stock issuable upon exercise of
     the Warrants.

          (b)  Agreement to Purchase  and Sell  Securities.  The Company  hereby
     agrees to issue and sell to the Investor at the Closing (as defined below),
     and the Investor  hereby agrees to acquire from the Company at the Closing,
     455,217 shares of Common Stock (collectively,  the "Purchased Shares") at a
     price per share of $10.9838 (the "Purchase Price").  The aggregate Purchase
     Price for the Purchased  Shares shall be $5,000,000,  which amount shall be
     deemed paid by the Investor upon execution of the Amendment.

          (c) Issuance of Warrants.  At the Closing,  the Company  shall execute
     and deliver to the Investor the Warrants.

     2. CLOSING.  The purchase and sale of the Purchased Shares and the issuance
of the Warrants shall take place at the offices of Coudert  Brothers,  1055 West
Seventh Street - 20th Floor, Los Angeles, CA 90017, on April 7,  1999 or at such
other time and place as the  Purchaser  and the Company may mutually  agree upon
(which time and place are referred to in this  Agreement as the  "Closing").  At
the  Closing,  the Company  will deliver to the  Investor  this  Agreement,  the
Warrants and certificates  representing the Purchased  Shares, in each case duly
executed  by the  Company,  in addition to the  documents  required  pursuant to
Section 6 below.  Closing  documents may be delivered by facsimile with original
signature pages sent by overnight  courier.  The date of the Closing is referred
to herein as the Closing Date.

     3.  REPRESENTATIONS  AND  WARRANTIES  OF THE  COMPANY.  The Company  hereby
represents  and warrants to the Investor that the  statements in this  Section 3
are true and correct,  except as set forth in the Disclosure  Letter (as defined
in Section 7(a)):

          (a)  Organization  Good Standing and  Qualification.  The Company is a
     corporation duly organized, validly existing and in good standing under the
     laws of the State of California  and has all corporate  power and authority
     required to (a) carry on its business as presently conducted, and (b) enter
     into this Agreement, the Warrants and the other agreements, instruments and
     documents   contemplated   hereby,   and  to  consummate  the  transactions
     contemplated  hereby and  thereby.  The Company is qualified to do business
     and is in good  standing  in each  jurisdiction  in which the failure to so
     qualify would have a Material  Adverse  Effect.  As used in this Agreement,
     "Material Adverse Effect" means a material adverse effect on, or a material
     adverse  change  in,  or a group of such  effects  on or  changes  in,  the
     business,   operations,   financial   condition,   results  of  operations,
     prospects,   assets  or  liabilities  of  the  applicable   party  and  its
     subsidiaries, taken as a whole.

          (b) Capitalization.  The capitalization of the Company, without giving
     effect to the transactions  contemplated by this Agreement,  is as follows.
     The authorized stock of the Company  consists only of 15,000,000  shares of
     Common Stock, of which  6,164,874  shares were issued and outstanding as of
     April 6, 1999.  All such shares of Common Stock have been duly  authorized,
     and all such  issued  and  outstanding  shares  of Common  Stock  have been
     validly issued,  are fully paid and nonassessable and are free and clear of
     all  liens,  claims  and  encumbrances,  other  than any  liens,  claims or
     encumbrances created by or imposed upon the holders thereof. As of the date
     hereof,  the Company has also reserved 1,650,000 shares of Common Stock for
     issuance  upon  exercise  of  options  or other  stock  awards  granted  to
     officers, directors,  employees or independent contractors or affiliates of
     the Company under the Company's stock incentive plans. All shares of Common
     Stock  subject to issuance  as  aforesaid,  upon  issuance on the terms and
     conditions  specified  in  the  instruments  pursuant  to  which  they  are
     issuable,  will  be  duly  authorized,   validly  issued,  fully  paid  and
     nonassessable.  There are no other equity  securities,  options,  warrants,
     calls,  rights,  commitments  or  agreements  of any character to which the
     Company is a party or by which it is bound obligating the Company to issue,
     deliver,  sell,  repurchase  or redeem,  or cause to be issued,  delivered,
     sold,  repurchased  or  redeemed,  any shares of the  capital  stock of the
     Company or obligating  the Company to grant,  extend or enter into any such
     equity security, option, warrant, call, right, commitment or agreement. The
     Company  does not  have any  subsidiaries,  nor  does the  Company  own any
     capital stock,  assets  comprising the business of,  obligations of, or any
     other interest  (including  any equity or partnership  interest) in, or any
     outstanding loan or advance to or from, any person or entity.

          (c)  Due  Authorization.  All  corporate  actions  on the  part of the
     Company,  its officers,  directors and stockholders  (other than the Nasdaq
     Authorizations  (as  herein  defined))  necessary  for  the  authorization,
     execution,  delivery  of, and the  performance  of all  obligations  of the
     Company under this  Agreement,  the  Amendment  and the  Warrants,  and the
     authorization,  issuance,  reservation  for issuance and delivery of all of
     the Purchased  Shares being sold under this  Agreement and all Common Stock
     issuable  upon exercise of the  Warrants,  have been or will be taken,  and
     this  Agreement and the Warrants  constitute  the legal,  valid and binding
     obligations of the Company,  enforceable  against the Company in accordance
     with  their  terms,   except  (a) as  may  be  limited  by   (i) applicable
     bankruptcy,   insolvency,   reorganization   or  others   laws  of  general
     application  relating to or affecting the enforcement of creditors'  rights
     generally and (ii) the effect of rules of law governing the availability of
     equitable  remedies and (b) as rights to indemnity or  contribution  may be
     limited under federal or state  securities  laws or by principles of public
     policy thereunder.

          (d) Valid Issuance of Stock.

               (i) Valid  Issuance.  The  shares  of  Common  Stock to be issued
          pursuant to this  Agreement and upon the exercise of the Warrants will
          be, upon  payment  therefor by the  Investor in  accordance  with this
          Agreement,   or  exercise  in  accordance  with  the  Warrants,   duly
          authorized,  validly issued, fully paid and non-assessable.  The Board
          of Directors of the Company has  unanimously  approved the issuance of
          the  Purchased  Shares  pursuant to the terms  hereof and of shares of
          Common Stock  issuable upon full exercise of the First  Warrants,  the
          Second  Warrants and the Third Warrants  pursuant to the terms thereof
          (without  giving  effect  to any  limitations  on  exercise  contained
          therein, including for purposes of Nasdaq Rule 4460(i) and Nasdaq Rule
          4310(c)(25)(H)(1)(b))  (the "Nasdaq Authorizations"),  has unanimously
          recommended  to the  stockholders  of the Company the  approval of the
          Nasdaq  Authorizations and will seek Shareholder  Approval (as defined
          below)  at the  Company's  next  annual  meeting,  which is  currently
          scheduled for June 29, 1999.  No further  corporate  authorization  or
          approval (other than the  Shareholder  Approval) is required under the
          rules of the Nasdaq with respect to the  transaction  contemplated  by
          this Agreement,  including,  without  limitation,  the issuance of the
          Shares and Warrant Shares and the inclusion thereof for trading on the
          Nasdaq.

               (ii) Compliance with Securities Laws. Assuming the correctness of
          the  representations  made by the  Investor in Section 4  hereof,  the
          Purchased  Shares,  the  Warrants,  and all  shares  of  Common  Stock
          issuable upon exercise of the Warrants, will be issued to the Investor
          in compliance with applicable exemptions from (i) the registration and
          prospectus  delivery  requirements  of the  Securities Act of 1933, as
          amended  (the   "Securities   Act")  and  (ii) the   registration  and
          qualification  requirements  of all applicable  securities laws of the
          states of California and Delaware.

          (e)   Governmental   Consents.   No   consent,   approval,   order  or
     authorization of, or registration qualification,  designation,  declaration
     or filing  with,  or notice to, any  federal,  state or local  governmental
     authority  on the part of the Company is required  in  connection  with the
     issuance of the Purchased  Shares and the Warrants to the Investor,  or the
     consummation of the other  transactions  contemplated by this Agreement and
     the Warrants.  As used herein, the term "HSR Requirements" means compliance
     with the filing and other requirements of the  Hart-Scott-Rodino  Antitrust
     Improvements Act of 1976, as amended (the "HSR Act").

          (f) Non-Contravention. The execution, delivery and performance of this
     Agreement,  the  Amendment  and  the  Warrants  by  the  Company,  and  the
     consummation by the Company of the transactions  contemplated hereby and by
     the Amendment and the Warrants  (including issuance of the Purchased Shares
     and the  Warrants,  and issuance of shares of Common Stock upon exercise of
     the  Warrants),  do not and will not  (i) contravene  or conflict  with the
     Articles  of  Incorporation  or Bylaws of the  Company;  (ii) constitute  a
     violation  of any  provision of any  federal,  state,  local or foreign law
     binding upon or applicable to the Company; or (iii) constitute a default or
     require  any  consent  under,  give  rise  to  any  right  of  termination,
     cancellation or  acceleration  of, or to a loss of any benefit to which the
     Company is entitled  under,  or result in the creation or imposition of any
     lien, claim or encumbrance on any assets of the Company under, any contract
     to which the  Company is a party or any  permit,  license or similar  right
     relating to the Company or by which the Company may be bound or affected.

          (g)  Litigation.   There  is  no  action,  suit,  proceeding,   claim,
     arbitration  or  investigation  ("Action")  pending  or, to the best of the
     Company's knowledge,  threatened:  (a) against the Company, its activities,
     properties or assets,  or any officer,  director or employee of the Company
     in connection  with such officer's,  director's or employee's  relationship
     with,  or actions  taken on behalf of, the  Company,  or (b) that  seeks to
     prevent,  enjoin,  alter or delay  the  transactions  contemplated  by this
     Agreement,  the  Amendment  or  the  Warrants  (including  issuance  of the
     Purchased Shares or the Warrants). The Company is not a party to or subject
     to the provisions of any order, writ, injunction, judgment or decree of any
     court or government agency or instrumentality.  No Action by the Company is
     currently  pending nor does the Company  intend to initiate any Action that
     is reasonably likely to be material to the Company.

          (h) Compliance with Law and Charter  Documents.  The Company is not in
     violation or default of any provisions of its Articles of  Incorporation or
     Bylaws, both as amended.  The Company has complied in all material respects
     and is in material  compliance with all applicable  statutes,  laws, rules,
     regulations  and  orders of the  United  States of  America  and all states
     thereof,  foreign  countries  and other  governmental  bodies and  agencies
     having jurisdiction over the Company's business or properties.

          (i) SEC Documents.

               (1) Reports.  The Company has furnished to the Investor  prior to
          the date  hereof  a  complete  and  correct  list of all  registration
          statements, reports and proxy statements filed by the Company with the
          SEC on or after December 31, 1997 (the Company's Annual Report on Form
          10-KSB for the fiscal  year ended  December 31,  1997,  its  Quarterly
          Reports on Form 10-QSB for the fiscal quarters ended March 31, June 30
          and September 30,  1998, and all such other  registration  statements,
          reports and proxy  statements are  collectively  referred to herein as
          the "SEC Documents").  Each of the SEC Documents, as of the respective
          date  thereof (or if amended or  superseded  by a filing  prior to the
          Closing Date,  then on the date of such filing),  did not, and each of
          the registration statements, reports and proxy statements filed by the
          Company  with the SEC after the date  hereof and prior to the  Closing
          will not,  as of the date  thereof (or if amended or  superseded  by a
          filing  after  the  date of this  Agreement,  then on the date of such
          filing),  contain any untrue  statement of a material  fact or omit to
          state a material fact necessary in order to make the  statements  made
          therein, in light of the circumstances under which they were made, not
          misleading.  The  Company  is not a party  to any  material  contract,
          agreement or other arrangement that was required to have been filed as
          an exhibit to the SEC Documents that was not so filed.

               (2) Financial  Statements.  The Company has provided the Investor
          with  copies  of  its  audited  financial   statements  (the  "Audited
          Financial  Statements") for the fiscal year ended  December 31,  1998,
          and its unaudited financial  statements for the two-month period ended
          February 28,  1999 (the "Balance Sheet Date"). Since the Balance Sheet
          Date,  the  Company  has  duly  filed  with  the SEC all  registration
          statements,  reports and proxy  statements  required to be filed by it
          under the  Securities  Exchange Act of 1934, as amended (the "Exchange
          Act"), and the Securities Act. The audited and unaudited  consolidated
          financial  statements  of the Company  included  in the SEC  Documents
          filed prior to the date hereof  fairly  present,  in  conformity  with
          generally accepted accounting principles ("GAAP") (except, in the case
          of the  Form 10-QSB's,  as may otherwise be permitted by  Form 10-QSB)
          applied on a consistent  basis  (except as otherwise  may be stated in
          the notes thereto), the consolidated financial position of the Company
          and its  consolidated  subsidiaries  as at the dates  thereof  and the
          consolidated  results  of  their  operations  and cash  flows  for the
          periods then ended (subject to normal  year-end  audit  adjustments in
          the case of unaudited interim financial statements).

          (j) Absence of Certain  Changes Since  Balance  Sheet Date.  Since the
     Balance  Sheet Date,  the business and  operations of the Company have been
     conducted in the ordinary course  consistent with past practice,  and there
     has not been:

               (i) any declaration,  setting aside or payment of any dividend or
          other  distribution  of the assets of the Company  with respect to any
          shares of capital stock of the Company or any  repurchase,  redemption
          or other  acquisition  by the Company or any subsidiary of the Company
          of any outstanding shares of the Company's capital stock;

               (ii) any damage,  destruction or loss,  whether or not covered by
          insurance, except for such occurrences, individually and collectively,
          that are not material to the Company;

               (iii)  any  waiver by the  Company  of a  valuable  right or of a
          material debt owed to it, except for such  waivers,  individually  and
          collectively, that are not material;

               (iv) any material  change or  amendment  to, or any waiver of any
          material  right under a material  contract or arrangement by which the
          Company or any of its assets or properties is bound or subject, except
          for changes,  amendments or waivers that are expressly provided for or
          disclosed in this Agreement;

               (v) any  change  by the  Company  in its  accounting  principles,
          methods or  practices or in the manner it keeps its  accounting  books
          and records, except any such change required by a change in GAAP; or

               (vi) any other event or  condition of any  character,  except for
          such  events  and  conditions  that have not  resulted,  and could not
          reasonably be expected to result, either individually or collectively,
          in a Material Adverse Effect.

          (k) Invention Assignment and Confidentiality  Agreement. Each employee
     and  consultant  or  independent  contractor  of the Company  whose  duties
     include the  development of products or  Intellectual  Property (as defined
     below),  and each former employee and consultant or independent  contractor
     whose duties included the development of products or Intellectual Property,
     has entered into and executed an invention  assignment and  confidentiality
     agreement  in  customary  form or an  employment  or  consulting  agreement
     containing substantially similar terms.

          (l) Intellectual Property.

               (i)  Ownership or Right to Use. The Company has sole title to and
          owns, or is licensed or otherwise possesses legally enforceable rights
          to use,  all  patents  or  patent  applications,  software,  know-how,
          registered  or  unregistered  trademarks  and  service  marks  and any
          applications therefor,  registered or unregistered  copyrights,  trade
          names,  and  any  applications   therefor,   trade  secrets  or  other
          confidential  or  proprietary  information  ("Intellectual  Property")
          necessary  to enable the Company to carry on its business as currently
          conducted,  except  where any  deficiency,  or group of  deficiencies,
          would not have a Material Adverse Effect.

               (ii) Licenses; Other Agreements. The Company is not currently the
          licensee of any material portion of the  Intellectual  Property of the
          Company.  There are not  outstanding any licenses or agreements of any
          kind  relating  to any  Intellectual  Property  owned by the  Company,
          except for agreements  with  customers of the Company  entered into in
          the ordinary  course of the Company's  business and other licenses and
          agreements that,  collectively,  are not material.  The Company is not
          obligated to pay any royalties or other payments to third parties with
          respect to the marketing, sale, distribution,  manufacture, license or
          use of any  Intellectual  Property,  except as the  Company  may be so
          obligated in the ordinary course of its business,  as disclosed in the
          Company's SEC Documents or where the aggregate amount of such payments
          could not reasonably be expected to be material.

               (iii) No Infringement.  The Company has not violated or infringed
          in any material respect,  and is not currently violating or infringing
          in any  material  respect,  and  the  Company  has  not  received  any
          communications  alleging  that the Company (or any of its employees or
          consultants) has violated or infringed,  any Intellectual  Property of
          any other person or entity.

               (iv)  Employees  and  Consultants.  To the best of the  Company's
          knowledge,  no employee of or consultant to the Company is in material
          default under any term of any material employment contract,  agreement
          or arrangement relating to Intellectual Property of the Company or any
          material  non-competition  arrangement,  other contract or restrictive
          covenant  relating to the  Intellectual  Property of the Company.  The
          Intellectual  Property  of the Company  (other  than any  Intellectual
          Property duly  acquired or licensed from third  parties) was developed
          entirely by the employees of or  consultants to the Company during the
          time they were  employed or retained by the  Company,  and to the best
          knowledge of the Company, at no time during conception or reduction to
          practice of such  Intellectual  Property of the Company  were any such
          employees or consultants  operating  under any grant from a government
          entity or agency or subject to any  employment  agreement or invention
          assignment or non-disclosure  agreement or any other obligation with a
          third party that would  materially and adversely  affect the Company's
          rights in the Intellectual  Property of the Company. Such Intellectual
          Property  of the  Company  does  not,  to the  best  knowledge  of the
          Company,  include any invention or other intellectual property of such
          employees  or  consultants  made prior to the time such  employees  or
          consultants   were  employed  or  retained  by  the  Company  nor  any
          intellectual  property of any previous  employer of such  employees or
          consultants  nor the  intellectual  property  of any  other  person or
          entity.

               (v) Year 2000 Compliance.

                    (a)  All of the  Company's  and its  subsidiaries'  material
               products  (including  products  currently under development) will
               record,  store,  process and calculate and present calendar dates
               falling on and after  December 31, 1999,  and will  calculate any
               information  dependent  on or  relating to such dates in the same
               manner  and with  the  same  functionality,  data  integrity  and
               performance as the products record, store, process, calculate and
               present  calendar  dates  on or  before  December  31,  1999,  or
               calculate any information  dependent on or relating to such dates
               (collectively,  "Year  2000  Compliant").  Each of the  Company's
               Internet web sites and all of the Company's and its subsidiaries'
               material  products will lose no  significant  functionality  with
               respect to the  introduction of records  containing dates falling
               on or after  December  31,  1999.  All of the  Company's  and its
               subsidiaries'  internal  computer systems  comprised of software,
               hardware,  databases or embedded  control  systems related to the
               Company's  and  its  subsidiaries'  businesses  (collectively,  a
               "Business System"),  that constitutes any material part of, or is
               used in connection  with the use,  operation or enjoyment of, any
               material  tangible or  intangible  asset or real  property of the
               Company and its subsidiaries,  including its accounting  systems,
               are Year 2000  Compliant.  The current  versions of the Company's
               and  its  subsidiaries'   software  and  all  other  Intellectual
               Property  may be used  prior to,  during and after  December  31,
               1998,  such that such  software and  Intellectual  Property  will
               operate prior to, during and after such time period without error
               caused by date  data  that  represents  or  references  different
               centuries or more than one century.

                    (b) To the  knowledge of the Company,  all of the  Company's
               products and the conduct of the Company's business with customers
               and suppliers  will not be materially  adversely  affected by the
               advent of the year 2000, the advent of the  twenty-first  century
               or the  transition  from the twentieth  century  through the year
               2000 and into the twenty-first  century.  To the knowledge of the
               Company,  neither  the  Company  nor any of its  subsidiaries  is
               reasonably  likely to incur  material  expenses  arising  from or
               relating  to the  failure of any of its  Business  Systems or any
               products  (including  all  products  sold on or prior to the date
               hereof) as a result of the advent of the year 2000, the advent of
               the  twenty-first  century or the  transition  from the twentieth
               century through the year 2000.

          (m) Registration  Rights.  The Company is not currently subject to any
     agreement  providing any person or entity any rights  (including  piggyback
     registration  rights) to have any securities of the Company registered with
     the SEC or registered or qualified with any other governmental authority.

          (n) Title to Property  and Assets.  The  properties  and assets of the
     Company are owned by the Company free and clear of all mortgages,  deeds of
     trust,  liens,  charges,  encumbrances  and security  interests  except for
     statutory  liens  for  the  payment  of  current  taxes  that  are  not yet
     delinquent and liens, encumbrances and security interests that arise in the
     ordinary  course of business and do not in any material  respect affect the
     properties  and assets of the  Company.  With  respect to the  property and
     assets it leases,  the  Company is in  compliance  with such  leases in all
     material respects.

          (o) Tax  Matters.  The  Company  has filed all  material  tax  returns
     required to be filed,  which  returns are true and correct in all  material
     respects,  and the  Company has paid in full all taxes that have become due
     on or prior to the date  hereof (and will have paid when due all taxes that
     become  due after the date  hereof  and  prior to the  Closing),  including
     penalties and interest,  assessments,  fees and other  charges,  other than
     those  being  contested  in good  faith  and/or  those for  which  adequate
     reserves have been provided for.

          (p) Full Disclosure.  The information contained in this Agreement, the
     Disclosure  Letter (as defined in Section 7(a)) and the SEC Documents  with
     respect to the business,  operations,  assets,  results of  operations  and
     financial  condition of the Company,  are true and complete in all material
     respects and do not omit to state any material  fact or facts  necessary in
     order to make the statements  therein,  in light of the circumstances under
     which they were made, not misleading.

          (q) Finder's Fee. The Company neither is nor will be obligated for any
     finder's or broker's fee or commission in connection with this transaction.

     4. REPRESENTATIONS,  WARRANTIES AND CERTAIN AGREEMENTS OF THE INVESTOR. The
Investor hereby represents and warrants to the Company, and agrees that:

          (a) Organization  Good Standing and  Qualification.  The Investor is a
     corporation duly organized, validly existing and in good standing under the
     laws of the State of Delaware  and has all  corporate  power and  authority
     required to carry on its business as presently conducted.

          (b)  Authorization.  The  execution  of this  Agreement  has been duly
     authorized by all necessary  corporate  action on the part of the Investor.
     This  Agreement   constitutes  the  Investor's  legal,  valid  and  binding
     obligation,  enforceable  in  accordance  with its terms,  except as may be
     limited by (a) (i) applicable  bankruptcy,  insolvency,  reorganization  or
     other laws of general application  relating to or affecting the enforcement
     of  creditors'  rights  generally  and  (ii)  the  effect  of  rules of law
     governing the  availability  of equitable  remedies.  The Investor has full
     corporate  power and  authority  to enter  into this  Agreement,  except as
     rights to indemnity or  contribution  may be limited under federal or state
     securities laws or by principles of public policy thereunder.

          (c)   Governmental   Consents.   No   consent,   approval,   order  or
     authorization of, or registration,  qualification, designation, declaration
     or filing with, any federal,  state or local governmental  authority on the
     part of the Investor is required in connection  with the acquisition of the
     Purchased Shares and the Warrants by the Investor.

          (d) Non-Contravention. The execution, delivery and performance of this
     Agreement  by the  Investor,  and the  consummation  by the Investor of the
     transactions  contemplated  hereby,  do not and will not (i)  contravene or
     conflict with the Certificate of  Incorporation  or Bylaws of the Investor;
     (ii) constitute a violation of any provision of any federal,  state,  local
     or  foreign  law  binding  upon or  applicable  to the  Investor;  or (iii)
     constitute a default or require any consent  under,  give rise to any right
     of  termination,  cancellation  or  acceleration  of,  or to a loss  of any
     benefit to which the Investor is entitled  under, or result in the creation
     or  imposition  of any  lien,  claim or  encumbrance  on any  assets of the
     Investor  under,  any  contract  to which  the  Investor  is a party or any
     permit,  license or similar right  relating to the Investor or by which the
     Investor may be bound or affected.

          (e)  Litigation.  There is no Action pending against the Investor that
     seeks to prevent,  enjoin, alter or delay the transactions  contemplated by
     this Agreement.

          (f) Purchase for Own Account. The Purchased Shares and the Warrant are
     being acquired for  investment  for the  Investor's  own account,  not as a
     nominee or agent,  and not with a view to the public resale or distribution
     thereof within the meaning of the  Securities  Act, and the Investor has no
     present  intention of selling,  granting any participation in, or otherwise
     distributing  the same. The Investor also  represents  that it has not been
     formed for the specific  purpose of acquiring the  Purchased  Shares or the
     Warrants.

          (g) Investment Experience.  The Investor understands that the purchase
     of the Purchased  Shares and the Warrants  involves  substantial  risk. The
     Investor has  experience  as an investor in  securities  of  companies  and
     acknowledges that it is able to fend for itself, can bear the economic risk
     of its  investment  in the  Purchased  Shares  and has such  knowledge  and
     experience  in  financial  or  business  matters  that  it  is  capable  of
     evaluating the merits and risks of this investment in the Purchased  Shares
     and protecting its own interests in connection with this investment.

          (h)  Accredited  Investor  Status.  The  Investor  is  an  "accredited
     investor"  within  the  meaning  of  Regulation  D  promulgated  under  the
     Securities Act.

          (i) Restricted Securities. The Investor understands that the Purchased
     Shares, the Warrants, and the shares of Common Stock issuable upon exercise
     of the Warrants are  characterized  as  "restricted  securities"  under the
     Securities  Act,  inasmuch as they are being acquired from the Company in a
     transaction  not involving a public  offering and that under the Securities
     Act and applicable  regulations  thereunder  such  securities may be resold
     without  registration  under the  Securities  Act only in  certain  limited
     circumstances.  The  Investor  is  familiar  with  Rule 144 of the SEC,  as
     presently in effect, and understands the resale limitations imposed thereby
     and by the Securities Act.

          (j)  Legends.  The  Investor  agrees  that  the  certificates  for the
     Purchased  Shares and the shares of Common Stock  issuable upon exercise of
     the Warrants shall bear the following legend:

     "THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
     STATE OF THE UNITED STATES.  THE SECURITIES  REPRESENTED  HEREBY MAY NOT BE
     OFFERED OR SOLD OR  OTHERWISE  TRANSFERRED  IN THE ABSENCE OF AN  EFFECTIVE
     REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS,
     OR UNLESS OFFERED,  SOLD OR TRANSFERRED  PURSUANT TO AN AVAILABLE EXEMPTION
     FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS."

     In addition,  the Investor  agrees that the Company may place stop transfer
     orders with its  transfer  agents with  respect to such  certificates.  The
     appropriate  portion  of the legend and the stop  transfer  orders  will be
     removed promptly upon delivery to the Company of such satisfactory evidence
     as  reasonably  may be  required  by the  Company  that such legend or stop
     orders are not required to ensure compliance with the Securities Act.

          (k) Finder's  Fee.  Investor  neither is nor will be obligated for any
     finder's or broker's fee or commission in connection with this transaction.

     5. CONDITIONS TO THE INVESTOR'S  OBLIGATIONS AT CLOSING. The obligations of
the  Investor  under  Sections  l and 2 of this  Agreement  are  subject  to the
fulfillment  or  waiver,  on or before  the  Closing,  of each of the  following
conditions:

          (a)  Representations  and Warranties True. Each of the representations
     and  warranties  of the  Company  contained  in Section 3 shall be true and
     correct in all  material  respects on and as of the date of the  Disclosure
     Letter (as defined in Section  7(a) below) and on and as of the date of the
     Closing, except as set forth in the Disclosure Letter, with the same effect
     as  though  such  representations  and  warranties  had been made as of the
     Closing.

          (b)  Performance.  The Company shall have  performed and complied with
     all agreements, obligations and conditions contained in this Agreement that
     are  required  to be  performed  or  complied  with by it on or before  the
     Closing and shall have obtained all approvals,  consents and qualifications
     necessary to complete the purchase and sale described herein.

          (c) Securities Exemptions.  The offer and sale of the Purchased Shares
     and  the  Warrants  to the  Investor  pursuant  to this  Agreement  and the
     Warrants  shall  be  exempt  from  the  registration  requirements  of  the
     Securities Act and the registration  and/or  qualification  requirements of
     all applicable state securities laws.

          (d) Proceedings and Documents.  All corporate and other proceedings in
     connection  with  the  transactions  contemplated  at the  Closing  and all
     documents  incident  thereto shall be reasonably  satisfactory  in form and
     substance to the  Investor,  and the Investor  shall have received all such
     counterpart originals and certified or other copies of such documents as it
     may reasonably request.  Such documents shall include but not be limited to
     the following:

               (i) Certified  Charter  Documents.  A copy of (i) the Articles of
          Incorporation  certified as of a recent date by the Secretary of State
          of  California  as a complete and correct copy  thereof,  and (ii) the
          Bylaws of the  Company (as  amended  through the date of the  Closing)
          certified  by the  Secretary of the Company as a true and correct copy
          thereof as of the Closing.

               (ii) Board Resolutions. A copy, certified by the Secretary of the
          Company,  of the  resolutions of the Board of Directors of the Company
          providing for the approval of this  Agreement and the Warrants and the
          issuance  of the  Purchased  Shares  and the  shares of  Common  Stock
          issuable  upon  exercise  of  the  Warrants,  and  the  other  matters
          contemplated hereby and thereby.

               (iii)  Registrar and Transfer Agent  Certificate.  A certificate,
          executed by the Company's  registrar and transfer agent certifying the
          number of  outstanding  shares of Common  Stock of the Company as of a
          recent date reasonably acceptable to the Investor.

          (e) Opinion of Company  Counsel.  The Investor  will have  received an
     opinion on behalf of the Company, dated as of the date of the Closing, from
     Coudert Brothers,  counsel to the Company, in a form reasonably  acceptable
     to the Investor.

          (f) No  Material  Adverse  Effect.  Between  the date  hereof  and the
     Closing,  there shall not have occurred any Material  Adverse Effect to the
     Company.

          (g) Nasdaq  Requirements.  All  requirements  of the  Nasdaq  National
     Market in connection with the  transactions  contemplated by this Agreement
     and  the  Warrants  shall  have  been  complied  with by the  Company.  The
     Purchased Shares and the shares of Common Stock issuable upon conversion of
     the Warrants shall have been approved for quotation on the Nasdaq  National
     Market.

          (h) Other Actions.  The Company shall have executed such certificates,
     agreements,  instruments and other documents,  and taken such other actions
     as shall be customary or reasonably requested by the Investor in connection
     with the transactions contemplated hereby.

     6. CONDITIONS TO THE COMPANY'S  OBLIGATIONS AT CLOSING.  The obligations of
the Company to the Investor under this Agreement are subject to the  fulfillment
or waiver, on or before the Closing, of each of the following conditions:

          (a)  Representations  and  Warranties  True. The  representations  and
     warranties of the Investor contained in Section 4 shall be true and correct
     in all material  respects on and as of the date hereof and on and as of the
     date of the Closing with the same effect as though such representations and
     warranties had been made as of the Closing.

          (b)  Performance.  The Investor shall have performed and complied with
     all agreements, obligations and conditions contained in this Agreement that
     are  required  to be  performed  or  complied  with by it on or before  the
     Closing and shall have obtained all approvals,  consents and qualifications
     necessary to complete the purchase and sale described herein.

          (c) Securities Exemptions.  The offer and sale of the Purchased Shares
     and the Warrants to the Investor pursuant to this Agreement shall be exempt
     from  the   registration   requirements  of  the  Securities  Act  and  the
     registration  and/or  qualification  requirements  of all applicable  state
     securities laws.

          (d) Proceedings and Documents.  All corporate and other proceedings in
     connection  with  the  transactions  contemplated  at the  Closing  and all
     documents  incident  thereto will be  reasonably  satisfactory  in form and
     substance  to the  Company  and to the  Company's  legal  counsel,  and the
     Company will have received all such counterpart  originals and certified or
     other copies of such documents as it may reasonably request.

          (e) Other Actions. The Investor shall have executed such certificates,
     agreements,  instruments and other documents,  and taken such other actions
     as shall be customary or reasonably  requested by the Company in connection
     with the transactions contemplated hereby.

     7. COVENANTS OF THE PARTIES.

          (a) Disclosure  Letter.  At the Closing,  the Company shall deliver to
     the  Investor  a  disclosure  letter in a form  agreed  upon by each of the
     Company and the Investor (the "Disclosure  Letter"),  which shall set forth
     exceptions,  if any,  to the  representations  and  warranties  made by the
     Company in Article 3 hereof. Such Disclosure Letter shall be organized such
     that any exceptions  specifically identify the representation and warranty,
     by section,  to which they relate, and shall clearly identify the nature of
     the  exception,   to  the  Investor's  reasonable   satisfaction.   In  any
     determination  of whether the Investor is entitled to  indemnification  for
     the  breach  of  any  representations  or  warranties  set  forth  in  this
     Agreement,  only the final form of the Disclosure  Letter (i.e.,  the final
     disclosure  letter  agreed upon by the Company and the  Investor)  shall be
     relevant,  and the  identification  of any  matters  on any  drafts  of the
     Disclosure  Letter shall not be introduced as evidence or otherwise used in
     any manner in connection therewith.

          (b) Election of Board of Directors.  The Company  hereby agrees to use
     its best efforts to change the  composition of Company's Board of Directors
     (the  "Board"),  within three (3) months from the date hereof,  so that the
     Board shall consist of exactly seven (7)  directors,  with four (4) of such
     directors  being  outside  directors.  The Company  agrees that at its next
     meeting of shareholders  following the Closing, the Company shall make such
     proposals  and take all  actions  within its control and shall use its best
     efforts to cause its shareholders to vote, to change the Company's Articles
     of  Incorporation  and Bylaws,  as  appropriate,  to (i)  require  that the
     composition of the Board include at least a majority of outside  directors,
     and (ii)  provide  that the  number of  directors  may not be  changed to a
     number greater than nine (9) except by amendment to the Company's  Articles
     of Incorporation and Bylaws.

          (c) Registration Rights.

               (i) Definitions. For purposes of this Section 7(c):

                    (A) Registration.  The terms  "register,"  "registered," and
               "registration" refer to a registration  effected by preparing and
               filing a registration statement in compliance with the Securities
               Act  of  1933,  as  amended,  (the  "Securities  Act"),  and  the
               declaration  or ordering of  effectiveness  of such  registration
               statement

                    (B)   Registrable   Securities.    The   term   "Registrable
               Securities"  means:  (y) the  Purchased  Shares and any shares of
               Common Stock of the Company  issued or issuable  upon exercise of
               the  Warrants;  and (z) any shares of Common Stock of the Company
               or other  securities  of the Company  issued as (or issuable upon
               the  conversion  or  exercise  of any  warrant,  right  or  other
               security that is issued as) a dividend or other distribution with
               respect to, or in exchange for or in  replacement  of, any of the
               securities  described in the  immediately  preceding  clause (y).
               Notwithstanding  the foregoing,  "Registrable  Securities"  shall
               exclude  (i) any  Registrable  Securities  sold by a person  in a
               transaction  in which  rights  under  this  Section  7(c) are not
               assigned  in   accordance   with  this   Agreement  or  (ii)  any
               Registrable  Securities sold in a public  offering,  whether sold
               pursuant to Rule 144 promulgated  under the Securities Act, or in
               a registered offering, or otherwise.

                    (C) Registrable  Securities Then Outstanding.  The number of
               shares of "Registrable  Securities then  outstanding"  shall mean
               the number of shares of Purchased Shares,  shares of Common Stock
               and other securities that are Registrable Securities and are then
               issued and outstanding.

                    (D) Holder.  For  purposes of this  Section  7(c),  the term
               "Holder" means any person owning of record Registrable Securities
               that have not been sold to the  public  or  pursuant  to Rule 144
               promulgated under the Securities Act or any permitted assignee of
               record of such  Registrable  Securities to whom rights under this
               Section  7(c) have been duly  assigned  in  accordance  with this
               Agreement.

                    (E) Form S-3.  The term "Form S-3" means such form under the
               Securities  Act  as is in  effect  on  the  date  hereof  or  any
               successor registration form under the Securities Act subsequently
               adopted by the SEC that  permits  inclusion or  incorporation  of
               substantial  information by reference to other documents filed by
               the Company with the SEC.

               (ii)  Form  S-3  Registration.  Within  the  fifteen  day  period
          following  the Closing  Date,  the Company  shall use best  efforts to
          cause to be filed and  become  effective  with the SEC a  Registration
          Statement  on Form S-3 relating to all of the  Registrable  Securities
          (in the event such  registration  statement  is not  effective on such
          date,  the Company  shall  continue to use all  reasonable  commercial
          efforts to cause it to become  effective until it becomes  effective),
          such  Registration  Statement  to be effected  only for sales or other
          transfers  by the Investor in  connection  with  offerings,  sales and
          transfers not constituting an underwritten public offering;  provided,
          however,  that in the event Form S-3 is not  available to the Company,
          the Company  shall file such other form as may be available if Holders
          who hold  Registrable  Securities  with a market value of at least One
          Million Dollars  ($1,000,000) deliver a written request to the Company
          that the Company do so,  where such market value is  determined  as of
          the date of such written request.  The Company shall also use its best
          efforts to obtain any related  qualifications,  registrations or other
          compliances that may be necessary under any applicable "blue sky" laws
          in  each  jurisdiction   reasonably   requested  by  the  Holders.  In
          connection with such registration, the Company will:

                    (A) Notice.  Promptly give written  notice to the Holders of
               the  proposed  registration  and  any  related  qualification  or
               compliance; and

                    (B)  Registration.  Effect  such  registration  and all such
               qualifications  and compliances and as would permit or facilitate
               the sale and  distribution of all or such portion of such Holders
               or Holders'  Registrable  Securities  within the  timeframes  set
               forth  in this  Section  7(c)(ii);  provided,  however,  that the
               Company  shall not be obligated to effect any such  registration,
               qualification or compliance  pursuant to this Section 7(c)(ii) in
               any  particular  jurisdiction  in  which  the  Company  would  be
               required  to  qualify  to do  business  or to  execute  a general
               consent to service of  process in  effecting  such  registration,
               qualification or compliance and shall be obligated to effect only
               one such registration in any six (6) month period.

                    (C) Expenses. The Company shall pay all expenses incurred in
               connection  with  the  registration   pursuant  to  this  Section
               7(c)(ii),  excluding  underwriters'  or  brokers'  discounts  and
               commissions  relating  to shares sold by the  Holders,  including
               federal  and "blue sky"  registration,  filing and  qualification
               fees,  printers' and accounting fees, and fees and  disbursements
               of counsel.

                    (D)  Maintenance.  The  Company  shall use best  efforts  to
               maintain the effectiveness of the Form S-3 registration statement
               filed under this Section  7(c)(ii)  until the earlier of: (a) the
               date on which all of the  Registrable  Securities have been sold;
               and (b)  the  first  anniversary  of the  effective  date of such
               registration statement; provided, however, that unless all of the
               Registrable  Securities  held by the  Investor  as of such  first
               anniversary  could  then  be  sold  in a  single  transaction  in
               accordance  with  Rule  144  under  the  Securities  Act  without
               exceeding the volume limitations thereof, if the Company receives
               written  notice from the Investor that the Investor may be deemed
               to  be  an  "affiliate"  of  the  Company  for  purposes  of  the
               Securities  Act,  the date in this  Clause (b) shall be  extended
               until the Investor advises the Company that it no longer believes
               it may be deemed such an "affiliate."

                    (E)  Effectiveness  Failure  Sale.  If the Company  fails to
               cause any  Registration  Statement  required to become  effective
               pursuant to this Section  7(c)(ii) to be filed before one hundred
               eighty (180) days after the  Closing,  as to the shares of Common
               Stock to be covered by that Registration  Statement,  each Holder
               shall be entitled to sell (an  "Effectiveness  Failure  Sale") at
               any time and from time to time to the  Company,  and the  Company
               shall be required to purchase, all or any of its shares of Common
               Stock  at a price  per  share  equal  to the  greater  of (i) one
               hundred fifty percent  (150%) of the Purchase Price and (ii) fair
               market value for the Common Stock.

                    (F) Right to Sell. After any Registration Statement required
               to be filed  pursuant  to this  Section  7(c)  has been  declared
               effective  by the SEC,  if during  any twelve  (12) month  period
               sales of all the Registrable  Securities  cannot be made pursuant
               to such Registration  Statement for more than thirty (30) days in
               aggregate,  then each  Holder  shall be  entitled  to sell to the
               Company,  and the Company  shall be required to purchase,  all or
               any of its shares of Common  Stock at a price per share  equal to
               the  greater  of (i) one  hundred  fifty  percent  (150%)  of the
               Purchase Price and (ii) fair market value for the Common Stock.

                    (G)  Effecting a Sale.  In order to effect an  Effectiveness
               Failure  Sale,  a  Holder  (a  "Selling  Holder")  shall  fax (or
               otherwise deliver) a notice (the "Notice of Sale") to the Company
               indicating  the  number  of  shares  of  Common  Stock to be sold
               pursuant to such Effectiveness  Failure Sale. Upon receipt by the
               Company  of a  facsimile  copy of a Notice of Sale from a Selling
               Holder,  the Company shall  immediately  send, via  facsimile,  a
               confirmation  to the Selling  Holder  stating  that the Notice of
               Sale has been  received  and the name and  telephone  number of a
               contact person at the Company regarding the Effectiveness Failure
               Sale. Within five (5) business days after the Notice of Sale, the
               Holder shall surrender or cause to be surrendered to the Company,
               the  certificates  representing  the shares of Common Stock to be
               sold hereunder, along with a copy of the Notice of Sale.

                    (H)  Payments by the Company.  The Company  shall cause each
               Registration  Statement  filed  pursuant  to Section  7(c)(ii) to
               become  effective as soon as  practicable,  but in no event later
               than  the  sixtieth  (60th)  day (or the  one  hundred  twentieth
               (120th)  day if the  SEC  reviews  such  Registration  Statement)
               following   the   applicable   filing  date  (the   "Registration
               Deadline"). If any Registration Statement required to be filed by
               the Company  pursuant to Section  7(c)(ii) hereof is not declared
               effective  by the SEC on or before  the  applicable  Registration
               Deadline  (a   "Registration   Failure"),   or  (ii)  after  such
               Registration  Statement has been  declared  effective by the SEC,
               sales of all the Registrable  Securities  cannot be made pursuant
               to the  registration  statement (by reason of a stop order or the
               Company's  failure to update the  registration  statement  or any
               other reason outside the control of the Holders) (a "Registration
               Suspension"),  then the Company will make payments to the Holders
               in such amounts and at such times as shall be determined pursuant
               to this  subsection  (H) as partial relief for the damages to the
               Holders  by reason  of any such  delay in or  reduction  of their
               ability to sell the  Registrable  Securities  (which remedy shall
               not be  exclusive  of any other  remedies  available at law or in
               equity).  In the event of a  Registration  Failure,  the  Company
               shall pay to the Holders an amount equal to (1) .02 times (2) the
               aggregate  Funded Amount times (3) the number of months (prorated
               per day for partial months)  following the Registration  Deadline
               prior to the date the  Registration  Statement  filed pursuant to
               Section  7(c)(ii) is declared  effective by the SEC. In addition,
               in the event of a Registration Suspension,  the Company shall pay
               to  the  Holders  an  amount  equal  to (4)  .02  times  (5)  the
               Applicable Funded Amount times (6) the number of months (prorated
               per day for partial  months)  from (x) the date on which sales of
               all the  Registrable  Securities  first cannot be made to (y) the
               date on which sales of all the  Registrable  Securities can again
               be made.  For the purposes of this  Section,  "Applicable  Funded
               Amount"  shall  mean (7)  Funded  Amount  times (8) the number of
               Purchased Shares and Warrant Shares then owned by the Holders (or
               issuable at that time as Warrant Shares upon full exercise of the
               Warrants,   without  regard  to  any  limitations  on  conversion
               thereof)  divided  by (9) the  number of  Purchased  Shares  (and
               Warrant  Shares  issuable  upon  full  exercise  of the  Warrants
               without  regard  to  any   limitations  on  conversion   thereof)
               originally purchased. Amounts to be paid pursuant to this Section
               shall be paid pro rata to the  Investor  based upon the number of
               Purchased  Shares and Warrant  Shares  owned and  Warrant  Shares
               issuable upon full conversion of the Warrants by each Holder, and
               shall be paid in cash.  Such  payments  shall be made within five
               (5) days  after the end of each  period  that  gives rise to such
               obligation,  provided  that, if any such period  extends for more
               than  thirty  (30)  days,  payments  shall be made for each  such
               thirty (30) day period within five (5) days after the end of such
               thirty (30) day period.

               (iii)  Obligations  of  the  Company.   In  connection  with  the
          Registration  Statement  filed pursuant to Section  7(c)(ii) above and
          the  registration  of any  other  Registrable  Securities  under  this
          Agreement, the Company shall, as expeditiously as reasonably possible:

                    (A)  Amendments and  Supplements.  Prepare and file with the
               SEC  such  amendments  and   supplements  to  such   registration
               statement  and  the  prospectus  used  in  connection  with  such
               registration  statement  as may be  necessary  to comply with the
               provisions of the Securities Act with respect to the  disposition
               of all securities covered by such registration statement.

                    (B)  Prospectuses.  Furnish to the  Holders  such  number of
               copies of a prospectus,  including a preliminary  prospectus,  in
               conformity with the  requirements of the Securities Act, and such
               other  documents  as they  may  reasonably  request  in  order to
               facilitate the disposition of the Registrable Securities owned by
               them that are included in such registration.

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

                    (D)  Underwriting.  In the event of any underwritten  public
               offering,  enter  into  and  perform  its  obligations  under  an
               underwriting  agreement in usual and  customary  form  (including
               customary  indemnification  of the  underwriters by the Company),
               with the managing  underwriter(s)  of such offering.  Each Holder
               participating  in such  underwriting  shall  also  enter into and
               perform  its  obligations  under  such  an  agreement;  provided,
               however, that it shall not be considered customary to require any
               of  the  Holders  to  provide   representations   and  warranties
               regarding the Company or  indemnification of the underwriters for
               material misstatements or omissions in the registration statement
               or prospectus for such offering.

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

                    (F) Opinion and Comfort Letter.  Furnish,  at the request of
               any Holder requesting registration of Registrable Securities,  on
               the date that such  Registrable  Securities  are delivered to the
               underwriters  for sale, if such securities are being sold through
               underwriters,  or, if such  securities are not being sold through
               underwriters,  on the date that the  registration  statement with
               respect to such  securities  becomes  effective,  (i) an opinion,
               dated as of such date,  of the counsel  representing  the Company
               for the purposes of such  registration,  in form and substance as
               is customarily  given to underwriters  in an underwritten  public
               offering and reasonably satisfactory to a majority in interest of
               the   Holders   requesting   registration,   addressed   to   the
               underwriters,  if any, and to the Holders requesting registration
               of  Registrable  Securities  and  (ii)  in the  event  that  such
               securities  are being  sold  through  underwriters,  a  "comfort"
               letter  dated as of such  date,  from the  independent  certified
               public  accountants  of the Company,  in form and substance as is
               customarily given by independent  certified public accountants to
               underwriters  in an  underwritten  public offering and reasonably
               satisfactory to a majority in interest of the Holders  requesting
               registration,  addressed to the  underwriters  and to the Holders
               requesting registration of Registrable Securities.

               (iv) Furnish  Information.  It shall be a condition  precedent to
          the obligations of the Company to take any action pursuant to Sections
          7(c)(ii)  that the selling  Holders  shall furnish to the Company such
          information regarding themselves,  the Registrable  Securities held by
          them, and the intended  method of  disposition  of such  securities as
          shall be  reasonably  requested  by the  Company to timely  effect the
          registration of their Registrable Securities.

               (v) Indemnification.

                    (A) By the  Company.  To the extent  permitted  by law,  the
               Company  will  indemnify  and  hold  harmless  each  Holder,  the
               partners, officers, shareholders,  employees, representatives and
               directors of each Holder,  any  underwriter (as determined in the
               Securities  Act) for such  Holder and each  person,  if any,  who
               controls  such  Holder or  underwriter  within the meaning of the
               Securities  Act or  the  Securities  Exchange  Act  of  1934,  as
               amended,  against any losses,  claims,  damages,  or  Liabilities
               (joint or  several)  to which they may become  subject  under the
               Securities  Act, the Exchange Act or other  federal or state law,
               insofar as such  losses,  claims,  damages,  or  liabilities  (or
               actions in respect thereof) arise out of or are based upon any of
               the following statements, omissions or violations (collectively a
               "Violation"):

                         (x) any untrue statement or alleged untrue statement of
                    a material fact  contained in such  registration  statement,
                    including any  preliminary  prospectus  or final  prospectus
                    contained therein or any amendments or supplements thereto;

                         (y) the omission or alleged omission to state therein a
                    material fact required to be stated therein, or necessary to
                    make the statements therein not misleading, or

                         (z) any  violation or alleged  violation by the Company
                    of the  Securities  Act,  the  Exchange  Act, any federal or
                    state  securities law or any rule or regulation  promulgated
                    under the Securities Act, the Exchange Act or any federal or
                    state securities law in connection with the offering covered
                    by such registration statement;

                    and the Company will  reimburse  each such Holder,  partner,
                    officer, shareholder,  employee,  representative,  director,
                    underwriter  or  controlling  person  for any legal or other
                    expenses  reasonably  incurred  by  them,  as  incurred,  in
                    connection  with  investigating  or defending any such loss,
                    claim, damage, liability or action; provided,  however, that
                    the indemnity  agreement  contained in this subsection shall
                    not apply to amounts  paid in  settlement  of any such loss,
                    claim,  damage,  liability or action if such  settlement  is
                    effected  without the consent of the Company  (which consent
                    shall not be unreasonably  withheld),  nor shall the Company
                    be liable in any such case for any such loss, claim, damage,
                    liability  or action to the extent  that it arises out of or
                    is based upon a Violation  that occurs in reliance  upon and
                    in conformity with written  information  furnished expressly
                    for use in connection with such registration by such Holder,
                    partner,  officer,  shareholder,  employee,  representative,
                    director, underwriter or controlling person of such Holder.

                    (B) By Selling Holders. To the extent permitted by law, each
               selling Holder will indemnify and hold harmless the Company, each
               of its  directors,  each of its  officers  who  have  signed  the
               registration  statement,  each  person,  if any, who controls the
               Company within the meaning of the Securities Act, any underwriter
               and any other Holder selling  securities under such  registration
               statement  or any of  such  other  Holder's  partners,  officers,
               shareholders,  employees,  representatives  and directors and any
               person  who  controls  such  Holder  within  the  meaning  of the
               Securities Act or the Exchange Act,  against any losses,  claims,
               damages or liabilities (joint or several) to which the Company or
               any such officer or director,  controlling person, underwriter or
               other  such  Holder,  partner,  officer,  shareholder,  employee,
               representative,  director  or  controlling  person of such  other
               Holder may become subject under the Securities  Act, the Exchange
               Act or  other  federal  or state  law,  insofar  as such  losses,
               claims,  damages or liabilities  (or actions in respect  thereto)
               arise out of or are based upon any Violation, in each case to the
               extent (and only to the  extent)  that such  Violation  occurs in
               reliance  upon  and  in  conformity   with  written   information
               furnished by such Holder  expressly  for use in  connection  with
               such registration;  and each such Holder will reimburse any legal
               or other expenses  reasonably incurred by the Company or any such
               officer or director,  controlling  person,  underwriter  or other
               Holder, partner, officer, shareholder,  employee, representative,
               director or controlling person of such other Holder in connection
               with  investigating  or defending any such loss,  claim,  damage,
               liability  or  action:  provided,  however,  that  the  indemnity
               agreement contained in this subsection shall not apply to amounts
               paid in settlement of any such loss, claim, damage,  liability or
               action if such settlement is effected  without the consent of the
               Holder,  which consent shall not be  unreasonably  withheld;  and
               provided further,  that the total amounts payable in indemnity by
               a Holder under this subsection or otherwise in respect of any and
               all Violations shall not exceed in the aggregate the net proceeds
               received by such Holder in the  registered  offering out of which
               such Violations arise.

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

                    (D) Defect  Eliminated  in Final  Prospectus.  The foregoing
               indemnity  agreements  of the  Company and Holders are subject to
               the condition that,  insofar as they relate to any Violation made
               in a  preliminary  prospectus  but  eliminated or remedied in the
               amended  prospectus  on  file  with  the  SEC  at  the  time  the
               registration  statement  in  question  becomes  effective  or the
               amended prospectus filed with the SEC pursuant to SEC Rule 424(b)
               (the "Final  Prospectus"),  such  indemnity  agreement  shall not
               inure  to the  benefit  of any  person  if a  copy  of the  Final
               Prospectus was timely furnished to the indemnified  party and was
               not furnished to the person asserting the loss, liability,  claim
               or damage at or prior to the time such  action is required by the
               Securities Act.

                    (E) Contribution. In order to provide for just and equitable
               contribution  to joint  liability under the Securities Act in any
               case in which either (i) any Holder  exercising rights under this
               Agreement,  or any controlling person of any such Holder, makes a
               claim for  indemnification  pursuant to this  section,  but it is
               judicially determined (by the entry of a final judgment or decree
               by a court of competent  jurisdiction  and the expiration of time
               to appeal or the denial of the last  right of  appeal)  that such
               indemnification may not be enforced in such case  notwithstanding
               the fact that this section provides for  indemnification  in such
               case,  or  (ii)  contribution  under  the  Securities  Act may be
               required  on the  part of any  such  selling  Holder  or any such
               controlling person in circumstances for which  indemnification is
               provided  under this section;  then,  and in each such case,  the
               Company and such Holder will contribute to the aggregate  losses,
               claims,  damages  or  liabilities  to which  they may be  subject
               (after  contribution from others) in such proportion so that such
               Holder  is  responsible  for  the  portion   represented  by  the
               percentage  that the  public  offering  price of its  Registrable
               Securities  offered by and sold under the registration  statement
               bears to the public  offering price of all securities  offered by
               and sold under such registration  statement,  and the Company and
               other selling Holders are responsible for the remaining  portion;
               provided,  however,  that,  in any such case:  (A) no such Holder
               will be required to contribute any amount in excess of the public
               offering  price of all such  Registrable  Securities  offered and
               sold by such Holder pursuant to such registration statement;  and
               (B) no person or entity  guilty of  fraudulent  misrepresentation
               (within the meaning of Section 11(f) of the Securities  Act) will
               be entitled to contribution from any person or entity who was not
               guilty of such fraudulent misrepresentation.

                    (F)  Survival.  The  obligations  of the Company and Holders
               under  this  Section   7(c)(v)  shall  survive  until  the  fifth
               anniversary  of the  completion  of any  offering of  Registrable
               Securities  in  a  registration  statement,   regardless  of  the
               expiration  of any statutes of  limitation  or extensions of such
               statutes.

               (vi) No Registration  Rights to Third Parties.  Without the prior
          written consent of the Investor, the Company covenants and agrees that
          it shall not grant, or cause or permit to be created,  for the benefit
          of any person or entity any  registration  rights of any kind (whether
          similar to the demand,  "piggyback" or Form S-3  registration  rights)
          relating  to  shares  of the  Company's  Common  Stock  or  any  other
          securities  of the Company  that are  superior  to the rights  granted
          under this Section 7(c).

               (vii)  Suspension   Provisions.   Notwithstanding  the  foregoing
          subsections of this Section 7(c), the Company shall not be required to
          take any action with respect to the registration or the declaration of
          effectiveness of the registration  statement  following written notice
          to the  Holders  from  the  Company  (a  "Suspension  Notice")  of the
          existence  of any  state  of  facts  or  the  happening  of any  event
          (including pending negotiations relating to, or the consummation of, a
          transaction, or the occurrence of any event that the Company believes,
          in good faith, requires additional disclosure of material,  non-public
          information  by the  Company in the  registration  statement  that the
          Company  believes it has a bona fide business  purpose for  preserving
          confidentiality  or that renders the Company unable to comply with the
          published  rules  and  regulations  of the SEC  promulgated  under the
          Securities  Act or the  Securities  Exchange  Act, as in effect at any
          relevant time (the "Rules and Regulations"))  that would result in (1)
          the registration statement,  any amendment or post-effective amendment
          thereto, or any document  incorporated therein by reference containing
          an untrue statement of a material fact or omitting to state a material
          fact required to be stated therein or necessary to make the statements
          therein  not  misleading,  or (2)  the  prospectus  issued  under  the
          registration  statement,  any prospectus  supplement,  or any document
          incorporated  therein by reference  including  an untrue  statement of
          material fact or omitting to state a material fact  necessary in order
          to make the  statements  therein,  in the  light of the  circumstances
          under which they were made, not misleading,  provided that the Company
          (1) shall not issue a Suspension Notice more than once in any 12 month
          period,  (2) shall use its best  efforts to  remedy,  as  promptly  as
          practicable,  but in any event within  ninety (90) days of the date on
          which the Suspension Notice was delivered, the circumstances that gave
          rise to the Suspension Notice and deliver to the Holders  notification
          that the  Suspension  Notice is no longer in effect  and (3) shall not
          issue a Suspension  Notice for any period  during which the  Company's
          executive  officers are not  similarly  restrained  from  disposing of
          shares of the  Company's  Common  Stock.  Upon receipt of a Suspension
          Notice from the  Company,  all time limits  applicable  to the Holders
          under this Section 7(c) shall  automatically  be extended by an amount
          of time  equal to the  amount  of time  the  Suspension  Notice  is in
          effect, the Holders will forthwith discontinue disposition of all such
          shares pursuant to the  registration  statement until receipt from the
          Company of copies of prospectus  supplements or amendments prepared by
          or  on  behalf  of  the  Company  (which  the  Company  shall  prepare
          promptly),  together with a notification that the Suspension Notice is
          no longer in effect,  and if so directed by the  Company,  the Holders
          will  deliver to the  Company  all copies in their  possession  of the
          prospectus  covering such shares current at the time of receipt of any
          Suspension Notice.

          (d)  Obligations  Regarding  Confidential  Information.   Confidential
     Information  (as defined  below) shall not be disclosed by any party hereto
     to any third  party  except in  accordance  with the  provisions  set forth
     below. For purposes of this Agreement, the term "Confidential  Information"
     refers to the following  items: (i) the existence of this Agreement and the
     Warrants,  and (ii) the  terms and  provisions  of this  Agreement  and the
     Warrants,  provided,  however,  that  Confidential  Information  shall  not
     include any information that was (i) publicly known and generally available
     in the public domain prior to its  disclosure by the Company,  (ii) becomes
     publicly  known and  generally  available in the public  domain  through no
     action or  inaction on the part of the  Company or (iii)  becomes  publicly
     known by written consent or other action of the Investor.

               (i)  Press   Releases,   Etc.  No   announcement   regarding  the
          Confidential    Information   in   a   press   release,    conference,
          advertisement,  announcement,  professional or trade publication, mass
          marketing materials or otherwise may be made without the prior written
          consent of each of the parties hereto.

               (ii) Permitted  Disclosures.  Notwithstanding the foregoing,  (i)
          any party may  disclose  any of the  Confidential  Information  to its
          current  or bona fide  prospective  investors,  employees,  investment
          bankers,  lenders,  accountants and attorneys, in each case only where
          such   persons  or  entities  are  under   appropriate   nondisclosure
          obligations  (the Company shall be responsible  for any failure of any
          such person to comply with the provisions of this Section  7(d));  and
          (ii) the Investor may disclose its investment in the Company and other
          Confidential Information to third parties or to the public at its sole
          discretion  and,  if it does so, the  Company  shall have the right to
          disclose to third  parties any such  information  disclosed in a press
          release or other public announcement by the Investor.

               (iii) Legally Compelled  Disclosure.  In the event that any party
          is  requested  or  becomes  legally   compelled   (including   without
          limitation,  pursuant to securities laws and  regulations) to disclose
          the existence of this  Agreement or any of the Financing  Terms hereof
          in  contravention  of the provisions of this Section 7(d),  such party
          (the  "Disclosing   Party")  shall  provide  the  other  parties  (the
          "Non-Disclosing  Parties")  with prompt written notice of that fact so
          that  the  appropriate  party  may  seek  (with  the  cooperation  and
          reasonable   efforts  of  the  other  parties)  a  protective   order,
          confidential treatment or other appropriate remedy. In such event, the
          Disclosing  Party shall  furnish only that portion of the  information
          which is legally  required and shall  exercise  reasonable  efforts to
          obtain reliable assurance that confidential treatment will be accorded
          such   information   to  the  extent   reasonably   requested  by  any
          Non-Disclosing Party.

               (iv) Other Information. The provisions of this Section 7(d) shall
          be in addition to, and not in substitution  for, the provisions of any
          separate nondisclosure agreement executed by any of the parties hereto
          with  respect  to the  transactions  contemplated  hereby.  Additional
          disclosures  and  exchange  of  confidential  information  between the
          Company and Investor (including without  limitation,  any exchanges of
          information with any Investor board observer) shall be governed by the
          terms of the  Corporate  Non-Disclosure  Agreement  No.  96432,  dated
          9/25/97,  executed by the Company and Investor,  and any  Confidential
          Information   Transmittal   Records  (CITR)   provided  in  connection
          therewith.  The CITR that shall govern the  exchanges of  confidential
          information  with any  Investor  board  observer  shall be in the form
          attached hereto as Exhibit B.

               (v) All notices under this Section 7(d) shall be made pursuant to
          Section 10(e) of this Agreement.

          (e) Board and Committee Observer.

               (1) So long as the Investor,  together with its  subsidiaries  of
          which the Investor  beneficially  owns, either directly or indirectly,
          at  least  fifty  percent  (50%)  of the  voting  securities  (each  a
          "Majority  Owned  Subsidiary"  and  collectively,  the "Majority Owned
          Subsidiaries"),  hold the equivalent of at least  twenty-five  percent
          (25%) of the Purchased  Shares and/or Warrant Stock (as defined in the
          Warrant), such number to be proportionately adjusted for stock splits,
          stock  dividends  and  similar  events,  the  Company  will  permit  a
          representative  of  the  Investor  (the  "Observer"),  to  attend  all
          meetings of the  Company's  Board of Directors  (the  "Board") and all
          committees of the Board (whether in person,  telephonic or other) in a
          non-voting,  observer  capacity  and shall  provide  to the  Investor,
          concurrently  with the  members of the Board or such Board  committee,
          and in the  same  manner,  notice  of such  meeting  and a copy of all
          materials provided to such members. Upon a good faith determination by
          the Board and upon the advice of counsel, the Observer may be excluded
          from  any   meeting  if  (A)   deemed   necessary   to   protect   the
          attorney-client privilege of the Company or (B) a conflict of interest
          exists  between the  Observer or Intel and the Company with respect to
          matters to be discussed by the Board or committee thereof.

               (2) Exchanges of confidential and proprietary information between
          the Company and the Investor  Observer  shall be governed by the terms
          of the Corporate  Non-Disclosure  Agreement No. 96432, dated September
          25,  1997,  executed  by  the  Company  and  the  Investor,   and  any
          Confidential  Information  Transmittal  Records provided in connection
          therewith.  The Company  acknowledges that the Observer may, from time
          to time,  have  information  that may be of  interest  to the  Company
          ("Information")  regarding a wide variety of matters including, by way
          of example only, (a) the Investor's technologies,  plans and services,
          and plans and  strategies  relating  thereto,  (b)  current and future
          investments  the  Investor  has made,  may make,  may  consider or may
          become   aware  of  with   respect  to  other   companies   and  other
          technologies,  products and services,  including,  without limitation,
          companies, technologies, products and services that may be competitive
          with  the  Company's,   and  (c)  developments  with  respect  to  the
          technologies, products and services, and plans and strategies relating
          thereto,   of  other  companies,   including  companies  that  may  be
          competitive with the Company. The Company recognizes that a portion of
          such  Information may be of interest to the Company.  Such Information
          may or may not be known by the  Observer.  The Company,  as a material
          part of the consideration for this Agreement, agrees that the Investor
          and its Observer shall have no duty to disclose any Information to the
          Company  or permit the  Company  to  participate  in any  projects  or
          investments  based on any Information,  or to otherwise take advantage
          of any  opportunity  that may be of interest to the Company if it were
          aware of such Information,  and hereby waives, to the extent permitted
          by law,  any claim  based on the  corporate  opportunity  doctrine  or
          otherwise   that  could  limit  the   Investor's   ability  to  pursue
          opportunities  based on such  Information  or that would  require  the
          Investor,  Observer to disclose any such Information to the Company or
          offer any opportunity relating thereto to the Company.

          (f) Rights of Participation.

               (i)  General.  As used in this  Agreement,  the  "Initial  Rights
          Period"  means the period from the date  hereof  until the earlier of:
          (1)  such  time as the  Investor,  together  with its  Majority  Owned
          Subsidiaries, no longer hold the equivalent of at least twenty percent
          (20%) of the  Purchased  Shares,  such  number  to be  proportionately
          adjusted for stock splits,  stock dividends and similar events, or (2)
          the third  anniversary  date of the Closing  Date.  During the Initial
          Rights  Period,  the  Investor and each other person or entity to whom
          rights under this Section  7(f) have been duly  assigned  (each of the
          Investor and each such  assignee,  a  "Participation  Rights  Holder")
          shall have a right of first  refusal to  purchase  such  Participation
          Rights  Holder's  Pro  Rata  Share  (as  defined  below)  of  all  New
          Securities  (as defined  below) that the Company may from time to time
          issue during such period (such New Securities would be allocated among
          the Participation  Rights Holders who elect to exercise their right to
          purchase  such New  Securities  on a pro rata basis  according  to the
          number of  Purchased  Shares  held by each such  Participation  Rights
          Holder  (where  any  shares  of Common  Stock  held as a result of the
          exercise of the Warrants  shall be deemed for these  purposes to still
          be Purchased Shares)). The rights described in the preceding sentence,
          as further  described  in this  Section  7(f),  are referred to as the
          "Right of Participation".

               (ii) Pro Rata Share. "Pro Rata Share" means, with respect to each
          Participation  Rights  Holder,  the  ratio  of the  following  numbers
          calculated  immediately  prior to the  issuance of the New  Securities
          giving rise to the Right of  Participation:  (A) the Participant Share
          Number (as defined below) for such Participation Rights Holder, to (B)
          the  difference  between (1) the sum of (a) the total number of shares
          of Common  Stock and other  voting  capital  stock of the Company then
          outstanding,  plus (b) the  number of shares of voting  capital  stock
          issuable  upon the  exercise,  conversion  or  exchange  of any  other
          security  of the  Company  then  outstanding  and  (2) the  number  of
          Dilutive  Securities  issued since the last Notice Date  excluding any
          Maintenance Securities issued pursuant to the last Maintenance Notice.

               (iii) New Securities.  "New  Securities"  means any Common Stock,
          Preferred  Stock or other  voting  capital  stock or  security  of the
          Company,  whether  now  authorized  or not,  and  rights,  options  or
          warrants to purchase  such Common  Stock or  Preferred  Stock or other
          voting  capital  stock  or  security,   and  securities  of  any  type
          whatsoever that are, or may become,  convertible  into or exchangeable
          or  exercisable  for Common  Stock,  Preferred  Stock or other  voting
          capital  stock or  security;  provided,  however,  that the term  "New
          Securities" shall not include:

                    (A) up to  2,500,000  shares of Common  Stock (or options or
               warrants  therefor) issued to employees,  officers,  directors or
               consultants of the Company pursuant to any stock purchase,  stock
               option,  stock  incentive and other employee  benefit plans,  and
               agreements  having  similar  purpose and effect,  approved by the
               Board,  and any  increase  in  such  number  that is  unanimously
               approved  by the Board and  approved by the  shareholders  of the
               Company;

                    (B) the Purchased Shares issued under this Agreement;

                    (C)  shares of Common  Stock  issued  upon  exercise  of the
               Warrants  or any  other  convertible  securities  of the  Company
               outstanding on the date hereof;

                    (D) any securities issued in connection with any stock split
               stock, dividend or other similar event in which all Participation
               Rights Holders are entitled to participate on a pro rata basis;

                    (E) any securities  issued upon the exercise,  conversion or
               exchange of any outstanding security if such outstanding security
               constituted a New Security;

                    (F) any  securities  issued  pursuant to the  acquisition of
               another Person, or subsidiary or division thereof, by the Company
               by   consolidation,   merger,   purchase  of  assets,   or  other
               reorganization;

                    (G) up to 750,000 shares of Common Stock issued to strategic
               investors in transactions  that are  unanimously  approved by the
               Board; or

                    (H) any shares of Common Stock or  warrants,  and any shares
               of Common Stock issued upon exercise of such warrants,  issued or
               to be  issued to  certain  institutional  investors  in a private
               placement of  securities  by the Company which is being closed on
               or about the date of the Closing hereunder.

               (iv) Participant Share Number.  "Participant Share Number",  with
          respect  to a  Participant  Rights  Holder,  means  the sum of (1) the
          number of Purchased Shares held by such Participant, (2) the number of
          shares of Common Stock issued upon exercise of the  Warrants,  (3) the
          number of shares of other  voting  capital  stock or  security  of the
          Company  held by such  Participant,  and (4) the  number  of shares of
          Common Stock or other voting  capital stock or security  issuable upon
          the  exercise,  conversion  or exchange  of any other  security of the
          Company held by such Participant (including the Warrants).

               (v) Purchase  Price.  The purchase price paid by the  Participant
          Rights  Holder for the New  Securities  shall equal the sales price of
          the New Securities.

               (vi) Procedures. If the Company proposes to undertake an issuance
          of New  Securities  (in a single  transaction  or a series of  related
          transactions)  in circumstances  that entitled a Participation  Rights
          Holder to  participate  therein in accordance  this Section 7(f),  the
          Company shall give to each Participation  Rights Holder written notice
          of its intention to issue New Securities (the "Participation Notice"),
          describing the amount and the type of New Securities and the price and
          the general  terms upon which the  Company  proposes to issue such New
          Securities.  Each Participation  Rights Holder shall have fifteen (15)
          business  days  from the  date of  receipt  of any such  Participation
          Notice to agree in writing to  purchase  up to the  maximum  number of
          such New Securities that such Participation  Rights Holder is entitled
          to purchase for the purchase price  specified in Section 7(f)(v) above
          and upon the  terms  and  conditions  specified  in the  Participation
          Notice by giving written notice to the Company and stating therein the
          quantity  of New  Securities  to be  purchased  (not  to  exceed  such
          maximum).  If any  Participation  Rights  Holder  fails to so agree in
          writing  within such 15 business day period,  then such  Participation
          Rights Holder shall forfeit the right hereunder to participate in such
          sale of New Securities;  provided,  however, that until the expiration
          of the Initial Rights Period,  any  Participation  Rights Holders that
          have  elected  to  exercise  their  Right  of  Participation  shall be
          entitled to  exercise  such right with  respect to any New  Securities
          where such right has been forfeited by such other Participation Rights
          Holder(s),  and the Company  shall follow  repeat the  procedures  set
          forth  in  this  Section  7(f)  to  ascertain   whether  the  electing
          Participation  Rights  Holders  desire  to  purchase  such  other  New
          Securities. All sales hereunder shall be consummated concurrently with
          the closing of the transaction triggering the Right of Participation.

               (ix) Failure to  Exercise.  Upon the  expiration  of such fifteen
          (15) business day period,  the Company  shall have one hundred  twenty
          (120)  days   thereafter,   subject  to  extensions   for   regulatory
          compliance,  to sell the New Securities described in the Participation
          Notice (with respect to which the Participation Rights Holders' rights
          of first  refusal  hereunder  were not  exercised),  or enter  into an
          agreement to do so within sixty (60) days thereafter  (which agreement
          must be  consummated  within one hundred  twenty  (120) days after its
          execution,  subject to extensions for regulatory  compliance),  at the
          price (or a higher price) and upon non-price terms not materially more
          favorable   to  the   purchasers   thereof   than   specified  in  the
          Participation  Notice. If the Company has not issued and sold such New
          Securities within such 120-day period, or entered into an agreement to
          do  so  within  sixty  (60)  days  thereafter  (and  consummated  such
          agreement  within such  120-day  period),  then the Company  shall not
          thereafter  issue  or sell  any New  Securities  without  again  first
          offering  such New  Securities  to the  Participation  Rights  Holders
          pursuant to this Section 7(f).

          (g) Nasdaq National Market.  The Company shall use its best efforts to
     cause  the  Purchased  Shares  and  shares of Common  Stock  issuable  upon
     exercise  of the  Warrants  to be  approved  for  quotation  on the  Nasdaq
     National  Market as  promptly  as  practicable  after the date  hereof.  In
     addition, the Company agrees to maintain the listing of its Common Stock on
     the Nasdaq  National  Market,  Nasdaq Small Cap, New York Stock Exchange or
     American Stock Exchange for at least three years after the Closing Date.

          (h)  Accounting.  The Company hereby agrees to hire a Big 5 Accounting
     firm no  later  than  June 30,  1999  for the  purpose  of  performing  the
     Company's  regular  audit  and  financial  reporting  requirements  for all
     activities beginning January 1, 1999. In addition,  Company agrees that the
     Company's  accountants  will  engage  Ernst & Young LLP for the  purpose of
     rendering an opinion on the  appropriate  accounting  treatment of: (i) the
     conversion  of  the  Investor's   future  payment   obligations  under  the
     Development  Agreement into an equity stake in the Company  pursuant to the
     Amendment and this Agreement;  and (ii) the Company's next round of private
     equity financing which is anticipated to be closed concurrently herewith or
     within  five (5) days  hereof.  Such  opinions of Ernst & Young LLP will be
     based on the  terms of this  Agreement.  Furthermore,  the  Company  hereby
     agrees  to  provide  a copy of the  opinions  of  Ernst & Young  LLP to the
     Investor, and the Company agrees to abide by such opinions.

          (i) Covenant Not to Sue. The Company  hereby  agrees that it shall not
     assert in any way any patent or related  rights  against the Investor,  its
     subsidiaries or affiliates, or their customers,  direct or indirect, agents
     or contractors,  for the manufacture,  use, import, offer for sale, or sale
     of  Investor's  products,  to the extent  that the claims of such rights to
     Intellectual  Property  are  asserted  against  any of  Investor's  general
     purpose  microprocessors  and/or  chipset  products,  either  alone  or  in
     combination with another product or products,  for so long as Investor does
     not  assert a  patent  claim  against  the  Company,  its  subsidiaries  or
     affiliates, or their customers,  direct or indirect, agents and contractors
     for the manufacture,  use, import,  offer for sale or sale of the Company's
     products.  If the Company assigns or attempts to assign ownership of any of
     its patents to a third party not bound by this covenant not to sue (whether
     directly or by operation of law),  then effective  upon such  assignment or
     attempted  assignment,  the  Company  agrees  that  Investor  shall  have a
     nonexclusive,  nontransferable license, without right of sublicense,  under
     such assigned  patents to make,  use and sell  Investor's  general  purpose
     microprocessor and chipset products.

          (j) Certain  Prohibited  Issuances.  Except  pursuant to the Company's
     stock option plans,  management and/or director stock plans and "strategic"
     investments from industry participants, the Company agrees not to issue any
     discounted or variable priced equity or equity like securities  issued in a
     private  placement for one year from the Closing Date of the Company's next
     round of private equity financing.

          (k) Certain  Expenses.  At the Closing,  the Company  shall pay to the
     Investor a flat fee of $10,000 to cover the  Investor's  expenses  (whether
     external  or  internal)   arising  in  connection  with  the   transactions
     contemplated by this Agreement.

          (l) Termination of Royalty  Obligations.  Section 7 of the Development
     Agreement is hereby  terminated and of no further force or effect,  and the
     parties  acknowledge that all future royalty obligations of the Company are
     hereby released;  provided,  however, that the provisions of Section 7.5 of
     the Development  Agreement  (regarding audit rights) shall remain in effect
     with respect to royalty payments made prior to the date hereof.

          (m)  Vecchione  and  Freedman  Transactions.   If  Maurizio  Vecchione
     disposes  of any Common  Stock  beneficially  owned by him while the Common
     Stock is trading at or below twenty five dollars ($25) per share during the
     period  beginning  on the date of the  Closing and ending on the earlier of
     (i) the first (1st)  anniversary  of the date of the  Closing,  or (ii) the
     date on which  Maurizio  Vecchione  ceases  to be  President  or CEO of the
     Company,  the Company  shall pay to the Investor an amount equal to (x) the
     number of  Purchased  Shares and Warrant  Shares then held by the  Investor
     times (y) the  difference  between  (m) the closing bid price of the Common
     Stock on the  trading  day  immediately  preceding  the day on  which  such
     disposal was publicly announced (the "Vecchione Announcement Date") and (n)
     the lowest  closing  bid price of the Common  Stock  during the thirty (30)
     trading day period beginning on the Vecchione  Announcement Date; provided,
     however,  that the Company  shall not be required to make such payment with
     respect to any sales until Maurizio Vecchione sells or otherwise  transfers
     in excess of fifty  thousand  (50,000)  shares of Common Stock in aggregate
     during such period at a price less than twenty five dollars ($25)  pursuant
     to Rule 144. If Joyce Freedman or Lee Freedman or any other member of their
     family (each a "Freedman")  dispose of any stock beneficially owned by such
     Freedman at any time during the period beginning on the date of the Closing
     and ending on the date which is six (6) months  following the Closing,  the
     Company  shall pay to the  Investor  an amount  equal to (x) the  number of
     Purchased Shares and Warrant Shares then held by the Investor times (y) the
     difference  between (m) the  closing  bid price of the Common  Stock on the
     trading  day  immediately  preceding  the day on which  such  disposal  was
     publicly  announced (the "Freedman  Announcement  Date") and (n) the lowest
     closing bid price of the Common  Stock  during the thirty (30)  trading day
     period beginning on the Freedman Announcement Date.

          (n) Share  Authorization.  The Company  shall use its best  efforts to
     have Nasdaq  confirm in writing that the  Purchased  Shares and the Warrant
     Shares  issuable  upon full  exercise  of the First  Warrants,  the  Second
     Warrants and the Third Warrants are not subject to Nasdaq Rule 4460(i) (the
     "Nasdaq  Approval").  The Company  shall also use its best  efforts to have
     Nasdaq confirm in writing that the Shares and the Warrant  Shares  issuable
     upon  full  exercise  of the  Warrants  are  not  subject  to  Nasdaq  Rule
     4310(c)(25)(H)(i)(b) (the "Second Nasdaq Approval"). The Company shall also
     use its best efforts to obtain the  Shareholder  Approval no later than the
     Approval  Date (as defined  below),  except to the extent such  Shareholder
     Approval is not  required by virtue of receipt by the Company of either the
     Nasdaq Approval or the Second Nasdaq Approval, as applicable.  For purposes
     hereof,  the  "Approval  Date" means the Company's  next annual  meeting of
     stockholders,  which meeting shall be held no later than July 30, 1999. For
     purposes  hereof,  "Shareholder  Approval" means (i)  authorization  by the
     stockholders of the Company of the issuance of Shares pursuant to the terms
     hereof and shares of Common Stock  issuable  upon the exercise of the First
     Warrants,  the Second Warrants and the Third Warrants (in each case without
     giving effect to any limitations on the exercise  thereof)  pursuant to the
     terms thereof and, if necessary,  the elimination of any prohibitions under
     the rules or  regulations  of any  stock  exchange,  interdealer  quotation
     system or other  self-regulatory  organization  with  jurisdiction over the
     Company  or  any of  its  securities  on the  Company's  ability  to  issue
     Purchased  Shares and shares of Common  Stock  upon  exercise  of the First
     Warrants,  the Second Warrants and the Third Warrants (in each case without
     giving effect to any  limitations on the exercise  thereof),  including all
     necessary  approvals  under  each of (i)  Nasdaq  Rule  4460(i)  (the "4460
     Shareholder  Approval") and (ii) Nasdaq Rule  4310(c)(25)(H)(1)(I)(b)  (the
     "4310  Shareholder  Approval").  In  addition,  the  Company  shall  have a
     definitive proxy statement seeking to obtain Shareholder Approval mailed to
     each stockholder of the Company at least twenty (20) business days prior to
     the Approval  Date.  The Company shall deliver any SEC comments it receives
     with respect to its proxy  statement to the Investor and will not file such
     proxy statement (or any revisions thereto), whether such proxy statement is
     in  preliminary or definitive  form,  without the approval of the Investor,
     which  approval  shall not be  unreasonably  withheld  or  delayed.  If the
     Company fails to obtain Shareholder  Approval by the Approval Date, and has
     not  then  obtained  each of the  Nasdaq  Approval  and the  Second  Nasdaq
     Approval,  the  Investor  may, at its  option,  (the  "Repurchase  Option")
     require the Company to  purchase  all or any portion of the First  Warrant,
     the Second  Warrant  and/or the Third  Warrant held by the Investor for the
     Repurchase Price (as herein  defined),  subject to the limitation on shares
     set forth below.  The "Repurchase  Price" means a price equal to the number
     of shares of Common Stock the Investor has  exercised the option to require
     the Company to purchase  times the greater of (x) one hundred fifty percent
     (150%) of the Black-Scholes  Amount (as herein defined) of such Warrant and
     (y) the amount  equal to the excess of the  closing bid price of the Common
     Stock on the date of the  Closing  over the closing bid price of the Common
     Stock on the date on which the Repurchase Option is elected. Such number of
     shares may include all shares of Common  Stock the Investor  could  receive
     upon exercise of such Warrant  without giving effect to any  limitations on
     the  exercise  thereof,  but  only  to  the  extent  such  Warrant  is  not
     exercisable  due to  failure  to obtain  Shareholder  Approval,  the Nasdaq
     Approval  and/or the Second Nasdaq  Approval.  The Company may elect to pay
     the Investor the Repurchase Price either (m) in cash or (n) if, in the good
     faith business  judgment of the Company's  board of directors,  the Company
     does not have  sufficient  liquidity  to pay some or all of the  Repurchase
     Price,  in cash (the "Cash  Portion")  to the extent  that the  Company has
     sufficient  liquidity and in a promissory note (the  "Repurchase  Note") to
     the Investor with a one-year term, interest equal to the then-current prime
     rate and in principal amount equal to the difference between the Repurchase
     Price and the Cash Portion.  If the Company  elects to deliver a Repurchase
     Note, then the Company shall repay the  outstanding  principal and interest
     on the  Repurchase  Note at the end of the  one-year  term and,  during the
     one-year term, shall take all reasonable  necessary  actions to ensure that
     such outstanding  principal and interest will be timely paid (and shall not
     take any  actions  inconsistent  with  such  objective).  From time to time
     during the  one-year  term,  the Company  shall  pre-pay  such  outstanding
     principal and interest to the extent that it has sufficient  liquidity,  it
     being understood and agreed that no such repayment shall be required if, in
     the good faith business  judgment of the Company's board of directors,  the
     Company  does  not  have any  such  liquidity  with  which to make any such
     repayment.  If the  Company  delivers  a  Repurchase  Note and  during  the
     one-year  term of such note,  obtains  Shareholder  Approval as required by
     this Section 7(n), the Company may, at its election,  require the holder of
     a  Repurchase  Note to exchange  such  Repurchase  Note for a Warrant  with
     identical  terms to the Warrant (or part thereof) which was  repurchased by
     the Company (the "Original  Warrant"),  entitling such holder to purchase a
     number of shares of Common  Stock  equal to (I) the number of shares  which
     could have been  purchased by exercise of the Original  Warrant  times (II)
     the then-current  outstanding principal and interest on the Repurchase Note
     divided by (III) the original  principal  amount of the Repurchase Note, at
     an exercise  price equal to the exercise  price of the Original  Warrant at
     the time of the  repurchase  (with such number of shares and such  exercise
     price being appropriately  adjusted to give effect to any adjustments which
     would  have been made to the  exercise  price and number of shares had such
     Warrant remained outstanding from the time of the repurchase until the date
     of exchange).

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following  variable  values at the time of applicable to the purchase:  (i)
     the current  market  price of the Common  Stock equal to the closing  trade
     price on the date of the Closing; (ii) volatility of the Common Stock equal
     to volatility of the Common Stock on the date of the Closing;  (iii) a risk
     free rate equal to the interest rate on the United States  treasury bill or
     treasury note with a maturity  corresponding  to the remaining  term of the
     Warrant on the date of the Closing; and (iv) an exercise price equal to the
     Exercise  Price on the date of the Closing.  In the event such  calculation
     function is no longer  available  utilizing the Bloomberg  online page, the
     Holder shall calculate such amount in its reasonable  discretion  using the
     closest  available  alternative  mechanism  and  variable  values  to those
     available   utilizing  the  Bloomberg  online  page  for  such  calculation
     function.

     8. INDEMNIFICATION.

          (a) Agreement to Indemnify.

               (i)  Company   Indemnity.   The  Investor,   its  Affiliates  and
          Associates,  and  each  officer,  director,   shareholder,   employer,
          representative  and agent of any of the foregoing  (collectively,  the
          "Investor Indemnitees") shall each be indemnified and held harmless to
          the extent set forth in this  Section 8 by the Company with respect to
          any and all  Damages  (as  defined  below)  incurred  by any  Investor
          Indemnitee   as   a   proximate    result   of   any   inaccuracy   or
          misrepresentation  in, or breach  of,  any  representation,  warranty,
          covenant or agreement made by the Company in this Agreement (including
          any exhibits and schedules  hereto).  Indemnification  claims  arising
          from the  registration  of Purchased  Shares  under  Federal and state
          securities laws are covered by Section 7(b) and not this Section 8.

               (ii) Investor Indemnity.  The Company, its respective  Affiliates
          and Associates,  and each officer,  director,  shareholder,  employer,
          representative  and agent of any of the foregoing  (collectively,  the
          "Company  Indemnitees") shall each be indemnified and held harmless to
          the extent set forth in this Section 8, by the Investor, in respect of
          any and all Damages incurred by any Company  Indemnitee as a proximate
          result of any  inaccuracy or  misrepresentation  in, or breach of, any
          representation,  warranty,  covenant or agreement made by the Investor
          in  this   Agreement.   Indemnification   claims   arising   from  the
          registration  of Purchased  Shares under Federal and state  securities
          laws are covered by Section 7(c) and not this Section 8.

               (iii) Equitable Relief. Nothing set forth in this Section 8 shall
          be deemed to prohibit or limit any  Investor  Indemnitee's  or Company
          Indemnitee's  right at any time before,  on or after the  Closing,  to
          seek  injunctive  or other  equitable  relief  for the  failure of any
          Indemnifying Party to perform or comply with any covenant or agreement
          contained herein.

          (b) Survival.  All  representations and warranties of the Investor and
     the Company  contained herein and all claims of any Investor  Indemnitee or
     Company Indemnitee in respect of any inaccuracy or  misrepresentation in or
     breach hereof, shall survive the Closing until the third anniversary of the
     date of this  Agreement,  regardless of whether the  applicable  statute of
     limitations,  including  extensions thereof,  may expire. All covenants and
     agreements  of the  Investor and the Company  contained  in this  Agreement
     shall  survive  the  Closing in  perpetuity  (except to the extent any such
     covenant  or  agreement  shall  expire  by its  terms).  All  claims of any
     Investor  Indemnitee or Company Indemnitee in respect of any breach of such
     covenants or agreements  shall survive the Closing until the  expiration of
     three years following the non-breaching  party's obtaining actual knowledge
     of such breach.

          (c) Claims for Indemnification.  If any Investor Indemnitee or Company
     Indemnitee (an "Indemnitee") shall believe that such Indemnitee is entitled
     to  indemnification  pursuant to this  Section 8 in respect of any Damages,
     such Indemnitee  shall give the appropriate  Indemnifying  Party (which for
     purposes hereof, in the case of an Investor Indemnitee,  means the Company,
     and in the case of a Company Indemnitee, means the Investor) prompt written
     notice thereof. Any such notice shall set forth in reasonable detail and to
     the extent  then known the basis for such  claim for  indemnification.  The
     failure of such Indemnitee to give notice of any claim for  indemnification
     promptly shall not adversely  affect such  Indemnitee's  right to indemnity
     hereunder  except to the extent  that such  failure  adversely  affects the
     right of the  Indemnifying  Party to assert any reasonable  defense to such
     claim.  Each such  claim  for  indemnity  shall  expressly  state  that the
     Indemnifying  Party  shall have only the twenty  (20)  business  day period
     referred  to in the next  sentence  to  dispute  or deny  such  claim.  The
     Indemnifying  Party shall have  twenty (20)  business  days  following  its
     receipt of such notice either (a) to acquiesce in such claim by giving such
     Indemnitee  written  notice  of such  acquiescence  or (b) to object to the
     claim by giving such  Indemnitee  written notice of the  objection.  If the
     Indemnifying Party does not object thereto within such twenty (20) business
     day period,  such  Indemnitee  shall be entitled to be indemnified  for all
     Damages  reasonably and proximately  incurred by such Indemnitee in respect
     of such claim. If the Indemnifying  Party objects to such claim in a timely
     manner, the senior management of the Company and the Investor shall meet to
     attempt to resolve such dispute.  If the dispute  cannot be resolved by the
     senior  management,  either  party may make a  written  demand  for  formal
     dispute  resolution  and specify  therein the scope of the dispute.  Within
     thirty (30) days after such written notification, the parties agree to meet
     for one (1) day with an impartial  mediator and consider dispute resolution
     alternatives  other than  litigation.  If an alternative  method of dispute
     resolution  is not  agreed  upon  within  thirty  days  after  the  one day
     mediation,  either party may begin litigation proceedings.  Nothing in this
     section shall be deemed to require arbitration.

          (d) Defense of Claims. In connection with any claim that may give rise
     to  indemnity  under this  Section 8  resulting  from or arising out of any
     claim or Proceeding against an Indemnitee by a person or entity that is not
     a party hereto,  the Indemnifying  Party may (unless such Indemnitee elects
     not to seek indemnity  hereunder for such claim) but shall not be obligated
     to, upon written notice to the relevant  Indemnitee,  assume the defense of
     any such claim or Proceeding if the Indemnifying Party with respect to such
     claim or Proceeding  acknowledges to the Indemnitee the Indemnitee's  right
     to indemnity  pursuant  hereto to the extent provided herein (as such claim
     may have been  modified  through  written  agreement  of the  parties)  and
     provides assurances,  reasonably satisfactory to such Indemnitee,  that the
     Indemnifying  Party will be  financially  able to satisfy such claim to the
     extent  provided  herein if such claim or Proceeding is decided  adversely;
     provided, however, that nothing set forth herein shall be deemed to require
     the  Indemnifying  Party to waive  any  crossclaims  or  counterclaims  the
     Indemnifying Party may have against the Indemnified Party for damages.  The
     Indemnified Party shall be entitled to retain separate counsel,  reasonably
     acceptable  to the  Indemnifying  Party,  if the  Indemnified  Party  shall
     determine,  upon the written advice of counsel, that an actual or potential
     conflict  of  interest  exists  between  the  Indemnifying  Party  and  the
     Indemnified  Party in connection  with such  Proceeding.  The  Indemnifying
     Party shall be  obligated to pay the  reasonable  fees and expenses of such
     separate  counsel  to the  extent  the  Indemnified  Party is  entitled  to
     indemnification  by the  Indemnifying  Party with  respect to such claim or
     Proceeding under this Section 8(d). If the  Indemnifying  Party assumes the
     defense of any such  claim or  Proceeding,  the  Indemnifying  Party  shall
     select  counsel  reasonably  acceptable  to such  Indemnitee to conduct the
     defense of such claim or Proceeding,  shall take all steps necessary in the
     defense  or  settlement  thereof  and  shall at all  times  diligently  and
     promptly pursue the resolution  thereof.  If the  Indemnifying  Party shall
     have assumed the defense of any claim or Proceeding in accordance with this
     Section 8(d),  the  Indemnifying  Party shall be authorized to consent to a
     settlement of, or the entry of any judgment arising from, any such claim or
     Proceeding,  with the prior written consent of such  Indemnitee,  not to be
     unreasonably withheld; provided, however, that the Indemnifying Party shall
     pay or cause to be paid  all  amounts  arising  out of such  settlement  or
     judgment  concurrently  with the effectiveness  thereof;  provided further,
     that the Indemnifying  party shall not be authorized to encumber any of the
     assets of any Indemnitee or to agree to any restriction that would apply to
     any Indemnitee or to its conduct of business;  and provided further, that a
     condition  to any such  settlement  shall  be a  complete  release  of such
     Indemnitee and its Affiliates,  directors,  officers,  employees and agents
     with respect to such claim, including any reasonably foreseeable collateral
     consequences  thereof.  Such Indemnitee shall be entitled to participate in
     (but not control) the defense of any such action,  with its own counsel and
     at its own  expense.  Each  Indemnitee  shall,  and shall cause each of its
     Affiliates,  directors,  officers, employees and agents to, cooperate fully
     with the Indemnifying Party in the defense of any claim or Proceeding being
     defended by the  Indemnifying  Party  pursuant to this Section 8(d). If the
     Indemnifying  Party does not assume the defense of any claim or  Proceeding
     resulting therefrom in accordance with the terms of this Section 8(d), such
     Indemnitee may defend against such claim or Proceeding in such manner as it
     may deem  appropriate,  including  settling such claim or Proceeding  after
     giving notice of the same to the Indemnifying  Party, on such terms as such
     Indemnitee  may  deem  appropriate.  If any  Indemnifying  Party  seeks  to
     question  the  manner  in which  such  Indemnitee  defended  such  claim or
     Proceeding  or the  amount  of or  nature  of  any  such  settlement,  such
     Indemnifying Party shall have the burden to prove by a preponderance of the
     evidence that such  Indemnitee did not defend such claim or Proceeding in a
     reasonably prudent manner.

          (e) Certain  Definitions.  As used in this Section 8, (a)  "Affiliate"
     means, with respect to any person or entity,  any person or entity directly
     or indirectly controlling, controlled by or under direct or indirect common
     control with such other person or entity;  (b) "Associate" means, when used
     to indicate a relationship with any person or entity,  (1) any other person
     or entity of which such first  person or entity is an officer,  director or
     partner or is, directly or indirectly,  the beneficial owner of ten percent
     (10%) or more of any class of equity  securities,  membership  interests or
     other comparable ownership interests issued by such other person or entity,
     (2) any trust or other  estate in which such  first  person or entity has a
     ten  percent  (10%) or more  beneficial  interest or as to which such first
     person or entity serves as trustee or in a similar fiduciary capacity,  and
     (3) any  relative or spouse of such first person or entity who has the same
     home as such first person or entity or who is a director or officer of such
     first person or entity; (c) "Damages" means all demands, claims, actions or
     causes  of  action,   assessments,   losses,   damages,   costs,  expenses,
     liabilities,  judgments,  awards, fines, response costs, sanctions,  taxes,
     penalties,  charges and amounts paid in settlement,  including (1) interest
     on cash  disbursements in respect of any of the foregoing at the prime rate
     of Chase  Manhattan  Bank,  as in  effect  from  time to  time,  compounded
     quarterly, from the date each such cash disbursement is made until the date
     the party incurring such cash  disbursement  shall have been indemnified in
     respect thereof, and (2) reasonable  out-of-pocket costs, fees and expenses
     (including  reasonable costs,  fees and expenses of attorneys,  accountants
     and other agents of, or other  parties  retained  by, such party),  and (d)
     "Proceeding"  means  any  action,   suit,  hearing,   arbitration,   audit,
     proceeding  (public  or  private)  or  investigation  that  is  brought  or
     initiated by or against any federal,  state, local or foreign  governmental
     authority or any other person or entity.

     9.  ASSIGNMENT.   The  rights  of  the  Investor  under   Section 7(c)  and
Section 7(f)  shall be freely  transferable.  No  assignment  permitted  by this
Section 9 shall be effective  until the Company is given  written  notice by the
assigning party stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned.
In all cases,  any such assignee  shall receive such assigned  rights subject to
all the terms and conditions of this Agreement.

     10. MISCELLANEOUS.

          (a) Successors and Assigns. The terms and conditions of this Agreement
     will inure to the benefit of and be binding upon the respective  successors
     and assigns of the parties.

          (b) Governing  Law. This  Agreement  will be governed by and construed
     under the  internal  laws of the State of  Delaware,  without  reference to
     principles of conflict of laws or choice of laws.

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

          (d)  Headings.  The headings and captions  used in this  Agreement are
     used for  convenience  only and are not to be  considered  in construing or
     interpreting this Agreement.  All references in this Agreement to sections,
     paragraphs,  exhibits and schedules will, unless otherwise provided,  refer
     to sections  and  paragraphs  hereof and exhibits  and  schedules  attached
     hereto, all of which exhibits and schedules are incorporated herein by this
     reference.

          (e) Notices.  Any notice  required or permitted  under this  Agreement
     shall be given in writing,  shall be effective when received,  and shall in
     any event be deemed received and effectively  given upon personal  delivery
     to the party to be notified or three (3) business  days after  deposit with
     the United States Post Office,  by registered  or certified  mail,  postage
     prepaid, or one (1) business day after deposit with a nationally recognized
     courier  service  such as  Fedex  for  next  business  day  delivery  under
     circumstances in which such service  guarantees next business day delivery,
     or one (1) business day after  facsimile  with copy delivered by registered
     or certified mail, in any case,  postage prepaid and addressed to the party
     to be  notified at the address  indicated  for such party on the  signature
     page  hereof or at such other  address as the  Investor  or the Company may
     designate by giving at least ten (10) days advance  written notice pursuant
     to this Section 10(e).

          (f) No Finder's  Fees.  The Investor will  indemnify and hold harmless
     the Company from any liability for any  commission or  compensation  in the
     nature of a finders' or broker's  fee for which the  Investor or any of its
     officers,   partners,  employees  or  consultants,  or  representatives  is
     responsible. The Company will indemnify and hold harmless the Investor from
     any  liability  for any  commission  or  compensation  in the  nature  of a
     finder's  or  broker's  fee for which the  Company or any of its  officers,
     employees or consultants or representatives is responsible.

          (g)  Amendments  and Waivers.  The provisions of Section 7(c), (f) and
     (j) of this Agreement may be amended and the observance of any term of this
     Agreement may be waived (either  generally or in a particular  instance and
     either  retroactively or  prospectively),  only with the written consent of
     the Company,  the  Investor (so long as the Investor  shall hold any of the
     Purchased  Shares or the shares of Common  Stock  into which the  Purchased
     Shares are convertible) and the holders of Purchased Shares representing at
     least a majority of the total  aggregate  number of  Purchased  Shares then
     outstanding.  The remaining  provisions of this  Agreement  (including  the
     provisions  of  Clauses (b),  (d),  (e),  (g),  (h),  (i),  (j)  and (k) of
     Section 7,  and all of  Section 8,  may not be amended  without the written
     consent of the Company and the Investor, which may be withheld in either of
     their sole and absolute  discretions.  Any amendment or waiver  effected in
     accordance with this Section 10(g)  will be binding upon the Investor,  the
     Company and their respective successors and assigns.

          (h)  Severability.  If any  provision of this  Agreement is held to be
     unenforceable  under  applicable  law, such provision will be excluded from
     this  Agreement and the balance of the Agreement  will be interpreted as if
     such provision were so excluded and will be enforceable in accordance  with
     its terms.

          (i) Entire Agreement.  This Agreement,  together with all exhibits and
     schedules hereto, constitutes the entire agreement and understanding of the
     parties with respect to the subject  matter hereof and  supersedes  any and
     all prior negotiations,  correspondence,  agreements, understandings duties
     or  obligations  between the  parties  with  respect to the subject  matter
     hereof.

          (j) Further Assurances. From and after the date of this Agreement upon
     the request of the Company or the  Investor,  the Company and the  Investor
     will execute and deliver such instruments, documents or other writings, and
     take such other  actions,  as may be  reasonably  necessary or desirable to
     confirm and carry out and to  effectuate  fully the intent and  purposes of
     this Agreement.

          (k) Meaning of Include and  Including.  Whenever in this Agreement the
     word "include" or "including" is used, it shall be deemed to mean "include,
     without limitation" or "including, without limitation," as the case may be,
     and the language following  "include" or "including" shall not be deemed to
     set forth an exhaustive list.

          (l) Fees, Costs and Expenses. Except as set forth in Section 7(k), all
     fees, costs and expenses (including attorney's' fees and expenses) incurred
     by either part hereto in connection with the  preparation,  negotiation and
     execution of this  Agreement and the Warrants and the  consummation  of the
     transactions   contemplated   hereby  and  thereby   (including  the  costs
     associated   with  any  filings  with,  or  compliance   with  any  of  the
     requirements  of,  any  governmental  authorities),  shall  be the sole and
     exclusive responsibility of such party.

          (m) Competition. Nothing set forth herein shall be deemed to preclude,
     limit or restrict the Company's or the  Investor's  ability to compete with
     the other.

          (n) Cooperation in HSR Act Filings.

               (i) In the event an exercise of any of the Warrants (or any other
          action by the Investor  with respect to any  securities of the Company
          held by the  Investor)  that  would  require a filing by the  Investor
          under the  Hart-Scott-Rodino  Antitrust  Improvements Act of 1976 (the
          "HSR Act"), the Investor and its respective  affiliates (including any
          "ultimate parent entity",  as defined in the HSR Act), and the Company
          and its respective affiliates (including any "ultimate parent entity",
          as  defined in the HSR Act),  shall  promptly  prepare  and make their
          respective filings and thereafter shall make all required or requested
          submissions  under the HSR Act or any  analogous  applicable  law,  if
          required.  In taking  such  actions  or making any such  filings,  the
          parties  hereto  shall  furnish  information  required  in  connection
          therewith and seek timely to obtain any applicable actions,  consents,
          approvals or waivers of governmental authorities;  provided,  however,
          that the parties hereto shall  cooperate with each other in connection
          with the  making  of all  such  filings  to the  extent  permitted  by
          applicable law. Without  limiting the generality of the foregoing,  to
          the extent  permitted by  applicable  law and so long as the following
          will  not  involve  the  disclosure  of  confidential  or  proprietary
          information of one party hereto to another, each party shall cooperate
          with the other by (a) providing copies of all documents to be filed to
          the  non-filing  party  and its  advisors  prior  to  filing  and,  if
          requested,   accepting  reasonable  additions,  deletions  or  changes
          suggested in  connection  therewith  and  (b) providing  to each other
          party  copies  of all  correspondence  from  and  to any  governmental
          authority in connection with any such filing.

               (ii) Notwithstanding the foregoing,  neither the Investor nor any
          of its  affiliates  shall be under any  obligation  to comply with any
          request or requirement  imposed by the Federal Trade  Commission  (the
          "FTC"),   the   Department  of  Justice  (the  "DofJ")  or  any  other
          governmental  authority in  connection  with the  compliance  with the
          requirements  of the HSR Act,  or any  other  applicable  law,  if the
          Investor,  in the exercise of its  reasonable  discretion,  deems such
          request  or  requirement  unduly  burdensome.   Without  limiting  the
          generality of the  foregoing,  the Investor  shall not be obligated to
          comply with any request by, or any  requirement  of, the FTC, the DofJ
          or any other governmental  authority:  (i) to disclose information the
          Investor deems it in its best interests to keep confidential;  (ii) to
          dispose of any  assets or  operations;  or  (iii) to  comply  with any
          proposed   restriction   on  the  manner  in  which  it  conducts  its
          operations.  In the event the Investor  shall receive a second request
          in respect of its HSR Filing  determined by it to be unduly burdensome
          and it shall prove  unable to  negotiate a means  satisfactory  to the
          Investor for complying with such  burdensome  second  request,  or the
          Federal  Trade  Commission  or  Department of Justice shall impose any
          condition on the Investor or its affiliates in respect  thereof deemed
          unacceptable  by the  Investor,  the  Company and the  Investor  shall
          cooperate in good faith to negotiate an alternative  transaction  that
          provides the Investor  with the economic  benefits it would receive if
          it  converted  the  Purchased  Shares (or took any such  other  action
          referenced  in the  first  parenthetical  in  the  first  sentence  of
          Clause (i)).

          (o) Stock Splits,  Dividends and other Similar Events.  The provisions
     of this Agreement (including the number of shares of Common Stock and other
     securities described herein) shall be appropriately adjusted to reflect any
     stock split, stock dividend, reorganization or other similar event that may
     occur with respect to the Company after the date hereof.



             [The balance of this page is intentionally left blank.]

<PAGE>

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

MODACAD, INC.                             INTEL CORPORATION



By:                                       By:      

Name:                                     Name:    

Title:                                    Title:   



Address: 3861 Sepulveda Blvd.             Address:2200 Mission College Boulevard
         Culver City, CA 90230                    Santa Clara, California 95052
Facsimile No:(310) 751-2120               Facsimile No.:(408) 765-6038
Attention: President                      Attn: Treasurer

with copies to:                           with copies to:

Coudert Brothers                          Intel Corporation
1055 West Seventh Street - 20th Floor     Attention: General Counsel
Los Angeles, CA  90017                    2200 Mission College Boulevard
Telecopy:  (213) 689-4467                 Santa Clara, California 95052
Attention:  John A. St. Clair
                                          and

                                          Gibson, Dunn & Crutcher LLP
                                          Attention: Gregory T. Davidson
                                          1530 Page Mill Road
                                          Palo Alto, California 94304        
                                          Telephone No.: (650) 849-5300
                                          Facsimile No.:  (650) 849-5333




{Signature  page to Stock and Warrant  Purchase  and Investor  Rights  Agreement
between INTEL CORPORATION and MODACAD, INC.}
 
<PAGE>

                                  EXHIBIT A-1
THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,  OR THE SECURITIES  LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES  REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES UNDER APPLICABLE  SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED   PURSUANT  TO  AN  AVAILABLE   EXEMPTION   FROM  THE   REGISTRATION
REQUIREMENTS OF THOSE LAWS.

                                Right to Purchase 159,326 Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT


     THIS  CERTIFIES  THAT,  for  value  received,   Intel  Corporation  or  its
registered  assigns,  is entitled to purchase from  ModaCAD,  Inc., a California
corporation (the "Company"),  at any time or from time to time during the period
specified in Section 2 hereof,  One Hundred  Fifty-Nine  Thousand  Three Hundred
Twenty-Five  (159,325)  fully  paid and  nonassessable  shares of the  Company's
common stock (the "Common  Stock"),  at an initial  exercise price of $10.98 per
share (the "Exercise Price"), subject to adjustment as contained in Section 1(f)
hereof.  This Warrant is being issued pursuant to that certain Stock and Warrant
Purchase and Investor Rights  Agreement dated April 7,  1999 between the Company
and Holder (the "Securities Purchase Agreement"). The number of shares of Common
Stock  purchasable  hereunder (the "Warrant  Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "Warrants" means
this Warrant and the other warrants of the Company issued  pursuant to the terms
of the Securities Purchase Agreement.

     The term  "Closing Bid Price" means,  for any security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the  Company and  reasonably  acceptable  to the holder  hereof (the
"Holder")  if  Bloomberg  Financial  Markets is not then  reporting  closing bid
prices of such security  (collectively,  "Bloomberg"),  or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market  on the  electronic  bulletin  board  of such  security  as  reported  by
Bloomberg,  or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market  makers for such security as reported in
the "pink  sheets" by the  National  Quotation  Bureau,  Inc. If the Closing Bid
Price  cannot  be  calculated  for  such  security  on  such  date on any of the
foregoing  bases,  the Closing Bid Price of such security on such date shall the
value thereof, as agreed upon by the Company and the Holder; provided,  however,
that if the Company and the Holder cannot agree on such value,  such value shall
be the fair market value as reasonably  determined by an investment banking firm
selected by the Company and  reasonably  acceptable to the Holder with the costs
of such appraisal to be borne by the Company.

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

     1.  Mechanics of Exercise.  Subject to the  provisions  hereof,  including,
without  limitation,  the  limitations  contained in Section  8(f) hereof,  this
Warrant may be exercised as follows:

          (a) Manner of  Exercise.  This Warrant may be exercised by the Holder,
     in whole or in part, by the surrender of this Warrant (or evidence of loss,
     theft,  destruction or mutilation  thereof in accordance  with Section 8(c)
     hereof),  together  with a  completed  exercise  agreement  in the  Form of
     Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
     to the Company at the Company's  principal executive offices (or such other
     office  or  agency  of the  Company  as it may  designate  by notice to the
     Holder),  and upon (i)  payment to the  Company in cash,  by  certified  or
     official bank check or by wire transfer for the account of the Company,  of
     the  Exercise  Price  for the  Warrant  Shares  specified  in the  Exercise
     Agreement (ii) cancellation by the Holder of indebtedness of the Company to
     the  Holder,  (iii) a  combination  of (i) and (ii),  or (iv) if the Holder
     elects to effect a Cashless  Exercise (as defined in Section  12(c) below),
     delivery  to the  Company of a written  notice of an  election  to effect a
     Cashless  Exercise  for  the  Warrant  Shares  specified  in  the  Exercise
     Agreement.  The Warrant Shares so purchased shall be deemed to be issued to
     the Holder or Holder's designees, as the record owner of such shares, as of
     the date on which this Warrant shall have been  surrendered,  the completed
     Exercise Agreement shall have been delivered,  and payment (or notice of an
     election  to  effect a  Cashless  Exercise)  shall  have been made for such
     shares as set forth above.  In lieu of the payment methods set forth above,
     when permitted by law and applicable regulations (including Nasdaq and NASD
     rules),  the Holder may pay the  Exercise  Price  through a "same day sale"
     commitment  from the Holder (and if  applicable a  broker-dealer  that is a
     member  of  the  National   Association  of  Securities  Dealers  (a  "NASD
     Dealer")),  whereby the Holder  irrevocably elects to exercise this Warrant
     and to sell a portion of the Shares so  purchased  to pay for the  Exercise
     Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
     (or, in the case of the NASD Dealer,  upon receipt) of such Warrant  Shares
     to forward the Exercise Price directly to the Company.

          (b) Issuance of  Certificates.  Subject to Section 1(c),  certificates
     for the Warrant Shares so purchased,  representing  the aggregate number of
     shares  specified  in the  Exercise  Agreement,  shall be  delivered to the
     Holder within a reasonable  time,  not exceeding  three (3) business  days,
     after this Warrant shall have been so exercised  (the  "Delivery  Period").
     The  certificates  so delivered  shall be in such  denominations  as may be
     reasonably  requested by the Holder and shall be  registered in the name of
     Holder or such other name as shall be  designated  by such Holder.  If this
     Warrant shall have been exercised only in part,  then,  unless this Warrant
     has expired,  the Company shall, at its expense, at the time of delivery of
     such  certificates,  deliver to the Holder a new Warrant  representing  the
     number of shares  with  respect to which this  Warrant  shall not then have
     been exercised.

          (c) Exercise  Disputes.  In the case of any dispute with respect to an
     exercise,  the Company shall promptly issue such number of shares of Common
     Stock as are not disputed in accordance with this Section.  If such dispute
     involves the  calculation of the Exercise  Price,  the Company shall submit
     the disputed calculations to a nationally recognized independent accounting
     firm (selected by the Company) via facsimile within three (3) business days
     of receipt of the Exercise  Agreement.  The accounting firm shall audit the
     calculations  and  notify  the  Company  and the  converting  Holder of the
     results no later than two (2)  business  days from the date it receives the
     disputed  calculations.  The accounting firm's  calculation shall be deemed
     conclusive,  absent  manifest  error.  The  Company  shall  then  issue the
     appropriate  number  of  shares of  Common  Stock in  accordance  with this
     Section.

          (d) Fractional  Shares. No fractional shares of Common Stock are to be
     issued upon the exercise of this Warrant,  but the Company shall pay a cash
     adjustment  in respect of any  fractional  share which would  otherwise  be
     issuable in an amount equal to the same fraction of the Exercise Price of a
     share of Common  Stock (as  determined  for  exercise of this  Warrant into
     whole shares of Common Stock);  provided that in the event that  sufficient
     funds are not legally available for the payment of such cash adjustment any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (e)  Buy-In.  If (i) the  Company  fails for any  reason  (other  than
     Holder's  failure to pay to the Company the Exercise Price or to deliver to
     the  Company a duly  executed  Exercise  Agreement)  to deliver  during the
     Delivery  Period  shares of Common Stock to Holder upon an exercise of this
     Warrant and (ii) after the applicable  Delivery Period with respect to such
     an exercise,  Holder purchases (in an open market transaction or otherwise)
     shares of Common Stock to make delivery upon a sale by Holder of the shares
     of Common  Stock (the "Sold  Shares")  which Holder was entitled to receive
     upon such exercise (a "Buy-in"),  the Company shall pay Holder (in addition
     to any other remedies available to Holder) the amount by which (x) Holder's
     total  purchase  price  (including  brokerage  commission,  if any) for the
     shares of  Common  Stock so  purchased  exceeds  (y) the  lesser of (A) the
     Exercise Price or (B) the net proceeds  received by Holder from the sale of
     the Sold Shares.  Holder  shall  provide the Company  written  notification
     indicating any amounts payable to Holder pursuant to this subsection.

     2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date  hereof and before 5:00 P.M.,  Pacific  Time on the
fifth (5th) anniversary of the date hereof (the "Exercise Period").  The Company
hereby  acknowledges  that  exercise  of this  Warrant by Holder may subject the
Company and/or the Holder to the filing  requirements  of the  Hart-Scott-Rodino
Antitrust  Improvements Act of 1976, as amended, (the "HSR Act") and that Holder
may be prevented  from  exercising  this Warrant  until the  expiration or early
termination  of  all  waiting   periods   imposed  by  the  HSR  Act  ("HSR  Act
Restrictions").  If on or before the end of the Exercise  Period Holder has sent
the Notice of Exercise  to Company and Holder has not been able to complete  the
exercise of this Warrant prior to the end of the Exercise  Period because of HSR
Act  Restrictions,  the Holder  shall be  entitled  to  complete  the process of
exercising  this  Warrant,  for a period of  ten (10)  business  days  following
termination  of the HSR Act  Restrictions,  in  accordance  with the  procedures
contained  herein  notwithstanding  the fact that  completion of the exercise of
this Warrant would take place after the end of the Exercise Period.

     3. Certain  Agreements  of the Company.  The Company  hereby  covenants and
agrees as follows:

          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
     accordance with the terms of this Warrant,  be validly issued,  fully paid,
     and non-assessable and free from all taxes, liens, claims and encumbrances.

          (b)  Reservation of Shares.  During the Exercise  Period,  the Company
     shall at all  times  have  authorized,  and  reserved  for the  purpose  of
     issuance upon exercise of this  Warrant,  a sufficient  number of shares of
     Common Stock to provide for the exercise of this Warrant.

          (c) Listing.  From and after the date of issuance of this Warrant, the
     Company  shall have  secured and shall  thereafter,  for at least three (3)
     years after the date of issuance of this  Warrant,  maintain the listing of
     the shares of Common Stock  issuable upon exercise of this Warrant upon The
     Nasdaq  National  Market,  the Nasdaq SmallCap  Market,  the New York Stock
     Exchange or the American Stock  Exchange,  as required by the provisions of
     the  Securities  Purchase  Agreement  and  upon  each  national  securities
     exchange or automated quotation system, if any, upon which shares of Common
     Stock are then listed or become listed and shall  maintain,  so long as any
     other shares of Common Stock shall be so listed, such listing of all shares
     of  Common  Stock  from time to time  issuable  upon the  exercise  of this
     Warrant; and the Company shall so list on each national securities exchange
     or automated  quotation system, as the case may be, and shall maintain such
     listing of any other shares of capital  stock of the Company  issuable upon
     the  exercise of this Warrant so long as any shares of the same class shall
     be listed on such  national  securities  exchange  or  automated  quotation
     system.

          (d) Certain Actions Prohibited.  The Company will not, by amendment of
     its   charter  or  through   any   reorganization,   transfer   of  assets,
     consolidation,  merger,  dissolution,  issue or sale of securities,  or any
     other  voluntary  action,   avoid  or  seek  to  avoid  the  observance  or
     performance  of  any  of  the  terms  to be  observed  or  performed  by it
     hereunder,  but will at all times in good faith  assist in the carrying out
     of all the provisions of this Warrant and in the taking of all such actions
     as may  reasonably  be  requested by the Holder of this Warrant in order to
     protect the exercise  privilege of the Holder of this  Warrant,  consistent
     with the tenor and purpose of this Warrant. Without limiting the generality
     of the  foregoing,  the  Company  will  take  all  such  actions  as may be
     necessary or  appropriate in order that the Company may validly and legally
     issue fully paid and nonassessable shares of Common Stock upon the exercise
     of this Warrant.

     4.  Antidilution  Provisions.  During the  Exercise  Period or until  fully
exercised,  the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of
     Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
     if and whenever  after the initial  issuance of this  Warrant,  the Company
     issues or sells,  or in  accordance  with  Section 4(b) hereof is deemed to
     have issued or sold, any shares of Common Stock for no consideration or for
     a consideration per share less than the Market Price (as herein defined) on
     the date of issuance (a "Dilutive  Issuance"),  then effective  immediately
     upon  the  Dilutive  Issuance,  the  Exercise  Price  will be  adjusted  in
     accordance with the following formula:

     E' = (E) (O + P/M) / (CSDO)
 

     where:

     E' = the adjusted Exercise Price
     E = the then current Exercise Price;
     M = the then current Market Price;
     O = the number of shares of Common Stock  outstanding  immediately  prior 
     to the Dilutive Issuance;
     P = the aggregate consideration, calculated as set forth in Section 4(b) 
     hereof, received by the Company upon such Dilutive Issuance; and
     CSDO = the total number of shares of Common Stock Deemed  Outstanding (as 
     herein defined) immediately after the Dilutive Issuance.

          (b)  Effect on  Exercise  Price of Certain  Events.  For  purposes  of
     determining  the adjusted  Exercise  Price under  Section 4(a) hereof,  the
     following will be applicable:

               (i)  Issuance of Rights or Options.  If the Company in any manner
          issues or grants  any  warrants,  rights or  options,  whether  or not
          immediately exercisable,  to subscribe for or to purchase Common Stock
          or other securities exercisable,  convertible into or exchangeable for
          Common Stock ("Convertible Securities"),  but not to include the grant
          or exercise of any stock or options  which may hereafter be granted or
          exercised  under any employee or Director  benefit plan of the Company
          now  existing  or to be  implemented  in the  future,  so  long as the
          issuance  of such stock or options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose  (such  warrants,  rights and options to
          purchase  Common  Stock  or  Convertible  Securities  are  hereinafter
          referred to as  "Options"),  and the price per share for which  Common
          Stock is issuable  upon the  exercise of such Options is less than the
          Market Price on the date of issuance  ("Below Market  Options"),  then
          the maximum  total number of shares of Common Stock  issuable upon the
          exercise of all such Below Market  Options  (assuming  full  exercise,
          conversion or exchange of Convertible Securities, if applicable) will,
          as of the date of the issuance or grant of such Below Market  Options,
          be deemed to be  outstanding  and to have been  issued and sold by the
          Company  for such  price per  share.  For  purposes  of the  preceding
          sentence,  the price per share for which Common Stock is issuable upon
          the exercise of such Below Market  Options is  determined  by dividing
          (i) the total amount, if any, received or receivable by the Company as
          consideration  for the  issuance  or  granting  of such  Below  Market
          Options,   plus   the   minimum   aggregate   amount   of   additional
          consideration, if any, payable to the Company upon the exercise of all
          such Below Market Options, plus, in the case of Convertible Securities
          issuable upon the exercise of such Below Market  Options,  the minimum
          aggregate  amount  of  additional   consideration   payable  upon  the
          exercise,  conversion or exchange thereof at the time such Convertible
          Securities first become exercisable,  convertible or exchangeable,  by
          (ii) the maximum total number of shares of Common Stock  issuable upon
          the  exercise  of  all  such  Below  Market  Options   (assuming  full
          conversion  of  Convertible  Securities,  if  applicable).  No further
          adjustment to the Exercise Price will be made upon the actual issuance
          of such Common Stock upon the exercise of such Below Market Options or
          upon the exercise,  conversion or exchange of  Convertible  Securities
          issuable upon exercise of such Below Market Options.

               (ii) Issuance of Convertible Securities.

                    (A) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities,  whether or not immediately  convertible
               (other  than where the same are  issuable  upon the  exercise  of
               Options)  and the  price per  share  for  which  Common  Stock is
               issuable   upon  such   exercise,   conversion  or  exchange  (as
               determined pursuant to Section 4(b)(ii)(B) if applicable) is less
               than the Market Price on the date of  issuance,  then the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities  will,  as  of  the  date  of  the  issuance  of  such
               Convertible  Securities,  be deemed to be outstanding and to have
               been issued and sold by the Company for such price per share. For
               the purposes of the preceding  sentence,  the price per share for
               which Common Stock is issuable upon such exercise,  conversion or
               exchange is determined by dividing (i) the total amount,  if any,
               received or  receivable by the Company as  consideration  for the
               issuance  or sale of all such  Convertible  Securities,  plus the
               minimum  aggregate  amount of additional  consideration,  if any,
               payable to the Company upon the exercise,  conversion or exchange
               thereof  at the time such  Convertible  Securities  first  become
               exercisable,  convertible  or  exchangeable,  by (ii) the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities.  No further  adjustment to the Exercise Price will be
               made  upon  the  actual  issuances  of  such  Common  Stock  upon
               exercise, conversion or exchange of such Convertible Securities.

                    (B) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities with a fluctuating conversion or exercise
               price or exchange ratio (a "Variable Rate Convertible Security"),
               then the price per share for which Common Stock is issuable  upon
               such  exercise,  conversion  or  exchange  for  purposes  of  the
               calculation  contemplated by Section  4(b)(ii)(A) shall be deemed
               to be the  lowest  price  per  share  which  would be  applicable
               assuming that (1) all holding period and other  conditions to any
               discounts  contained  in  such  Convertible  Security  have  been
               satisfied,  and (2) the  Market  Price on the date of issuance of
               such  Convertible  Security  was 80% of the Market  Price on such
               date (the "Assumed Variable Market Price").

               (iii) Change in Option Price or Conversion  Rate.  Except for the
          grant or  exercise  of any stock or  options  which may  hereafter  be
          granted or exercised  under any  employee or Director  benefit plan of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance of such stock or options is approved by a majority of
          the non-employee members of the Board of Directors of the Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established for such purpose,  if there is a change at any time in (i)
          the amount of additional consideration payable to the Company upon the
          exercise of any Options;  (ii) the amount of additional consideration,
          if any,  payable  to the  Company  upon the  exercise,  conversion  or
          exchange or any Convertible Securities; or (iii) the rate at which any
          Convertible Securities are convertible into or exchangeable for Common
          Stock (other than under or by reason of provisions designed to protect
          against  dilution),  the Exercise  Price in effect at the time of such
          change will be readjusted to the Exercise  Price which would have been
          in effect  at such time had such  Options  or  Convertible  Securities
          still outstanding  provided for such changed additional  consideration
          or changed  conversion rate, as the case may be, at the time initially
          granted, issued or sold.

               (iv)  Treatment of Expired  Options and  Unexercised  Convertible
          Securities.  If,  in any case,  the  total  number of shares of Common
          Stock  issuable  upon  exercise  of  any  Options  or  upon  exercise,
          conversion or exchange of any Convertible  Securities is not, in fact,
          issued and the rights to exercise such option or to exercise,  convert
          or  exchange  such  Convertible   Securities  shall  have  expired  or
          terminated,  the Exercise  Price then in effect will be  readjusted to
          the Exercise Price which would have been in effect at the time of such
          expiration or termination had such Options or Convertible  Securities,
          to the extent  outstanding  immediately  prior to such  expiration  or
          termination  (other than in respect of the actual  number of shares of
          Common Stock issued upon exercise or conversion  thereof),  never been
          issued.

               (v) Calculation of Consideration  Received.  If any Common Stock,
          Options or  Convertible  Securities  are  issued,  granted or sold for
          cash, the consideration received therefor for purposes of this Warrant
          will be the amount received by the Company therefor,  before deduction
          of  reasonable  commissions,  underwriting  discounts or allowances or
          other  reasonable   expenses  paid  or  incurred  by  the  Company  in
          connection  with  such  issuance,  grant or sale.  In case any  Common
          Stock,  Options  or  Convertible  Securities  are issued or sold for a
          consideration  part or all of  which  shall be other  than  cash,  the
          amount of the  consideration  other than cash  received by the Company
          will be the fair market value of such consideration  except where such
          consideration consists of freely-tradeable  securities,  in which case
          the amount of consideration received by the Company will be the Market
          Price  thereof as of the date of  receipt.  In case any Common  Stock,
          Options or Convertible  Securities  are issued in connection  with any
          merger  or  consolidation  in  which  the  Company  is  the  surviving
          corporation, the amount of consideration therefor will be deemed to be
          the fair market  value of such  portion of the net assets and business
          of the  non-surviving  corporation as is  attributable  to such Common
          Stock, Options or Convertible Securities, as the case may be. The fair
          market value of any  consideration  other than cash or securities will
          be determined in the good faith  reasonable  business  judgment of the
          Board of Directors.

               (vi) Exceptions to Adjustment of Exercise Price. No adjustment to
          the Exercise Price will be made (i) upon the exercise of any warrants,
          options or convertible  securities  issued and outstanding on the date
          hereof  in  accordance  with the terms of such  securities  as of such
          date;  (ii) upon the grant or exercise  of any stock or options  which
          may  hereafter be granted or exercised  under any employee or Director
          benefit plan of the Company now existing or to be  implemented  in the
          future,  so long as the  issuance of such stock or options is approved
          by a majority of the non-employee members of the Board of Directors of
          the  Company  or  a  majority  of  the  members  of  a  committee   of
          non-employee  directors  established for such purpose;  (iii) upon the
          issuance of the Common Shares (as defined in the  Securities  Purchase
          Agreement)  or Warrants  in  accordance  with terms of the  Securities
          Purchase Agreement; or (iv) upon the exercise of the Warrants.

          (c) Subdivision or Combination of Common Stock. If the Company, at any
     time after the initial  issuance of this Warrant,  subdivides (by any stock
     split, stock dividend, recapitalization,  reorganization,  reclassification
     or otherwise)  its shares of Common Stock into a greater  number of shares,
     then, after the date of record for effecting such subdivision, the Exercise
     Price  in   effect   immediately   prior  to  such   subdivision   will  be
     proportionately  reduced.  If the  Company,  at any time after the  initial
     issuance   of   this   Warrant,   combines   (by   reverse   stock   split,
     recapitalization, reorganization, reclassification or otherwise) its shares
     of Common Stock into a smaller  number of shares,  then,  after the date of
     record  for  effecting  such  combination,  the  Exercise  Price in  effect
     immediately prior to such combination will be proportionately increased.

          (d)  Adjustment  in Number of  Shares.  Upon  each  adjustment  of the
     Exercise  Price pursuant to the provisions of this Section 4, the number of
     shares of Common Stock  issuable  upon  exercise of this  Warrant  shall be
     adjusted by  multiplying  a number  equal to the  Exercise  Price in effect
     immediately  prior to such  adjustment  by the  number  of shares of Common
     Stock  issuable  upon  exercise of this Warrant  immediately  prior to such
     adjustment  and dividing  the product so obtained by the adjusted  Exercise
     Price.

          (e) Major Transactions. If the Company shall consolidate or merge with
     any other  corporation  or entity (other than a merger in which the Company
     is the  surviving or  continuing  entity and its capital stock is unchanged
     and unissued in such transaction (except for Common Stock constituting less
     than twenty percent (20%) of the Company's Common Stock then  outstanding))
     or  any  subsidiary  of  the  Company  shall  be a  party  to a  merger  or
     consolidation  or other  extraordinary  transaction  and the Company issues
     twenty  percent  (20%) or more of its  Common  Stock  in any  such  merger,
     consolidation or other  transaction or there shall occur any share exchange
     pursuant  to which  all of the  outstanding  shares  of  Common  Stock  are
     converted  into other  securities  or property or any  reclassification  or
     change of the  outstanding  shares of Common  Stock (each of the  foregoing
     being a "Major Transaction"), then each holder of a Warrant may thereafter,
     at its  option,  be  entitled  to (a) in the event  that the  Common  Stock
     remains  outstanding or holders of Common Stock receive any common stock or
     substantially similar equity interest, in each of the foregoing cases which
     is publicly  traded,  retain its Warrant and such Warrant shall continue to
     apply to such Common Stock or shall  apply,  as nearly as  practicable,  to
     such  other  common  stock or equity  interest,  as the case may be, or (b)
     regardless or whether (a) applies,  receive consideration,  in exchange for
     such Warrant, equal to the greater of, as determined in the sole discretion
     of such holder, (i) the number of shares of stock or securities or property
     of the Company, or of the entity resulting from such Major Transaction (the
     "Major  Transaction  Consideration"),  to which a holder  of the  number of
     shares of Common Stock  delivered  upon the exercise of such Warrant  would
     have been entitled upon such Major  Transaction  had such holder  exercised
     the Warrant  (without  regard to any limitations on conversion or elsewhere
     contained)   on  the  trading  date   immediately   preceding   the  public
     announcement of the transaction resulting in such Major Transaction and had
     such Common Stock been issued and  outstanding and had such Holder been the
     holder of record of such Common  Stock at the time of the  consummation  of
     such Major  Transaction,  and (ii) cash paid by the Company in  immediately
     available  funds, in an amount equal to one hundred and twenty five percent
     (125%) of the Black-Scholes  Amount (as defined herein) times the number of
     shares of Common  Stock for which this  Warrant  was  exercisable  (without
     regard to any  limitations on exercise herein  contained);  and the Company
     shall  make  lawful  provision  for the  foregoing  as a part of such Major
     Transaction and shall cause the issuer of any security in such  transaction
     which  constitutes  Registrable  Securities under the  registration  rights
     provisions of Section 7(c) of the Securities  Purchase  Agreement to assume
     all of the  Company's  obligations  thereunder.  No  sooner  than  ten (10)
     business  days  nor  later  than  five  (5)  business  days  prior  to  the
     consummation  of the  Major  Transaction,  but  not  prior  to  the  public
     announcement of such Major  Transaction,  the Company shall deliver written
     notice ("Notice of Major  Transaction") to each holder of a Warrant,  which
     Notice of Major  Transaction shall be deemed to have been delivered one (1)
     business day after the Company's sending such notice by telecopy  (provided
     that the Company sends a confirming  copy of such notice on the same day by
     overnight  courier)  of such  Notice of Major  Transaction.  Such Notice of
     Major  Transaction  shall  indicate  the  amount  and  type  of  the  Major
     Transaction  consideration  which such  holder of a Warrant  would  receive
     under this Section. If the Major Transaction Consideration does not consist
     entirely of United States currency, such holder may elect to receive United
     States  currency in an amount  equal to the value of the Major  Transaction
     Consideration in lieu of the Major Transaction  Consideration by delivering
     notice of such  election to the Company  within five (5)  business  days of
     such holder's receipt of the Notice of Major Transaction.

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following variable values: (i) the current market price of the Common Stock
     equal to the closing trade price on the last trading day before the date of
     the Notice of the Major  Transaction;  (ii)  volatility of the Common Stock
     equal to the  volatility  of the common  Stock  during the 100  trading day
     period preceding the date of the Notice of the Major  Transaction;  (iii) a
     risk free rate equal to the  interest  rate on the United  States  treasury
     bill or treasury note with a maturity  corresponding  to the remaining term
     of this  Warrant  on the date of the Notice of the Major  Transaction;  and
     (iv) an  exercise  price  equal  to the  Exercise  Price on the date of the
     Notice of the Major Transaction.  In the event such calculation function is
     no longer  available  utilizing the Bloomberg online page, the Holder shall
     calculate such amount in its sole  discretion  using the closest  available
     alternative  mechanism and variable values to those available utilizing the
     Bloomberg online page for such calculation function.

          (f) Distribution of Assets.  In case the Company shall declare or make
     any distribution of its assets (or rights to acquire its assets) to holders
     of Common  Stock as a  partial  liquidating  dividend,  by way of return of
     capital  or  otherwise  (including  any  dividend  or  distribution  to the
     Company's  shareholders  of cash or shares (or rights to acquire shares) of
     capital stock of a subsidiary)  (a  "Distribution"),  at any time after the
     initial  issuance of this  Warrant,  then the Holder shall be entitled upon
     exercise of this  Warrant  for the  purchase of any or all of the shares of
     Common  Stock  subject  hereto,  to receive  the amount of such  assets (or
     rights)  which  would have been  payable to the Holder had such Holder been
     the  holder  of such  shares  of Common  Stock on the  record  date for the
     determination of shareholders entitled to such Distribution.

          (g)  Notices of  Adjustment.  Upon the  occurrence  of any event which
     requires any adjustment of the Exercise Price, then, and in each such case,
     the Company  shall give notice  thereof to the Holder,  which  notice shall
     state the Exercise Price resulting from such adjustment and the increase or
     decrease  in the number of Warrant  Shares  purchasable  at such price upon
     exercise,  setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.  Such calculation  shall be
     certified by the chief financial officer of the Company.

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

          (i) No Fractional  Shares. No fractional shares of Common Stock are to
     be issued upon the exercise of this  Warrant,  but the Company  shall pay a
     cash adjustment in respect of any fractional share which would otherwise be
     issuable in an amount  equal to the same  fraction of the Market Price of a
     share of Common Stock; provided that in the event that sufficient funds are
     not  legally  available  for  the  payment  of  such  cash  adjustment  any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (j) Other Notices. In case at any time:

               (i) the Company  shall declare any dividend upon the Common Stock
          payable in shares of stock of any class or make any other distribution
          to the holders of the Common Stock;

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

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

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

               then, in each such case, the Company shall give to the Holder (a)
          notice of the date on which the books of the Company  shall close or a
          record  shall be taken for  determining  the  holders of Common  Stock
          entitled to receive any such dividend,  distribution,  or subscription
          rights or for determining the holders of Common Stock entitled to vote
          in   respect   of   any   such    reorganization,    reclassification,
          consolidation,  merger, sale,  dissolution,  liquidation or winding-up
          and (b) in the  case  of any  such  reorganization,  reclassification,
          consolidation,  merger, sale, dissolution,  liquidation or winding-up,
          notice of the date (or, if not then known, a reasonable  approximation
          thereof by the  Company)  when the same shall take place.  Such notice
          shall also specify the date on which the holders of Common Stock shall
          be entitled to receive such dividend,  distribution,  or  subscription
          rights or to exchange their Common Stock for stock or other securities
          or property  deliverable upon such  reorganization,  reclassification,
          consolidation, merger, sale, dissolution,  liquidation, or winding-up,
          as the case may be. Such notice  shall be given at least 30 days prior
          to the record date or the date on which the Company's books are closed
          in respect thereto,  but in no event earlier than public  announcement
          of such proposed transaction or event. Failure to give any such notice
          or any defect therein shall not affect the validity of the proceedings
          referred to in clauses (i), (ii), (iii) and (iv) above.

          (k) Certain Definitions.

               (i) "Common  Stock Deemed  Outstanding"  shall mean the number of
          shares of Common Stock actually  outstanding  (not including shares of
          Common Stock held in the treasury of the Company), plus (x) in case of
          any adjustment required by Section 4(a) resulting from the issuance of
          any  Options,  the  maximum  total  number of  shares of Common  Stock
          issuable upon the exercise of the Options for which the  adjustment is
          required  (including  any Common Stock issuable upon the conversion of
          Convertible  Securities  issuable upon the exercise of such  Options),
          and  (y) in the  case  of any  adjustment  required  by  Section  4(a)
          resulting from the issuance of any Convertible Securities, the maximum
          total number of shares of Common  Stock  issuable  upon the  exercise,
          conversion  or exchange of the  Convertible  Securities  for which the
          adjustment is required, as of the date of issuance of such Convertible
          Securities, if any.

               (ii) "Market Price," as of any date, (i) means the average of the
          Closing  Bid  Prices  for the shares of Common  Stock as  reported  to
          Nasdaq   National  Market  System  for  the  trading  day  immediately
          preceding such date, or (ii) if The Nasdaq  National Market is not the
          principal trading market for the Common Stock, the average of the last
          reported  bid prices on the  principal  trading  market for the Common
          Stock  during the same  period,  or, if there is no bid price for such
          period,  the last  reported  sales price for such period,  or (iii) if
          market  value  cannot  be  calculated  as of  such  date on any of the
          foregoing  bases,  the Market  Price  shall be the value  thereof,  as
          agreed upon by the Company and the Holder; provided,  however, that if
          the Company  and the Holder  cannot  agree on such  value,  such value
          shall be the average fair market value as reasonably  determined by an
          investment  banking  firm  selected  by  the  Company  and  reasonably
          acceptable  to the Holders of a majority in interest of the  Warrants,
          with the costs of the appraisal to be borne by the Company. The manner
          of  determining  the Market Price of the Common Stock set forth in the
          foregoing definition shall apply with respect to any other security in
          respect  of which a  determination  as to  market  value  must be made
          hereunder.

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

                    (l) Other Adjustments. If:

                    (1)  Maurizio  Vecchione  disposes  of any  shares of Common
               Stock beneficially owned by him while the Common Stock is trading
               at or below twenty-five dollars ($25) per share during the period
               beginning on the date of the Closing and ending on the earlier of
               (i) the first (1st)  anniversary  of the date of the Closing,  or
               (ii) the date on which Maurizio  Vecchione ceases to be President
               or CEO of the Company; or

                    (2)  Joyce  Freedman  or Lee  Freedman  (each a  "Freedman")
               dispose of any shares of Common Stock  beneficially owned by such
               Freedman at any time during the period  beginning  on the date of
               the  Closing  and  ending  on the date  which  is six (6)  months
               following the Closing,  then the Exercise Price shall be adjusted
               to the  Adjusted  Exercise  Price  (as  defined  herein)  if such
               adjustment  would  result in a decrease  in the  Exercise  Price;
               provided,  however, that the Exercise Price shall not be adjusted
               upon the  occurrence of a disposal  described in clause (1) until
               Maurizio  Vecchione  sells or  otherwise  transfers  in excess of
               fifty  thousand  (50,000)  shares  of Common  Stock in  aggregate
               during such period at a price less than twenty-five dollars ($25)
               pursuant to Rule 144. For any disposal of Common Stock  described
               hereunder, the "Adjusted Exercise Price" shall mean the lesser of
               (a) the lowest  closing bid price of the Common  Stock during the
               thirty (30) trading day period  beginning on the trading day (the
               "Announcement Date") immediately  preceding the day on which such
               disposal was publicly announced and (b) the price per share which
               Vecchione or such Freedman, as applicable, received in connection
               with  such  disposal;  provided,  however,  that if the  Adjusted
               Exercise  Price  described  above is  greater  than the  Exercise
               Price, then the Adjusted Exercise Price shall be equal to (c) the
               lowest  closing bid price of the Common  Stock  during the thirty
               (30)  trading  day  period  beginning  on the  Announcement  Date
               divided by (d) the  closing bid price of the Common  Stock on the
               Announcement Date times (e) the Exercise Price.

     5. Cap  Amount.  Prior to Nasdaq  Approval  (as  defined in the  Securities
Purchase  Agreement) or 4460 Shareholder  Approval (as defined in the Securities
Purchase Agreement), unless otherwise permitted by The Nasdaq National Market or
unless the rules thereof no longer are  applicable  to the Company,  in no event
shall the total number of shares of Common Stock issued at the Closing under the
Securities  Purchase  Agreement  and upon  exercise of the  Warrants  exceed the
maximum  number  of  shares  of  Common  Stock  that  the  Company  can  without
stockholder  approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor
rule) (the "Cap Amount") upon Closing under the  Securities  Purchase  Agreement
and the exercise of the Warrants,  which, as of the date of initial  issuance of
Common  Stock and Warrants to the  Holders,  which  amount is one  million,  two
hundred thirty two thousand and forty five  (1,232,045)  shares.  The Cap Amount
shall be allocated  pro rata among the Holders  based on the number of shares of
Common  Stock and Warrants  issued to each  Holder.  In the event a Holder shall
sell or otherwise transfer any of such Holder's Warrants,  each transferee shall
be  allocated a pro rata  portion of such  transferor's  Cap Amount.  A Holder's
allocable portion of the Cap Amount shall be allocated first to the Common Stock
issued to the Holder at the Closing  under the  Securities  Purchase  Agreement,
then to the First Warrants (as defined in the Securities Purchase Agreement) and
only the Warrants shall be subject to the limitation imposed by this Section 5.

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

     7. No  Rights or  Liabilities  as a  Shareholder.  This  Warrant  shall not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company.  No provision of this Warrant,  in the absence of affirmative action by
the Holder to purchase  Warrant Shares,  and no mere  enumeration  herein of the
rights or  privileges  of the Holder,  shall give rise to any  liability  of the
Holder for the Exercise Price or as a shareholder  of the Company,  whether such
liability is asserted by the Company or by creditors of the Company.

     8. Transfer, Exchange and Replacement of Warrant.

          a. Restriction on Transfer. This Warrant and the rights granted to the
     Holder  are  transferable,  in  whole or in part,  upon  surrender  of this
     Warrant,  together  with a  properly  executed  assignment  in the  Form of
     Assignment  attached  hereto as  Exhibit  2, at the office or agency of the
     Company  referred to in Section  8(e) below,  provided,  however,  that any
     transfer or assignment shall be subject to the provisions of the Securities
     Purchase  Agreement.  Until due presentment for registration of transfer on
     the books of the  Company,  the  Company  may treat the  registered  holder
     hereof as the owner and holder  hereof for all  purposes,  and the  Company
     shall  not be  affected  by any  notice  to the  contrary.  Notwithstanding
     anything  to  the  contrary  contained  herein,  the  registration   rights
     described in Section 9 hereof are  assignable  only in accordance  with the
     provisions of the Securities Purchase Agreement.
 
          b. Warrant Exchangeable for Different  Denominations.  This Warrant is
     exchangeable,  upon the  surrender  hereof by the  Holder at the  office or
     agency of the Company  referred to in Section 8(e) below, for new Warrants,
     in  the  form  hereof,  of  different  denominations  representing  in  the
     aggregate  the right to purchase the number of shares of Common Stock which
     may be purchased  hereunder,  each of such new  Warrants to  represent  the
     right to  purchase  such  number of shares  as shall be  designated  by the
     Holder of at the time of such surrender.

          c.  Replacement  of  Warrant.  Upon  receipt  of  evidence  reasonably
     satisfactory to the Company of the loss, theft, destruction,  or mutilation
     of this Warrant or, in the case of any such loss,  theft,  or  destruction,
     upon delivery,  of an indemnity agreement  reasonably  satisfactory in form
     and amount to the  Company,  or, in the case of any such  mutilation,  upon
     surrender and  cancellation of this Warrant,  the Company,  at its expense,
     will execute and deliver,  in lieu  thereof,  a new  Warrants,  in the form
     hereof, in such denominations as Holder may request.

          d.  Cancellation;  Payment of  Expenses.  Upon the  surrender  of this
     Warrant in  connection  with any  transfer,  exchange,  or  replacement  as
     provided in this Section 8, this Warrant shall be promptly  canceled by the
     Company.  The Company shall pay all issuance  taxes (other than  securities
     transfer  taxes) and charges  payable in connection  with the  preparation,
     execution, and delivery of Warrants pursuant to this Section 8.

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

     9.  Registration  Rights.  The initial  holder of this Warrant (and certain
assignees  thereof) is entitled  to the benefit of such  registration  rights in
respect of the Warrant Shares as are set forth in Section 7(c) of the Securities
Purchase Agreement.

     10.  Notices.  Any notice herein required or permitted to be given shall be
in writing and may be personally  served or delivered by courier or by confirmed
telecopy,  and shall be deemed  delivered at the time and date of receipt (which
shall include  telephone  line facsimile  transmission).  The addresses for such
communications shall be:

                  If to the Company:

                           ModaCAD, Inc.
                           3861 Sepulveda Blvd.
                           Culver City, CA 90230
                           Telecopy: (310) 751-2120
                           Attention: President

                           with a copy to:

                           Coudert Brothers
                           1055 West Seventh Street - 20th Floor
                           Los Angeles, CA  90017
                           Telecopy:  (213) 689-4467
                           Attention:  John A. St. Clair

and if to the Holder,  at such address as Holder shall have  provided in writing
to the Company,  or at such other address as each such party furnishes by notice
given in accordance with this Section 10.

     11.  Governing  Law;  Jurisdiction.  This Warrant  shall be governed by and
construed in accordance  with the laws of the State of California  applicable to
contracts  made and to be  performed  in the State of  California.  The  Company
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the State of California and the state courts located in the County of
Santa Clara in the State of  California  in any suit or  proceeding  based on or
arising under this Warrant and irrevocably  agrees that all claims in respect of
such  suit  or  proceeding  may  be  determined  in  such  courts.  The  Company
irrevocably  waives the defense of an  inconvenient  forum to the maintenance of
such suit or proceeding.  The Company agrees that a final nonappealable judgment
in any such suit or proceeding  shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

     12. Miscellaneous.

          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument in writing signed by the Company and the Holder.

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

          c.  Cashless  Exercise.   Notwithstanding  anything  to  the  contrary
     contained in this  Warrant,  this Warrant may be exercised by  presentation
     and  surrender  of this Warrant to the Company at its  principal  executive
     offices  with a  written  notice  of the  Holder's  intention  to  effect a
     Cashless  Exercise,  including  a  calculation  of the  number of shares of
     Common Stock to be issued upon such exercise in  accordance  with the terms
     hereof (a "Cashless  Exercise").  In the event of a Cashless  Exercise,  in
     lieu of paying the Exercise Price in cash, the Holder shall  surrender this
     Warrant for the number of shares of Common Stock  determined by multiplying
     the number of Warrant  Shares to which it would  otherwise be entitled by a
     fraction,  the numerator of which shall be the difference  between the then
     current Market Price per share of the Common Stock and the Exercise  Price,
     and the  denominator  of which shall be such then current  Market Price per
     share of Common Stock.

          d.  Assignability.  This Warrant shall be binding upon the Company and
     its successors and assigns and shall inure to the benefit of Holder and its
     successors  and  assigns.  The Holder  shall  notify the  Company  upon the
     assignment of this Warrant.

          e.  Weekends,  Etc.  If the  end of the  Exercise  Period  falls  on a
     Saturday,  Sunday or legal holiday, the end of the Exercise Period shall be
     extended automatically until 5:00 p.m. the next business day.

                                      * * *

<PAGE>  

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



     ModaCAD, Inc.

     By:      /s/ JOYCE FREEDMAN
        ______________________________
     Name:   Joyce Freedman
     Title:  Chief Executive Officer

<PAGE>


                           FORM OF EXERCISE AGREEMENT

         (To be Executed by the Holder in order to Exercise the Warrant)

     The  undersigned  hereby  irrevocably   exercises  the  right  to  purchase
____________  of the shares of common  stock of ModaCAD,  Inc.,  a  [California]
corporation (the "Company"),  evidenced by the attached  Warrant,  and [herewith
makes payment of the Exercise  Price with respect to such shares in full/ elects
to effect a Cashless  Exercise  pursuant  to the terms of the  Warrant],  all in
accordance with the conditions and provisions of said Warrant.

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

     (ii) The undersigned  requests that stock  certificates  for such shares be
issued,  and a Warrant  representing  any unexercised  portion hereof be issued,
pursuant  to the  Warrant in the name of the  Holder  (or such  other  person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:

Date:                                                      
Signature of Holder


Name of Holder (Print)

Address:

<PAGE>

                               FORM OF ASSIGNMENT

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

Name of Assignee                  Address                          No. of Shares


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


Date:____________, _____,

In the presence of



Name:

Signature:
Title of Signing Officer or Agent (if any):

Address:

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

<PAGE>
                                  EXHIBIT A-2
THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,  OR THE SECURITIES  LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES  REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES UNDER APPLICABLE  SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED   PURSUANT  TO  AN  AVAILABLE   EXEMPTION   FROM  THE   REGISTRATION
REQUIREMENTS OF THOSE LAWS.

                                Right to Purchase 189,674 Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT


     THIS  CERTIFIES  THAT,  for  value  received,   Intel  Corporation  or  its
registered  assigns,  is entitled to purchase from  ModaCAD,  Inc., a California
corporation (the "Company"),  at any time or from time to time during the period
specified  in Section 2 hereof,  One Hundred  Eighty-Nine  Thousand  Six Hundred
Seventy-Four  (189,674)  fully paid and  nonassessable  shares of the  Company's
common stock (the "Common  Stock"),  at an initial  exercise price of $13.18 per
share (the  "Exercise  Price".  This  Warrant is being  issued  pursuant to that
certain Stock and Warrant  Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (the "Securities  Purchase  Agreement").
The  number of  shares  of Common  Stock  purchasable  hereunder  (the  "Warrant
Shares") and the Exercise Price are subject to adjustment as provided in Section
4 hereof.  The term "Warrants"  means this Warrant and the other warrants of the
Company issued pursuant to the terms of the Securities Purchase Agreement.

     The term  "Closing Bid Price" means,  for any security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the  Company and  reasonably  acceptable  to the holder  hereof (the
"Holder")  if  Bloomberg  Financial  Markets is not then  reporting  closing bid
prices of such security  (collectively,  "Bloomberg"),  or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market  on the  electronic  bulletin  board  of such  security  as  reported  by
Bloomberg,  or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market  makers for such security as reported in
the "pink  sheets" by the  National  Quotation  Bureau,  Inc. If the Closing Bid
Price  cannot  be  calculated  for  such  security  on  such  date on any of the
foregoing  bases,  the Closing Bid Price of such  security on such date shall be
the value  thereof,  as agreed upon by the  Company  and the  Holder;  provided,
however,  that if the Company and the Holder  cannot  agree on such value,  such
value shall be the fair market value as  reasonably  determined by an investment
banking firm  selected by the Company and  reasonably  acceptable  to the Holder
with the costs of such appraisal to be borne by the Company.

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

     1.  Mechanics of Exercise.  Subject to the  provisions  hereof,  including,
without  limitation,  the  limitations  contained in Section  8(f) hereof,  this
Warrant may be exercised as follows:

          (a) Manner of  Exercise.  This Warrant may be exercised by the Holder,
     in whole or in part, by the surrender of this Warrant (or evidence of loss,
     theft,  destruction or mutilation  thereof in accordance  with Section 8(c)
     hereof),  together  with a  completed  exercise  agreement  in the  Form of
     Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
     to the Company at the Company's  principal executive offices (or such other
     office  or  agency  of the  Company  as it may  designate  by notice to the
     Holder),  and upon payment to the Company in cash, by certified or official
     bank  check or by wire  transfer  for the  account of the  Company,  of the
     Exercise Price for the Warrant Shares specified in the Exercise  Agreement.
     The Warrant Shares so purchased  shall be deemed to be issued to the Holder
     or Holder's  designees,  as the record owner of such shares, as of the date
     on which this Warrant shall have been surrendered,  the completed  Exercise
     Agreement shall have been  delivered,  and payment shall have been made for
     such shares as set forth  above.  In lieu of the payment  methods set forth
     above, when permitted by law and applicable  regulations  (including Nasdaq
     and NASD rules),  the Holder may pay the Exercise Price through a "same day
     sale" commitment from the Holder (and if applicable a broker-dealer that is
     a  member  of the  National  Association  of  Securities  Dealers  (a "NASD
     Dealer")),  whereby the Holder  irrevocably elects to exercise this Warrant
     and to sell a portion of the Shares so  purchased  to pay for the  Exercise
     Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
     (or, in the case of the NASD Dealer,  upon receipt) of such Warrant  Shares
     to forward the Exercise Price directly to the Company.

          (b) Issuance of  Certificates.  Subject to Section 1(c),  certificates
     for the Warrant Shares so purchased,  representing  the aggregate number of
     shares  specified  in the  Exercise  Agreement,  shall be  delivered to the
     Holder within a reasonable  time,  not exceeding  three (3) business  days,
     after this Warrant shall have been so exercised  (the  "Delivery  Period").
     The  certificates  so delivered  shall be in such  denominations  as may be
     reasonably  requested by the Holder and shall be  registered in the name of
     Holder or such other name as shall be  designated  by such Holder.  If this
     Warrant shall have been exercised only in part,  then,  unless this Warrant
     has expired,  the Company shall, at its expense, at the time of delivery of
     such  certificates,  deliver to the Holder a new Warrant  representing  the
     number of shares  with  respect to which this  Warrant  shall not then have
     been exercised.

          (c) Exercise  Disputes.  In the case of any dispute with respect to an
     exercise,  the Company shall promptly issue such number of shares of Common
     Stock as are not disputed in accordance with this Section.  If such dispute
     involves the  calculation of the Exercise  Price,  the Company shall submit
     the disputed calculations to a nationally recognized independent accounting
     firm (selected by the Company) via facsimile within three (3) business days
     of receipt of the Exercise  Agreement.  The accounting firm shall audit the
     calculations  and  notify  the  Company  and the  converting  Holder of the
     results no later than two (2)  business  days from the date it receives the
     disputed  calculations.  The accounting firm's  calculation shall be deemed
     conclusive,  absent  manifest  error.  The  Company  shall  then  issue the
     appropriate  number  of  shares of  Common  Stock in  accordance  with this
     Section.

          (d) Fractional  Shares. No fractional shares of Common Stock are to be
     issued upon the exercise of this Warrant,  but the Company shall pay a cash
     adjustment  in respect of any  fractional  share which would  otherwise  be
     issuable in an amount equal to the same fraction of the Exercise Price of a
     share of Common  Stock (as  determined  for  exercise of this  Warrant into
     whole shares of Common Stock);  provided that in the event that  sufficient
     funds are not legally available for the payment of such cash adjustment any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (e)  Buy-In.  If (i) the  Company  fails for any  reason  (other  than
     Holder's  failure  to pay  timely to the  Company  the  Exercise  Price) to
     deliver during the Delivery Period shares of Common Stock to Holder upon an
     exercise of this Warrant and (ii) after the applicable Delivery Period with
     respect  to  such  an  exercise,   Holder  purchases  (in  an  open  market
     transaction  or  otherwise)  shares of Common Stock to make delivery upon a
     sale by Holder of the  shares of Common  Stock (the  "Sold  Shares")  which
     Holder was entitled to receive upon such exercise (a "Buy-in"), the Company
     shall pay Holder (in  addition to any other  remedies  available to Holder)
     the amount by which (x) Holder's total purchase price (including  brokerage
     commission, if any) for the shares of Common Stock so purchased exceeds (y)
     the lesser of (A) the Exercise  Price or (B) the net  proceeds  received by
     Holder from the sale of the Sold Shares.  Holder shall  provide the Company
     written  notification  indicating any amounts payable to Holder pursuant to
     this subsection.

     2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date  hereof and before 5:00 P.M.,  Pacific  Time on the
first (1st) anniversary of the date hereof (the "Exercise Period").  The Company
hereby  acknowledges  that  exercise  of this  Warrant by Holder may subject the
Company and/or the Holder to the filing  requirements  of the  Hart-Scott-Rodino
Antitrust  Improvements Act of 1976, as amended, (the "HSR Act") and that Holder
may be prevented  from  exercising  this Warrant  until the  expiration or early
termination  of  all  waiting   periods   imposed  by  the  HSR  Act  ("HSR  Act
Restrictions").  If on or before the end of the Exercise  Period Holder has sent
the Notice of Exercise  to Company and Holder has not been able to complete  the
exercise of this Warrant prior to the end of the Exercise  Period because of HSR
Act  Restrictions,  the Holder  shall be  entitled  to  complete  the process of
exercising  this  Warrant,  for a period of  ten (10)  business  days  following
termination  of the HSR Act  Restrictions,  in  accordance  with the  procedures
contained  herein  notwithstanding  the fact that  completion of the exercise of
this Warrant would take place after the end of the Exercise Period.

     3. Certain  Agreements  of the Company.  The Company  hereby  covenants and
agrees as follows:

          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
     accordance with the terms of this Warrant,  be validly issued,  fully paid,
     and non-assessable and free from all taxes, liens, claims and encumbrances.

          (b)  Reservation of Shares.  During the Exercise  Period,  the Company
     shall at all  times  have  authorized,  and  reserved  for the  purpose  of
     issuance upon exercise of this  Warrant,  a sufficient  number of shares of
     Common Stock to provide for the exercise of this Warrant.

          (c) Listing.  From and after the date of issuance of this Warrant, the
     Company  shall have  secured and shall  thereafter,  for at least three (3)
     years after the date of issuance of this  Warrant,  maintain the listing of
     the shares of Common Stock  issuable upon exercise of this Warrant upon The
     Nasdaq  National  Market,  the Nasdaq SmallCap  Market,  the New York Stock
     Exchange or the  American  Stock  Exchange,  as required by the  Securities
     Purchase Agreement and upon each national  securities exchange or automated
     quotation system, if any, upon which shares of Common Stock are then listed
     or become listed and shall maintain,  so long as any other shares of Common
     Stock shall be so listed,  such  listing of all shares of Common Stock from
     time to time issuable  upon the exercise of this  Warrant;  and the Company
     shall so list on each national  securities  exchange or automated quotation
     system,  as the case may be, and shall  maintain  such listing of any other
     shares of capital  stock of the Company  issuable upon the exercise of this
     Warrant  so long as any  shares of the same  class  shall be listed on such
     national securities exchange or automated quotation system.

          (d) Certain Actions Prohibited.  The Company will not, by amendment of
     its   charter  or  through   any   reorganization,   transfer   of  assets,
     consolidation,  merger,  dissolution,  issue or sale of securities,  or any
     other  voluntary  action,   avoid  or  seek  to  avoid  the  observance  or
     performance  of  any  of  the  terms  to be  observed  or  performed  by it
     hereunder,  but will at all times in good faith  assist in the carrying out
     of all the provisions of this Warrant and in the taking of all such actions
     as may  reasonably  be  requested by the Holder of this Warrant in order to
     protect the exercise  privilege of the Holder of this  Warrant,  consistent
     with the tenor and purpose of this Warrant. Without limiting the generality
     of the  foregoing,  the  Company  will  take  all  such  actions  as may be
     necessary or  appropriate in order that the Company may validly and legally
     issue fully paid and nonassessable shares of Common Stock upon the exercise
     of this Warrant.

     4.  Antidilution  Provisions.  During the  Exercise  Period or until  fully
exercised,  the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of
     Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
     if and whenever  after the initial  issuance of this  Warrant,  the Company
     issues or sells,  or in  accordance  with  Section 4(b) hereof is deemed to
     have issued or sold, any shares of Common Stock for no consideration or for
     a consideration per share less than the Market Price (as herein defined) on
     the date of issuance (a "Dilutive  Issuance"),  then effective  immediately
     upon  the  Dilutive  Issuance,  the  Exercise  Price  will be  adjusted  in
     accordance with the following formula:

     E' = (E) (O + P/M) / (CSDO)
 

     where:

     E' = the adjusted Exercise Price
     E = the then current Exercise Price;
     M = the then current Market Price;
     O = the number of shares of Common Stock  outstanding  immediately  prior 
     to the Dilutive Issuance;
     P = the aggregate consideration, calculated as set forth in Section 4(b) 
     hereof, received by the Company upon such Dilutive Issuance; and
     CSDO = the total number of shares of Common Stock Deemed  Outstanding (as 
     herein defined) immediately after the Dilutive Issuance.

          (b)  Effect on  Exercise  Price of Certain  Events.  For  purposes  of
     determining  the adjusted  Exercise  Price under  Section 4(a) hereof,  the
     following will be applicable:

               (i)  Issuance of Rights or Options.  If the Company in any manner
          issues or grants  any  warrants,  rights or  options,  whether  or not
          immediately exercisable,  to subscribe for or to purchase Common Stock
          or other securities exercisable,  convertible into or exchangeable for
          Common Stock ("Convertible Securities"),  but not to include the grant
          or exercise of any stock or options  which may hereafter be granted or
          exercised  under any employee or Director  benefit plan of the Company
          now  existing  or to be  implemented  in the  future,  so  long as the
          issuance  of such stock or options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose  (such  warrants,  rights and options to
          purchase  Common  Stock  or  Convertible  Securities  are  hereinafter
          referred to as  "Options"),  and the price per share for which  Common
          Stock is issuable  upon the  exercise of such Options is less than the
          Market Price on the date of issuance  ("Below Market  Options"),  then
          the maximum  total number of shares of Common Stock  issuable upon the
          exercise of all such Below Market  Options  (assuming  full  exercise,
          conversion or exchange of Convertible Securities, if applicable) will,
          as of the date of the issuance or grant of such Below Market  Options,
          be deemed to be  outstanding  and to have been  issued and sold by the
          Company  for such  price per  share.  For  purposes  of the  preceding
          sentence,  the price per share for which Common Stock is issuable upon
          the exercise of such Below Market  Options is  determined  by dividing
          (i) the total amount, if any, received or receivable by the Company as
          consideration  for the  issuance  or  granting  of such  Below  Market
          Options,   plus   the   minimum   aggregate   amount   of   additional
          consideration, if any, payable to the Company upon the exercise of all
          such Below Market Options, plus, in the case of Convertible Securities
          issuable upon the exercise of such Below Market  Options,  the minimum
          aggregate  amount  of  additional   consideration   payable  upon  the
          exercise,  conversion or exchange thereof at the time such Convertible
          Securities first become exercisable,  convertible or exchangeable,  by
          (ii) the maximum total number of shares of Common Stock  issuable upon
          the  exercise  of  all  such  Below  Market  Options   (assuming  full
          conversion  of  Convertible  Securities,  if  applicable).  No further
          adjustment to the Exercise Price will be made upon the actual issuance
          of such Common Stock upon the exercise of such Below Market Options or
          upon the exercise,  conversion or exchange of  Convertible  Securities
          issuable upon exercise of such Below Market Options.

          (ii) Issuance of Convertible Securities.

                    (A) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities,  whether or not immediately  convertible
               (other  than where the same are  issuable  upon the  exercise  of
               Options)  and the  price per  share  for  which  Common  Stock is
               issuable   upon  such   exercise,   conversion  or  exchange  (as
               determined pursuant to Section 4(b)(ii)(B) if applicable) is less
               than the Market Price on the date of  issuance,  then the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities  will,  as  of  the  date  of  the  issuance  of  such
               Convertible  Securities,  be deemed to be outstanding and to have
               been issued and sold by the Company for such price per share. For
               the purposes of the preceding  sentence,  the price per share for
               which Common Stock is issuable upon such exercise,  conversion or
               exchange is determined by dividing (i) the total amount,  if any,
               received or  receivable by the Company as  consideration  for the
               issuance  or sale of all such  Convertible  Securities,  plus the
               minimum  aggregate  amount of additional  consideration,  if any,
               payable to the Company upon the exercise,  conversion or exchange
               thereof  at the time such  Convertible  Securities  first  become
               exercisable,  convertible  or  exchangeable,  by (ii) the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities.  No further  adjustment to the Exercise Price will be
               made  upon  the  actual  issuances  of  such  Common  Stock  upon
               exercise, conversion or exchange of such Convertible Securities.

                    (B) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities with a fluctuating conversion or exercise
               price or exchange ratio (a "Variable Rate Convertible Security"),
               then the price per share for which Common Stock is issuable  upon
               such  exercise,  conversion  or  exchange  for  purposes  of  the
               calculation  contemplated by Section  4(b)(ii)(A) shall be deemed
               to be the  lowest  price  per  share  which  would be  applicable
               assuming that (1) all holding period and other  conditions to any
               discounts  contained  in  such  Convertible  Security  have  been
               satisfied,  and (2) the Market  Price on the date of  issuance of
               such  Convertible  Security  was 80% of the Market  Price on such
               date (the "Assumed Variable Market Price").

               (iii) Change in Option Price or Conversion  Rate.  Except for the
          grant or  exercise  of any stock or  options  which may  hereafter  be
          granted or exercised  under any  employee or Director  benefit plan of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance of such stock or options is approved by a majority of
          the non-employee members of the Board of Directors of the Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established for such purpose,  if there is a change at any time in (i)
          the amount of additional consideration payable to the Company upon the
          exercise of any Options; (ii) the amount of additional  consideration,
          if any,  payable  to the  Company  upon the  exercise,  conversion  or
          exchange or any Convertible Securities; or (iii) the rate at which any
          Convertible Securities are convertible into or exchangeable for Common
          Stock (other than under or by reason of provisions designed to protect
          against  dilution),  the Exercise  Price in effect at the time of such
          change will be readjusted to the Exercise  Price which would have been
          in effect  at such time had such  Options  or  Convertible  Securities
          still outstanding  provided for such changed additional  consideration
          or changed  conversion rate, as the case may be, at the time initially
          granted,  issued  or sold.  

               (iv)  Treatment of Expired  Options and  Unexercised  Convertible
          Securities.  If,  in any case,  the  total  number of shares of Common
          Stock  issuable  upon  exercise  of  any  Options  or  upon  exercise,
          conversion or exchange of any Convertible  Securities is not, in fact,
          issued and the rights to exercise such option or to exercise,  convert
          or  exchange  such  Convertible   Securities  shall  have  expired  or
          terminated,  the Exercise  Price then in effect will be  readjusted to
          the Exercise Price which would have been in effect at the time of such
          expiration or termination had such Options or Convertible  Securities,
          to the extent  outstanding  immediately  prior to such  expiration  or
          termination  (other than in respect of the actual  number of shares of
          Common Stock issued upon exercise or conversion  thereof),  never been
          issued.

               (v) Calculation of Consideration  Received.  If any Common Stock,
          Options or  Convertible  Securities  are  issued,  granted or sold for
          cash, the consideration received therefor for purposes of this Warrant
          will be the amount received by the Company therefor,  before deduction
          of  reasonable  commissions,  underwriting  discounts or allowances or
          other  reasonable   expenses  paid  or  incurred  by  the  Company  in
          connection  with  such  issuance,  grant or sale.  In case any  Common
          Stock,  Options  or  Convertible  Securities  are issued or sold for a
          consideration  part or all of  which  shall be other  than  cash,  the
          amount of the  consideration  other than cash  received by the Company
          will be the fair market value of such consideration  except where such
          consideration consists of freely-tradeable  securities,  in which case
          the amount of consideration received by the Company will be the Market
          Price  thereof as of the date of  receipt.  In case any Common  Stock,
          Options or Convertible  Securities  are issued in connection  with any
          merger  or  consolidation  in  which  the  Company  is  the  surviving
          corporation, the amount of consideration therefor will be deemed to be
          the fair market  value of such  portion of the net assets and business
          of the  non-surviving  corporation as is  attributable  to such Common
          Stock, Options or Convertible Securities, as the case may be. The fair
          market value of any  consideration  other than cash or securities will
          be determined in the good faith  reasonable  business  judgment of the
          Board of Directors.

               (vi) Exceptions to Adjustment of Exercise Price. No adjustment to
          the Exercise Price will be made (i) upon the exercise of any warrants,
          options or convertible  securities  issued and outstanding on the date
          hereof  in  accordance  with the terms of such  securities  as of such
          date;  (ii) upon the grant or exercise  of any stock or options  which
          may  hereafter be granted or exercised  under any employee or Director
          benefit plan of the Company now existing or to be  implemented  in the
          future,  so long as the  issuance of such stock or options is approved
          by a majority of the non-employee members of the Board of Directors of
          the  Company  or  a  majority  of  the  members  of  a  committee   of
          non-employee  directors  established for such purpose;  (iii) upon the
          issuance of the Common Shares (as defined in the  Securities  Purchase
          Agreement)  or Warrants  in  accordance  with terms of the  Securities
          Purchase Agreement; or (iv) upon the exercise of the Warrants.

          (c) Subdivision or Combination of Common Stock. If the Company, at any
     time after the initial  issuance of this Warrant,  subdivides (by any stock
     split, stock dividend, recapitalization,  reorganization,  reclassification
     or otherwise)  its shares of Common Stock into a greater  number of shares,
     then, after the date of record for effecting such subdivision, the Exercise
     Price  in   effect   immediately   prior  to  such   subdivision   will  be
     proportionately  reduced.  If the  Company,  at any time after the  initial
     issuance   of   this   Warrant,   combines   (by   reverse   stock   split,
     recapitalization, reorganization, reclassification or otherwise) its shares
     of Common Stock into a smaller  number of shares,  then,  after the date of
     record  for  effecting  such  combination,  the  Exercise  Price in  effect
     immediately prior to such combination will be proportionately increased.

          (d)  Adjustment  in Number of  Shares.  Upon  each  adjustment  of the
     Exercise  Price pursuant to the provisions of this Section 4, the number of
     shares of Common Stock  issuable  upon  exercise of this  Warrant  shall be
     adjusted by  multiplying  a number  equal to the  Exercise  Price in effect
     immediately  prior to such  adjustment  by the  number  of shares of Common
     Stock  issuable  upon  exercise of this Warrant  immediately  prior to such
     adjustment  and dividing  the product so obtained by the adjusted  Exercise
     Price.

          (e) Major Transactions. If the Company shall consolidate or merge with
     any other  corporation  or entity (other than a merger in which the Company
     is the  surviving or  continuing  entity and its capital stock is unchanged
     and unissued in such transaction (except for Common Stock constituting less
     than twenty percent (20%) of the Company's Common Stock then  outstanding))
     or  any  subsidiary  of  the  Company  shall  be a  party  to a  merger  or
     consolidation  or other  extraordinary  transaction  and the Company issues
     twenty  percent  (20%) or more of its  Common  Stock  in any  such  merger,
     consolidation or other  transaction or there shall occur any share exchange
     pursuant  to which  all of the  outstanding  shares  of  Common  Stock  are
     converted  into other  securities  or property or any  reclassification  or
     change of the  outstanding  shares of Common  Stock (each of the  foregoing
     being a "Major Transaction"), then each holder of a Warrant may thereafter,
     at its  option,  be  entitled  to (a) in the event  that the  Common  Stock
     remains  outstanding or holders of Common Stock receive any common stock or
     substantially similar equity interest, in each of the foregoing cases which
     is publicly  traded,  retain its Warrant and such Warrant shall continue to
     apply to such Common Stock or shall  apply,  as nearly as  practicable,  to
     such  other  common  stock or equity  interest,  as the case may be, or (b)
     regardless or whether (a) applies,  receive consideration,  in exchange for
     such Warrant, equal to the greater of, as determined in the sole discretion
     of such holder, (i) the number of shares of stock or securities or property
     of the Company, or of the entity resulting from such Major Transaction (the
     "Major  Transaction  Consideration"),  to which a holder  of the  number of
     shares of Common Stock  delivered  upon the exercise of such Warrant  would
     have been entitled upon such Major  Transaction  had such holder  exercised
     the Warrant  (without  regard to any limitations on conversion or elsewhere
     contained)   on  the  trading  date   immediately   preceding   the  public
     announcement of the transaction resulting in such Major Transaction and had
     such Common Stock been issued and  outstanding and had such Holder been the
     holder of record of such Common  Stock at the time of the  consummation  of
     such Major  Transaction,  and (ii) cash paid by the Company in  immediately
     available  funds, in an amount equal to one hundred and twenty five percent
     (125%) of the Black-Scholes  Amount (as defined herein) times the number of
     shares of Common  Stock for which this  Warrant  was  exercisable  (without
     regard to any  limitations on exercise herein  contained);  and the Company
     shall  make  lawful  provision  for the  foregoing  as a part of such Major
     Transaction and shall cause the issuer of any security in such  transaction
     which  constitutes  Registrable  Securities under the  registration  rights
     provisions of Section 7(c) of the Securities  Purchase  Agreement to assume
     all of the  Company's  obligations  thereunder.  No  sooner  than  ten (10)
     business  days  nor  later  than  five  (5)  business  days  prior  to  the
     consummation  of the  Major  Transaction,  but  not  prior  to  the  public
     announcement of such Major  Transaction,  the Company shall deliver written
     notice ("Notice of Major  Transaction") to each holder of a Warrant,  which
     Notice of Major  Transaction shall be deemed to have been delivered one (1)
     business day after the Company's sending such notice by telecopy  (provided
     that the Company sends a confirming  copy of such notice on the same day by
     overnight  courier)  of such  Notice of Major  Transaction.  Such Notice of
     Major  Transaction  shall  indicate  the  amount  and  type  of  the  Major
     Transaction  consideration  which such  holder of a Warrant  would  receive
     under this Section. If the Major Transaction Consideration does not consist
     entirely of United States currency, such holder may elect to receive United
     States  currency in an amount  equal to the value of the Major  Transaction
     Consideration in lieu of the Major Transaction  Consideration by delivering
     notice of such  election to the Company  within five (5)  business  days of
     such holder's receipt of the Notice of Major Transaction.

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following variable values: (i) the current market price of the Common Stock
     equal to the closing trade price on the last trading day before the date of
     the Notice of the Major  Transaction;  (ii)  volatility of the Common Stock
     equal to the  volatility  of the common  Stock  during the 100  trading day
     period preceding the date of the Notice of the Major  Transaction;  (iii) a
     risk free rate equal to the  interest  rate on the United  States  treasury
     bill or treasury note with a maturity  corresponding  to the remaining term
     of this  Warrant  on the date of the Notice of the Major  Transaction;  and
     (iv) an  exercise  price  equal  to the  Exercise  Price on the date of the
     Notice of the Major Transaction.  In the event such calculation function is
     no longer  available  utilizing the Bloomberg online page, the Holder shall
     calculate such amount in its sole  discretion  using the closest  available
     alternative  mechanism and variable values to those available utilizing the
     Bloomberg online page for such calculation function.

          (f) Distribution of Assets.  In case the Company shall declare or make
     any distribution of its assets (or rights to acquire its assets) to holders
     of Common  Stock as a  partial  liquidating  dividend,  by way of return of
     capital  or  otherwise  (including  any  dividend  or  distribution  to the
     Company's  shareholders  of cash or shares (or rights to acquire shares) of
     capital stock of a subsidiary)  (a  "Distribution"),  at any time after the
     initial  issuance of this  Warrant,  then the Holder shall be entitled upon
     exercise of this  Warrant  for the  purchase of any or all of the shares of
     Common  Stock  subject  hereto,  to receive  the amount of such  assets (or
     rights)  which  would have been  payable to the Holder had such Holder been
     the  holder  of such  shares  of Common  Stock on the  record  date for the
     determination of shareholders entitled to such Distribution.

          (g)  Notices of  Adjustment.  Upon the  occurrence  of any event which
     requires any adjustment of the Exercise Price, then, and in each such case,
     the Company  shall give notice  thereof to the Holder,  which  notice shall
     state the Exercise Price resulting from such adjustment and the increase or
     decrease  in the number of Warrant  Shares  purchasable  at such price upon
     exercise,  setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.  Such calculation  shall be
     certified by the chief financial officer of the Company.

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

          (i) No Fractional  Shares. No fractional shares of Common Stock are to
     be issued upon the exercise of this  Warrant,  but the Company  shall pay a
     cash adjustment in respect of any fractional share which would otherwise be
     issuable in an amount  equal to the same  fraction of the Market Price of a
     share of Common Stock; provided that in the event that sufficient funds are
     not  legally  available  for  the  payment  of  such  cash  adjustment  any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (j) Other Notices. In case at any time:

               (i) the Company  shall declare any dividend upon the Common Stock
          payable in shares of stock of any class or make any other distribution
          to the holders of the Common Stock;

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

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

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

          then,  in each such  case,  the  Company  shall give to the Holder (a)
          notice of the date on which the books of the Company  shall close or a
          record  shall be taken for  determining  the  holders of Common  Stock
          entitled to receive any such dividend,  distribution,  or subscription
          rights or for determining the holders of Common Stock entitled to vote
          in   respect   of   any   such    reorganization,    reclassification,
          consolidation,  merger, sale,  dissolution,  liquidation or winding-up
          and (b) in the  case  of any  such  reorganization,  reclassification,
          consolidation,  merger, sale, dissolution,  liquidation or winding-up,
          notice of the date (or, if not then known, a reasonable  approximation
          thereof by the  Company)  when the same shall take place.  Such notice
          shall also specify the date on which the holders of Common Stock shall
          be entitled to receive such dividend,  distribution,  or  subscription
          rights or to exchange their Common Stock for stock or other securities
          or property  deliverable upon such  reorganization,  reclassification,
          consolidation, merger, sale, dissolution,  liquidation, or winding-up,
          as the case may be. Such notice  shall be given at least 30 days prior
          to the record date or the date on which the Company's books are closed
          in respect thereto,  but in no event earlier than public  announcement
          of such proposed transaction or event. Failure to give any such notice
          or any defect therein shall not affect the validity of the proceedings
          referred to in clauses (i), (ii), (iii) and (iv) above.

               (k) Certain Definitions.

                    (i) "Common Stock Deemed  Outstanding" shall mean the number
               of shares of Common Stock  actually  outstanding  (not  including
               shares of Common Stock held in the treasury of the Company), plus
               (x) in case of any adjustment  required by Section 4(a) resulting
               from the  issuance of any  Options,  the maximum  total number of
               shares of Common Stock  issuable upon the exercise of the Options
               for which the adjustment is required  (including any Common Stock
               issuable upon the conversion of Convertible  Securities  issuable
               upon the  exercise of such  Options),  and (y) in the case of any
               adjustment  required by Section 4(a)  resulting from the issuance
               of any Convertible Securities, the maximum total number of shares
               of  Common  Stock  issuable  upon  the  exercise,  conversion  or
               exchange of the  Convertible  Securities for which the adjustment
               is  required,  as of the  date of  issuance  of such  Convertible
               Securities, if any.

                    (ii) "Market  Price," as of any date,  (i) means the average
               of the  Closing  Bid  Prices  for the  shares of Common  Stock as
               reported  to Nasdaq  National  Market  System for the trading day
               immediately  preceding such date, or (ii) if The Nasdaq  National
               Market is not the principal  trading market for the Common Stock,
               the  average of the last  reported  bid  prices on the  principal
               trading  market for the Common Stock during the same period,  or,
               if there is no bid price for such period, the last reported sales
               price  for such  period,  or  (iii) if  market  value  cannot  be
               calculated  as of such date on any of the  foregoing  bases,  the
               Market  Price shall be the value  thereof,  as agreed upon by the
               Company and the Holder;  provided,  however,  that if the Company
               and the Holder  cannot  agree on such value,  such value shall be
               the average  fair market  value as  reasonably  determined  by an
               investment  banking firm  selected by the Company and  reasonably
               acceptable  to the  Holders  of a  majority  in  interest  of the
               Warrants,  with  the  costs of the  appraisal  to be borne by the
               Company. The manner of determining the Market Price of the Common
               Stock set forth in the  foregoing  definition  shall  apply  with
               respect to any other security in respect of which a determination
               as to market value must be made hereunder.

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

                         (1) Maurizio Vecchione disposes of any shares of Common
                    Stock  beneficially  owned by him while the Common  Stock is
                    trading  at or below  twenty-five  dollars  ($25)  per share
                    during the period  beginning  on the date of the Closing and
                    ending on the earlier of (i) the first (1st)  anniversary of
                    the date of the Closing,  or (ii) the date on which Maurizio
                    Vecchione ceases to be President or CEO of the Company; or

                         (2) Joyce  Freedman or Lee Freedman (each a "Freedman")
                    dispose of any shares of Common Stock  beneficially owned by
                    such Freedman at any time during the period beginning on the
                    date of the  Closing and ending on the date which is six (6)
                    months following the Closing,  then the Exercise Price shall
                    be  adjusted  to the  Adjusted  Exercise  Price (as  defined
                    herein) if such adjustment would result in a decrease in the
                    Exercise Price;  provided,  however, that the Exercise Price
                    shall not be  adjusted  upon the  occurrence  of a  disposal
                    described in clause (1) until  Maurizio  Vecchione  sells or
                    otherwise  transfers  in excess of fifty  thousand  (50,000)
                    shares of Common Stock in aggregate  during such period at a
                    price less than  twenty-five  dollars ($25) pursuant to Rule
                    144. For any disposal of Common Stock  described  hereunder,
                    the "Adjusted  Exercise  Price" shall mean the lesser of (a)
                    the lowest  closing bid price of the Common Stock during the
                    thirty (30) trading day period  beginning on the trading day
                    (the "Announcement  Date") immediately  preceding the day on
                    which such disposal was publicly announced and (b) the price
                    per share which  Vecchione or such Freedman,  as applicable,
                    received  in  connection   with  such  disposal;   provided,
                    however, that if the Adjusted Exercise Price described above
                    is  greater  than the  Exercise  Price,  then  the  Adjusted
                    Exercise  Price shall be equal to (c) the lowest closing bid
                    price of the Common Stock during the thirty (30) trading day
                    period beginning on the Announcement Date divided by (d) the
                    closing  bid price of the Common  Stock on the  Announcement
                    Date times (e) the Exercise Price.

     5. Cap Amount.

          (a)  Prior to the  earlier  of  Nasdaq  Approval  (as  defined  in the
     Securities Purchase Agreement) or the 4460 Shareholder Approval (as defined
     in the Securities  Purchase  Agreement),  unless otherwise permitted by The
     Nasdaq National Market or unless the rules thereof no longer are applicable
     to the  Company,  in no event  shall the  total  number of shares of Common
     Stock issued at the Closing  under the  Securities  Purchase  Agreement and
     upon exercise of the Warrants exceed the maximum number of shares of Common
     Stock that the Company can without  stockholder  approval so issue pursuant
     to Nasdaq Rule  4460(i) (or any  successor  rule) (the "Cap  Amount")  upon
     Closing  under the  Securities  Purchase  Agreement and the exercise of the
     Warrants,  which,  as of the date of initial  issuance of Common  Stock and
     Warrants to the Holders,  which amount is one million,  two hundred  thirty
     two thousand  and forty five  (1,232,045)  shares.  The Cap Amount shall be
     allocated  pro rata  among  the  Holders  based on the  number of shares of
     Common  Stock and  Warrants  issued to each  Holder.  In the event a Holder
     shall  sell or  otherwise  transfer  any of such  Holder's  Warrants,  each
     transferee  shall be allocated a pro rata portion of such  transferor's Cap
     Amount. A Holder's  allocable  portion of the Cap Amount shall be allocated
     first to the Common  Stock  issued to the Holder at the  Closing  under the
     Securities  Purchase  Agreement,  then to the First Warrants (as defined in
     the Securities  Purchase  Agreement) and only the Warrants shall be subject
     to the limitation imposed by this Section 5(a).

          (b) Prior to the earlier of Second Nasdaq  Approval (as defined in the
     Securities Purchase Agreement) or the 4310 Shareholder Approval (as defined
     in the Securities  Purchase  Agreement),  unless otherwise permitted by The
     Nasdaq National Market or unless the rules thereof no longer are applicable
     to the Company, in no event shall this Warrant be exercisable.

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

     7. No  Rights or  Liabilities  as a  Shareholder.  This  Warrant  shall not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company.  No provision of this Warrant,  in the absence of affirmative action by
the Holder to purchase  Warrant Shares,  and no mere  enumeration  herein of the
rights or  privileges  of the Holder,  shall give rise to any  liability  of the
Holder for the Exercise Price or as a shareholder  of the Company,  whether such
liability is asserted by the Company or by creditors of the Company.

     8. Transfer, Exchange and Replacement of Warrant.

          a. Restriction on Transfer. This Warrant and the rights granted to the
     Holder  are  transferable,  in  whole or in part,  upon  surrender  of this
     Warrant,  together  with a  properly  executed  assignment  in the  Form of
     Assignment  attached  hereto as  Exhibit  2, at the office or agency of the
     Company  referred to in Section  8(e) below,  provided,  however,  that any
     transfer or  assignment  shall be subject to the  provisions of Section 5.1
     and 5.2 of the Securities  Purchase  Agreement.  Until due  presentment for
     registration of transfer on the books of the Company, the Company may treat
     the  registered  holder  hereof  as the  owner and  holder  hereof  for all
     purposes,  and the  Company  shall  not be  affected  by any  notice to the
     contrary.  Notwithstanding  anything to the contrary  contained herein, the
     registration  rights  described in Section 9 hereof are assignable  only in
     accordance with the provisions of the Securities Purchase Agreement.
 
          b. Warrant Exchangeable for Different  Denominations.  This Warrant is
     exchangeable,  upon the  surrender  hereof by the  Holder at the  office or
     agency of the Company  referred to in Section 8(e) below, for new Warrants,
     in  the  form  hereof,  of  different  denominations  representing  in  the
     aggregate  the right to purchase the number of shares of Common Stock which
     may be purchased  hereunder,  each of such new  Warrants to  represent  the
     right to  purchase  such  number of shares  as shall be  designated  by the
     Holder of at the time of such surrender.

          c.  Replacement  of  Warrant.  Upon  receipt  of  evidence  reasonably
     satisfactory to the Company of the loss, theft, destruction,  or mutilation
     of this Warrant or, in the case of any such loss,  theft,  or  destruction,
     upon delivery,  of an indemnity agreement  reasonably  satisfactory in form
     and amount to the  Company,  or, in the case of any such  mutilation,  upon
     surrender and  cancellation of this Warrant,  the Company,  at its expense,
     will execute and deliver,  in lieu  thereof,  a new  Warrants,  in the form
     hereof, in such denominations as Holder may request.

          d.  Cancellation;  Payment of  Expenses.  Upon the  surrender  of this
     Warrant in  connection  with any  transfer,  exchange,  or  replacement  as
     provided in this Section 8, this Warrant shall be promptly  canceled by the
     Company.  The Company shall pay all issuance  taxes (other than  securities
     transfer  taxes) and charges  payable in connection  with the  preparation,
     execution, and delivery of Warrants pursuant to this Section 8.

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

     9.  Registration  Rights.  The initial  holder of this Warrant (and certain
assignees  thereof) is entitled  to the benefit of such  registration  rights in
respect of the Warrant Shares as are set forth in Section 7(c) of the Securities
Purchase Agreement.

     10.  Notices.  Any notice herein required or permitted to be given shall be
in writing and may be personally  served or delivered by courier or by confirmed
telecopy,  and shall be deemed  delivered at the time and date of receipt (which
shall include  telephone  line facsimile  transmission).  The addresses for such
communications shall be:

                  If to the Company:

                           ModaCAD, Inc.
                           3861 Sepulveda Blvd.
                           Culver City, CA 90230
                           Telecopy: (310) 751-2120
                           Attention: President


                           with a copy to:

                           Coudert Brothers
                           1055 West Seventh Street - 20th Floor
                           Los Angeles, CA  90017
                           Telecopy:  (213) 689-4467
                           Attention:  John A. St. Clair

and if to the Holder,  at such address as Holder shall have  provided in writing
to the Company,  or at such other address as each such party furnishes by notice
given in accordance with this Section 10.

     11.  Governing  Law;  Jurisdiction.  This Warrant  shall be governed by and
construed in accordance  with the laws of the State of California  applicable to
contracts  made and to be  performed  in the State of  California.  The  Company
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the State of California and the state courts located in the County of
Santa Clara in the State of  California  in any suit or  proceeding  based on or
arising under this Warrant and irrevocably  agrees that all claims in respect of
such  suit  or  proceeding  may  be  determined  in  such  courts.  The  Company
irrevocably  waives the defense of an  inconvenient  forum to the maintenance of
such suit or proceeding.  The Company agrees that a final nonappealable judgment
in any such suit or proceeding  shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

     12. Miscellaneous.

          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument in writing signed by the Company and the Holder.

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

          c. [Intentionally deleted].

          d.  Assignability.  This Warrant shall be binding upon the Company and
     its successors and assigns and shall inure to the benefit of Holder and its
     successors  and  assigns.  The Holder  shall  notify the  Company  upon the
     assignment of this Warrant.

          e.  Weekends,  Etc.  If the  end of the  Exercise  Period  falls  on a
     Saturday,  Sunday or legal holiday, the end of the Exercise Period shall be
     extended automatically until 5:00 p.m. the next business day.


                                      * * *

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



     ModaCAD, Inc.
     By:        /s/ JOYCE FREEDMAN
        ________________________________
     Name:      Joyce Freedman
     Title:     Chief Executive Officer

<PAGE>

                           FORM OF EXERCISE AGREEMENT

         (To be Executed by the Holder in order to Exercise the Warrant)

     The  undersigned  hereby  irrevocably   exercises  the  right  to  purchase
____________  of the  shares of common  stock of  ModaCAD,  Inc.,  a  California
corporation (the  "Company"),  evidenced by the attached  Warrant,  and herewith
makes payment of the Exercise  Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.

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

     (ii) The undersigned  requests that stock  certificates  for such shares be
issued,  and a Warrant  representing  any unexercised  portion hereof be issued,
pursuant  to the  Warrant in the name of the  Holder  (or such  other  person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:

Date:
Signature of Holder                                                             
Name of Holder (Print)

Address:

<PAGE>


                               FORM OF ASSIGNMENT

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

Name of Assignee                  Address                          No. of Shares


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


Date:____________, _____,

In the presence of



                  Name:                                                         


                  Signature:                                                    
                               Title of Signing Officer or Agent (if any):

                  Address:       


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


<PAGE>

                                  EXHIBIT A-3
THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,  OR THE SECURITIES  LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES  REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES UNDER APPLICABLE  SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED   PURSUANT  TO  AN  AVAILABLE   EXEMPTION   FROM  THE   REGISTRATION
REQUIREMENTS OF THOSE LAWS.

Right to Purchase 189,674 Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT


     THIS  CERTIFIES  THAT,  for  value  received,   Intel  Corporation  or  its
registered  assigns,  is entitled to purchase from  ModaCAD,  Inc., a California
corporation (the "Company"),  at any time or from time to time during the period
specified  in Section 2 hereof,  One Hundred  Eighty-Nine  Thousand  Six Hundred
Seventy-Four  (189,674)  fully paid and  nonassessable  shares of the  Company's
common stock (the "Common  Stock"),  at an initial  exercise price of $13.18 per
share (the  "Exercise  Price").  This Warrant is being  issued  pursuant to that
certain Stock and Warrant  Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (the "Securities  Purchase  Agreement").
The  number of  shares  of Common  Stock  purchasable  hereunder  (the  "Warrant
Shares") and the Exercise Price are subject to adjustment as provided in Section
4 hereof.  The term "Warrants"  means this Warrant and the other warrants of the
Company issued pursuant to the terms of the Securities Purchase Agreement.

     The term  "Closing Bid Price" means,  for any security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the  Company and  reasonably  acceptable  to the holder  hereof (the
"Holder")  if  Bloomberg  Financial  Markets is not then  reporting  closing bid
prices of such security  (collectively,  "Bloomberg"),  or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market  on the  electronic  bulletin  board  of such  security  as  reported  by
Bloomberg,  or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market  makers for such security as reported in
the "pink  sheets" by the  National  Quotation  Bureau,  Inc. If the Closing Bid
Price  cannot  be  calculated  for  such  security  on  such  date on any of the
foregoing  bases,  the Closing Bid Price of such  security on such date shall be
the value  thereof,  as agreed upon by the  Company  and the  Holder;  provided,
however,  that if the Company and the Holder  cannot  agree on such value,  such
value shall be the fair market value as  reasonably  determined by an investment
banking firm  selected by the Company and  reasonably  acceptable  to the Holder
with the costs of such appraisal to be borne by the Company.

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

     1.  Mechanics of Exercise.  Subject to the  provisions  hereof,  including,
without  limitation,  the  limitations  contained in Section  8(f) hereof,  this
Warrant may be exercised as follows:

          (a) Manner of  Exercise.  This Warrant may be exercised by the Holder,
     in whole or in part, by the surrender of this Warrant (or evidence of loss,
     theft,  destruction or mutilation  thereof in accordance  with Section 8(c)
     hereof),  together  with a  completed  exercise  agreement  in the  Form of
     Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
     to the Company at the Company's  principal executive offices (or such other
     office  or  agency  of the  Company  as it may  designate  by notice to the
     Holder),  and upon payment to the Company in cash, by certified or official
     bank  check or by wire  transfer  for the  account of the  Company,  of the
     Exercise Price for the Warrant Shares specified in the Exercise  Agreement.
     The Warrant Shares so purchased  shall be deemed to be issued to the Holder
     or Holder's  designees,  as the record owner of such shares, as of the date
     on which this Warrant shall have been surrendered,  the completed  Exercise
     Agreement shall have been  delivered,  and payment shall have been made for
     such shares as set forth  above.  In lieu of the payment  methods set forth
     above, when permitted by law and applicable  regulations  (including Nasdaq
     and NASD rules),  the Holder may pay the Exercise Price through a "same day
     sale" commitment from the Holder (and if applicable a broker-dealer that is
     a  member  of the  National  Association  of  Securities  Dealers  (a "NASD
     Dealer")),  whereby the Holder  irrevocably elects to exercise this Warrant
     and to sell a portion of the Shares so  purchased  to pay for the  Exercise
     Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
     (or, in the case of the NASD Dealer,  upon receipt) of such Warrant  Shares
     to forward the Exercise Price directly to the Company.

          (b) Issuance of  Certificates.  Subject to Section 1(c),  certificates
     for the Warrant Shares so purchased,  representing  the aggregate number of
     shares  specified  in the  Exercise  Agreement,  shall be  delivered to the
     Holder within a reasonable  time,  not exceeding  three (3) business  days,
     after this Warrant shall have been so exercised  (the  "Delivery  Period").
     The  certificates  so delivered  shall be in such  denominations  as may be
     reasonably  requested by the Holder and shall be  registered in the name of
     Holder or such other name as shall be  designated  by such Holder.  If this
     Warrant shall have been exercised only in part,  then,  unless this Warrant
     has expired,  the Company shall, at its expense, at the time of delivery of
     such  certificates,  deliver to the Holder a new Warrant  representing  the
     number of shares  with  respect to which this  Warrant  shall not then have
     been exercised.

          (c) Exercise  Disputes.  In the case of any dispute with respect to an
     exercise,  the Company shall promptly issue such number of shares of Common
     Stock as are not disputed in accordance with this Section.  If such dispute
     involves the  calculation of the Exercise  Price,  the Company shall submit
     the disputed calculations to a nationally recognized independent accounting
     firm (selected by the Company) via facsimile within three (3) business days
     of receipt of the Exercise  Agreement.  The accounting firm shall audit the
     calculations  and  notify  the  Company  and the  converting  Holder of the
     results no later than two (2)  business  days from the date it receives the
     disputed  calculations.  The accounting firm's  calculation shall be deemed
     conclusive,  absent  manifest  error.  The  Company  shall  then  issue the
     appropriate  number  of  shares of  Common  Stock in  accordance  with this
     Section.

          (d) Fractional  Shares. No fractional shares of Common Stock are to be
     issued upon the exercise of this Warrant,  but the Company shall pay a cash
     adjustment  in respect of any  fractional  share which would  otherwise  be
     issuable in an amount equal to the same fraction of the Exercise Price of a
     share of Common  Stock (as  determined  for  exercise of this  Warrant into
     whole shares of Common Stock);  provided that in the event that  sufficient
     funds are not legally available for the payment of such cash adjustment any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (e)  Buy-In.  If (i) the  Company  fails for any  reason  (other  than
     Holder's  failure  to pay  timely to the  Company  the  Exercise  Price) to
     deliver during the Delivery Period shares of Common Stock to Holder upon an
     exercise of this Warrant and (ii) after the applicable Delivery Period with
     respect  to  such  an  exercise,   Holder  purchases  (in  an  open  market
     transaction  or  otherwise)  shares of Common Stock to make delivery upon a
     sale by Holder of the  shares of Common  Stock (the  "Sold  Shares")  which
     Holder was entitled to receive upon such exercise (a "Buy-in"), the Company
     shall pay Holder (in  addition to any other  remedies  available to Holder)
     the amount by which (x) Holder's total purchase price (including  brokerage
     commission, if any) for the shares of Common Stock so purchased exceeds (y)
     the lesser of (A) the Exercise  Price or (B) the net  proceeds  received by
     Holder from the sale of the Sold Shares.  Holder shall  provide the Company
     written  notification  indicating any amounts payable to Holder pursuant to
     this subsection.

     2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date  hereof and before 5:00 P.M.,  Eastern  Time on the
date which is fifteen (15) months after the date hereof (the "Exercise Period").
The Company  hereby  acknowledges  that  exercise of this  Warrant by Holder may
subject  the  Company  and/or  the  Holder  to the  filing  requirements  of the
Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976,  as amended,  (the "HSR
Act") and that Holder may be prevented  from  exercising  this Warrant until the
expiration or early  termination of all waiting  periods  imposed by the HSR Act
("HSR Act Restrictions").  If on or before the end of the Exercise Period Holder
has sent the  Notice of  Exercise  to  Company  and  Holder has not been able to
complete the exercise of this  Warrant  prior to the end of the Exercise  Period
because of HSR Act  Restrictions,  the Holder  shall be entitled to complete the
process of  exercising  this  Warrant,  for a period of ten (10)  business  days
following  termination  of the HSR Act  Restrictions,  in  accordance  with  the
procedures  contained  herein  notwithstanding  the fact that  completion of the
exercise of this Warrant would take place after the end of the Exercise Period.

     3. Certain  Agreements  of the Company.  The Company  hereby  covenants and
agrees as follows:

          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
     accordance with the terms of this Warrant,  be validly issued,  fully paid,
     and non-assessable and free from all taxes, liens, claims and encumbrances.

          (b)  Reservation of Shares.  During the Exercise  Period,  the Company
     shall at all  times  have  authorized,  and  reserved  for the  purpose  of
     issuance upon exercise of this  Warrant,  a sufficient  number of shares of
     Common Stock to provide for the exercise of this Warrant.

          (c) Listing.  From and after the date of issuance of this Warrant, the
     Company  shall have  secured and shall  thereafter,  for at least three (3)
     years after the date of issuance of this  Warrant,  maintain the listing of
     the shares of Common Stock  issuable upon exercise of this Warrant upon The
     Nasdaq  National  Market,  the Nasdaq SmallCap  Market,  the New York Stock
     Exchange or the  American  Stock  Exchange,  as required by the  Securities
     Purchase Agreement and upon each national  securities exchange or automated
     quotation system, if any, upon which shares of Common Stock are then listed
     or become listed and shall maintain,  so long as any other shares of Common
     Stock shall be so listed,  such  listing of all shares of Common Stock from
     time to time issuable  upon the exercise of this  Warrant;  and the Company
     shall so list on each national  securities  exchange or automated quotation
     system,  as the case may be, and shall  maintain  such listing of any other
     shares of capital  stock of the Company  issuable upon the exercise of this
     Warrant  so long as any  shares of the same  class  shall be listed on such
     national securities exchange or automated quotation system.

          (d) Certain Actions Prohibited.  The Company will not, by amendment of
     its   charter  or  through   any   reorganization,   transfer   of  assets,
     consolidation,  merger,  dissolution,  issue or sale of securities,  or any
     other  voluntary  action,   avoid  or  seek  to  avoid  the  observance  or
     performance  of  any  of  the  terms  to be  observed  or  performed  by it
     hereunder,  but will at all times in good faith  assist in the carrying out
     of all the provisions of this Warrant and in the taking of all such actions
     as may  reasonably  be  requested by the Holder of this Warrant in order to
     protect the exercise  privilege of the Holder of this  Warrant,  consistent
     with the tenor and purpose of this Warrant. Without limiting the generality
     of the  foregoing,  the  Company  will  take  all  such  actions  as may be
     necessary or  appropriate in order that the Company may validly and legally
     issue fully paid and nonassessable shares of Common Stock upon the exercise
     of this Warrant.

     4.  Antidilution  Provisions.  During the  Exercise  Period or until  fully
exercised,  the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of
     Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
     if and whenever  after the initial  issuance of this  Warrant,  the Company
     issues or sells,  or in  accordance  with  Section 4(b) hereof is deemed to
     have issued or sold, any shares of Common Stock for no consideration or for
     a consideration per share less than the Market Price (as herein defined) on
     the date of issuance (a "Dilutive  Issuance"),  then effective  immediately
     upon  the  Dilutive  Issuance,  the  Exercise  Price  will be  adjusted  in
     accordance with the following formula:

     E' = (E) (O + P/M) / (CSDO)
 

     where:

          E' = the adjusted Exercise Price
          E = the then current Exercise Price;
          M = the then current Market Price;
          O = the number of shares of Common Stock  outstanding immediately  
          prior to the Dilutive Issuance;
          P = the  aggregate  consideration,  calculated as set forth in Section
          4(b) hereof, received by the Company upon such Dilutive Issuance; and
          CSDO = the total number of shares of Common  Stock Deemed  Outstanding
          (as herein defined) immediately after the Dilutive Issuance.
                  
          (b)  Effect on  Exercise  Price of Certain  Events.  For  purposes  of
     determining  the adjusted  Exercise  Price under  Section 4(a) hereof,  the
     following will be applicable:

               (i)  Issuance of Rights or Options.  If the Company in any manner
          issues or grants  any  warrants,  rights or  options,  whether  or not
          immediately exercisable,  to subscribe for or to purchase Common Stock
          or other securities exercisable,  convertible into or exchangeable for
          Common Stock ("Convertible Securities"),  but not to include the grant
          or exercise of any stock or options  which may hereafter be granted or
          exercised  under any employee or Director  benefit plan of the Company
          now  existing  or to be  implemented  in the  future,  so  long as the
          issuance  of such stock or options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose  (such  warrants,  rights and options to
          purchase  Common  Stock  or  Convertible  Securities  are  hereinafter
          referred to as  "Options"),  and the price per share for which  Common
          Stock is issuable  upon the  exercise of such Options is less than the
          Market Price on the date of issuance  ("Below Market  Options"),  then
          the maximum  total number of shares of Common Stock  issuable upon the
          exercise of all such Below Market  Options  (assuming  full  exercise,
          conversion or exchange of Convertible Securities, if applicable) will,
          as of the date of the issuance or grant of such Below Market  Options,
          be deemed to be  outstanding  and to have been  issued and sold by the
          Company  for such  price per  share.  For  purposes  of the  preceding
          sentence,  the price per share for which Common Stock is issuable upon
          the exercise of such Below Market  Options is  determined  by dividing
          (i) the total amount, if any, received or receivable by the Company as
          consideration  for the  issuance  or  granting  of such  Below  Market
          Options,   plus   the   minimum   aggregate   amount   of   additional
          consideration, if any, payable to the Company upon the exercise of all
          such Below Market Options, plus, in the case of Convertible Securities
          issuable upon the exercise of such Below Market  Options,  the minimum
          aggregate  amount  of  additional   consideration   payable  upon  the
          exercise,  conversion or exchange thereof at the time such Convertible
          Securities first become exercisable,  convertible or exchangeable,  by
          (ii) the maximum total number of shares of Common Stock  issuable upon
          the  exercise  of  all  such  Below  Market  Options   (assuming  full
          conversion  of  Convertible  Securities,  if  applicable).  No further
          adjustment to the Exercise Price will be made upon the actual issuance
          of such Common Stock upon the exercise of such Below Market Options or
          upon the exercise,  conversion or exchange of  Convertible  Securities
          issuable upon exercise of such Below Market Options.

               (ii) Issuance of Convertible Securities.

                    (A) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities,  whether or not immediately  convertible
               (other  than where the same are  issuable  upon the  exercise  of
               Options)  and the  price per  share  for  which  Common  Stock is
               issuable   upon  such   exercise,   conversion  or  exchange  (as
               determined pursuant to Section 4(b)(ii)(B) if applicable) is less
               than the Market Price on the date of  issuance,  then the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities  will,  as  of  the  date  of  the  issuance  of  such
               Convertible  Securities,  be deemed to be outstanding and to have
               been issued and sold by the Company for such price per share. For
               the purposes of the preceding  sentence,  the price per share for
               which Common Stock is issuable upon such exercise,  conversion or
               exchange is determined by dividing (i) the total amount,  if any,
               received or  receivable by the Company as  consideration  for the
               issuance  or sale of all such  Convertible  Securities,  plus the
               minimum  aggregate  amount of additional  consideration,  if any,
               payable to the Company upon the exercise,  conversion or exchange
               thereof  at the time such  Convertible  Securities  first  become
               exercisable,  convertible  or  exchangeable,  by (ii) the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities.  No further  adjustment to the Exercise Price will be
               made  upon  the  actual  issuances  of  such  Common  Stock  upon
               exercise, conversion or exchange of such Convertible Securities.

                    (B) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities with a fluctuating conversion or exercise
               price or exchange ratio (a "Variable Rate Convertible Security"),
               then the price per share for which Common Stock is issuable  upon
               such  exercise,  conversion  or  exchange  for  purposes  of  the
               calculation  contemplated by Section  4(b)(ii)(A) shall be deemed
               to be the  lowest  price  per  share  which  would be  applicable
               assuming that (1) all holding period and other  conditions to any
               discounts  contained  in  such  Convertible  Security  have  been
               satisfied,  and (2) the Market  Price on the date of  issuance of
               such  Convertible  Security  was 80% of the Market  Price on such
               date (the "Assumed Variable Market Price").

               (iii) Change in Option Price or Conversion  Rate.  Except for the
          grant or  exercise  of any stock or  options  which may  hereafter  be
          granted or exercised  under any  employee or Director  benefit plan of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance of such stock or options is approved by a majority of
          the non-employee members of the Board of Directors of the Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established for such purpose,  if there is a change at any time in (i)
          the amount of additional consideration payable to the Company upon the
          exercise of any Options; (ii) the amount of additional  consideration,
          if any,  payable  to the  Company  upon the  exercise,  conversion  or
          exchange or any Convertible Securities; or (iii) the rate at which any
          Convertible Securities are convertible into or exchangeable for Common
          Stock (other than under or by reason of provisions designed to protect
          against  dilution),  the Exercise  Price in effect at the time of such
          change will be readjusted to the Exercise  Price which would have been
          in effect  at such time had such  Options  or  Convertible  Securities
          still outstanding  provided for such changed additional  consideration
          or changed  conversion rate, as the case may be, at the time initially
          granted, issued or sold.

               (iv)  Treatment of Expired  Options and  Unexercised  Convertible
          Securities.  If,  in any case,  the  total  number of shares of Common
          Stock  issuable  upon  exercise  of  any  Options  or  upon  exercise,
          conversion or exchange of any Convertible  Securities is not, in fact,
          issued and the rights to exercise such option or to exercise,  convert
          or  exchange  such  Convertible   Securities  shall  have  expired  or
          terminated,  the Exercise  Price then in effect will be  readjusted to
          the Exercise Price which would have been in effect at the time of such
          expiration or termination had such Options or Convertible  Securities,
          to the extent  outstanding  immediately  prior to such  expiration  or
          termination  (other than in respect of the actual  number of shares of
          Common Stock issued upon exercise or conversion  thereof),  never been
          issued.

               (v) Calculation of Consideration  Received.  If any Common Stock,
          Options or  Convertible  Securities  are  issued,  granted or sold for
          cash, the consideration received therefor for purposes of this Warrant
          will be the amount received by the Company therefor,  before deduction
          of  reasonable  commissions,  underwriting  discounts or allowances or
          other  reasonable   expenses  paid  or  incurred  by  the  Company  in
          connection  with  such  issuance,  grant or sale.  In case any  Common
          Stock,  Options  or  Convertible  Securities  are issued or sold for a
          consideration  part or all of  which  shall be other  than  cash,  the
          amount of the  consideration  other than cash  received by the Company
          will be the fair market value of such consideration  except where such
          consideration consists of freely-tradeable  securities,  in which case
          the amount of consideration received by the Company will be the Market
          Price  thereof as of the date of  receipt.  In case any Common  Stock,
          Options or Convertible  Securities  are issued in connection  with any
          merger  or  consolidation  in  which  the  Company  is  the  surviving
          corporation, the amount of consideration therefor will be deemed to be
          the fair market  value of such  portion of the net assets and business
          of the  non-surviving  corporation as is  attributable  to such Common
          Stock, Options or Convertible Securities, as the case may be. The fair
          market value of any  consideration  other than cash or securities will
          be determined in the good faith  reasonable  business  judgment of the
          Board of Directors.

               (vi) Exceptions to Adjustment of Exercise Price. No adjustment to
          the Exercise Price will be made (i) upon the exercise of any warrants,
          options or convertible  securities  issued and outstanding on the date
          hereof  in  accordance  with the terms of such  securities  as of such
          date;  (ii) upon the grant or exercise  of any stock or options  which
          may  hereafter be granted or exercised  under any employee or Director
          benefit plan of the Company now existing or to be  implemented  in the
          future,  so long as the  issuance of such stock or options is approved
          by a majority of the non-employee members of the Board of Directors of
          the  Company  or  a  majority  of  the  members  of  a  committee   of
          non-employee  directors  established for such purpose;  (iii) upon the
          issuance of the Common Shares (as defined in the  Securities  Purchase
          Agreement)  or Warrants  in  accordance  with terms of the  Securities
          Purchase Agreement; or (iv) upon the exercise of the Warrants.

          (c) Subdivision or Combination of Common Stock. If the Company, at any
     time after the initial  issuance of this Warrant,  subdivides (by any stock
     split, stock dividend, recapitalization,  reorganization,  reclassification
     or otherwise)  its shares of Common Stock into a greater  number of shares,
     then, after the date of record for effecting such subdivision, the Exercise
     Price  in   effect   immediately   prior  to  such   subdivision   will  be
     proportionately  reduced.  If the  Company,  at any time after the  initial
     issuance   of   this   Warrant,   combines   (by   reverse   stock   split,
     recapitalization, reorganization, reclassification or otherwise) its shares
     of Common Stock into a smaller  number of shares,  then,  after the date of
     record  for  effecting  such  combination,  the  Exercise  Price in  effect
     immediately prior to such combination will be proportionately increased.

          (d)  Adjustment  in Number of  Shares.  Upon  each  adjustment  of the
     Exercise  Price pursuant to the provisions of this Section 4, the number of
     shares of Common Stock  issuable  upon  exercise of this  Warrant  shall be
     adjusted by  multiplying  a number  equal to the  Exercise  Price in effect
     immediately  prior to such  adjustment  by the  number  of shares of Common
     Stock  issuable  upon  exercise of this Warrant  immediately  prior to such
     adjustment  and dividing  the product so obtained by the adjusted  Exercise
     Price.

          (e) Major Transactions. If the Company shall consolidate or merge with
     any other  corporation  or entity (other than a merger in which the Company
     is the  surviving or  continuing  entity and its capital stock is unchanged
     and unissued in such transaction (except for Common Stock constituting less
     than twenty percent (20%) of the Company's Common Stock then  outstanding))
     or  any  subsidiary  of  the  Company  shall  be a  party  to a  merger  or
     consolidation  or other  extraordinary  transaction  and the Company issues
     twenty  percent  (20%) or more of its  Common  Stock  in any  such  merger,
     consolidation or other  transaction or there shall occur any share exchange
     pursuant  to which  all of the  outstanding  shares  of  Common  Stock  are
     converted  into other  securities  or property or any  reclassification  or
     change of the  outstanding  shares of Common  Stock (each of the  foregoing
     being a "Major Transaction"), then each holder of a Warrant may thereafter,
     at its  option,  be  entitled  to (a) in the event  that the  Common  Stock
     remains  outstanding or holders of Common Stock receive any common stock or
     substantially similar equity interest, in each of the foregoing cases which
     is publicly  traded,  retain its Warrant and such Warrant shall continue to
     apply to such Common Stock or shall  apply,  as nearly as  practicable,  to
     such  other  common  stock or equity  interest,  as the case may be, or (b)
     regardless or whether (a) applies,  receive consideration,  in exchange for
     such Warrant, equal to the greater of, as determined in the sole discretion
     of such holder, (i) the number of shares of stock or securities or property
     of the Company, or of the entity resulting from such Major Transaction (the
     "Major  Transaction  Consideration"),  to which a holder  of the  number of
     shares of Common Stock  delivered  upon the exercise of such Warrant  would
     have been entitled upon such Major  Transaction  had such holder  exercised
     the Warrant  (without  regard to any limitations on conversion or elsewhere
     contained)   on  the  trading  date   immediately   preceding   the  public
     announcement of the transaction resulting in such Major Transaction and had
     such Common Stock been issued and  outstanding and had such Holder been the
     holder of record of such Common  Stock at the time of the  consummation  of
     such Major  Transaction,  and (ii) cash paid by the Company in  immediately
     available  funds, in an amount equal to one hundred and twenty five percent
     (125%) of the Black-Scholes  Amount (as defined herein) times the number of
     shares of Common  Stock for which this  Warrant  was  exercisable  (without
     regard to any  limitations on exercise herein  contained);  and the Company
     shall  make  lawful  provision  for the  foregoing  as a part of such Major
     Transaction and shall cause the issuer of any security in such  transaction
     which  constitutes  Registrable  Securities under the  registration  rights
     provisions of Section 7(c) of the Securities  Purchase  Agreement to assume
     all of the  Company's  obligations  thereunder.  No  sooner  than  ten (10)
     business  days  nor  later  than  five  (5)  business  days  prior  to  the
     consummation  of the  Major  Transaction,  but  not  prior  to  the  public
     announcement of such Major  Transaction,  the Company shall deliver written
     notice ("Notice of Major  Transaction") to each holder of a Warrant,  which
     Notice of Major  Transaction shall be deemed to have been delivered one (1)
     business day after the Company's sending such notice by telecopy  (provided
     that the Company sends a confirming  copy of such notice on the same day by
     overnight  courier)  of such  Notice of Major  Transaction.  Such Notice of
     Major  Transaction  shall  indicate  the  amount  and  type  of  the  Major
     Transaction  consideration  which such  holder of a Warrant  would  receive
     under this Section. If the Major Transaction Consideration does not consist
     entirely of United States currency, such holder may elect to receive United
     States  currency in an amount  equal to the value of the Major  Transaction
     Consideration in lieu of the Major Transaction  Consideration by delivering
     notice of such  election to the Company  within five (5)  business  days of
     such holder's receipt of the Notice of Major Transaction.

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following variable values: (i) the current market price of the Common Stock
     equal to the closing trade price on the last trading day before the date of
     the Notice of the Major  Transaction;  (ii)  volatility of the Common Stock
     equal to the  volatility  of the common  Stock  during the 100  trading day
     period preceding the date of the Notice of the Major  Transaction;  (iii) a
     risk free rate equal to the  interest  rate on the United  States  treasury
     bill or treasury note with a maturity  corresponding  to the remaining term
     of this  Warrant  on the date of the Notice of the Major  Transaction;  and
     (iv) an  exercise  price  equal  to the  Exercise  Price on the date of the
     Notice of the Major Transaction.  In the event such calculation function is
     no longer  available  utilizing the Bloomberg online page, the Holder shall
     calculate such amount in its sole  discretion  using the closest  available
     alternative  mechanism and variable values to those available utilizing the
     Bloomberg online page for such calculation function.

          (f) Distribution of Assets.  In case the Company shall declare or make
     any distribution of its assets (or rights to acquire its assets) to holders
     of Common  Stock as a  partial  liquidating  dividend,  by way of return of
     capital  or  otherwise  (including  any  dividend  or  distribution  to the
     Company's  shareholders  of cash or shares (or rights to acquire shares) of
     capital stock of a subsidiary)  (a  "Distribution"),  at any time after the
     initial  issuance of this  Warrant,  then the Holder shall be entitled upon
     exercise of this  Warrant  for the  purchase of any or all of the shares of
     Common  Stock  subject  hereto,  to receive  the amount of such  assets (or
     rights)  which  would have been  payable to the Holder had such Holder been
     the  holder  of such  shares  of Common  Stock on the  record  date for the
     determination of shareholders entitled to such Distribution.

          (g)  Notices of  Adjustment.  Upon the  occurrence  of any event which
     requires any adjustment of the Exercise Price, then, and in each such case,
     the Company  shall give notice  thereof to the Holder,  which  notice shall
     state the Exercise Price resulting from such adjustment and the increase or
     decrease  in the number of Warrant  Shares  purchasable  at such price upon
     exercise,  setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.  Such calculation  shall be
     certified by the chief financial officer of the Company.

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

          (i) No Fractional  Shares. No fractional shares of Common Stock are to
     be issued upon the exercise of this  Warrant,  but the Company  shall pay a
     cash adjustment in respect of any fractional share which would otherwise be
     issuable in an amount  equal to the same  fraction of the Market Price of a
     share of Common Stock; provided that in the event that sufficient funds are
     not  legally  available  for  the  payment  of  such  cash  adjustment  any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (j) Other Notices. In case at any time:

               (i) the Company  shall declare any dividend upon the Common Stock
          payable in shares of stock of any class or make any other distribution
          to the holders of the Common Stock;

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

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

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

               then, in each such case, the Company shall give to the Holder (a)
          notice of the date on which the books of the Company  shall close or a
          record  shall be taken for  determining  the  holders of Common  Stock
          entitled to receive any such dividend,  distribution,  or subscription
          rights or for determining the holders of Common Stock entitled to vote
          in   respect   of   any   such    reorganization,    reclassification,
          consolidation,  merger, sale,  dissolution,  liquidation or winding-up
          and (b) in the  case  of any  such  reorganization,  reclassification,
          consolidation,  merger, sale, dissolution,  liquidation or winding-up,
          notice of the date (or, if not then known, a reasonable  approximation
          thereof by the  Company)  when the same shall take place.  Such notice
          shall also specify the date on which the holders of Common Stock shall
          be entitled to receive such dividend,  distribution,  or  subscription
          rights or to exchange their Common Stock for stock or other securities
          or property  deliverable upon such  reorganization,  reclassification,
          consolidation, merger, sale, dissolution,  liquidation, or winding-up,
          as the case may be. Such notice  shall be given at least 30 days prior
          to the record date or the date on which the Company's books are closed
          in respect thereto,  but in no event earlier than public  announcement
          of such proposed transaction or event. Failure to give any such notice
          or any defect therein shall not affect the validity of the proceedings
          referred to in clauses (i), (ii), (iii) and (iv) above.

          (k) Certain Definitions.

               (i) "Common  Stock Deemed  Outstanding"  shall mean the number of
          shares of Common Stock actually  outstanding  (not including shares of
          Common Stock held in the treasury of the Company), plus (x) in case of
          any adjustment required by Section 4(a) resulting from the issuance of
          any  Options,  the  maximum  total  number of  shares of Common  Stock
          issuable upon the exercise of the Options for which the  adjustment is
          required  (including  any Common Stock issuable upon the conversion of
          Convertible  Securities  issuable upon the exercise of such  Options),
          and  (y) in the  case  of any  adjustment  required  by  Section  4(a)
          resulting from the issuance of any Convertible Securities, the maximum
          total number of shares of Common  Stock  issuable  upon the  exercise,
          conversion  or exchange of the  Convertible  Securities  for which the
          adjustment is required, as of the date of issuance of such Convertible
          Securities, if any.

               (ii) "Market Price," as of any date, (i) means the average of the
          Closing  Bid  Prices  for the shares of Common  Stock as  reported  to
          Nasdaq   National  Market  System  for  the  trading  day  immediately
          preceding such date, or (ii) if The Nasdaq  National Market is not the
          principal trading market for the Common Stock, the average of the last
          reported  bid prices on the  principal  trading  market for the Common
          Stock  during the same  period,  or, if there is no bid price for such
          period,  the last  reported  sales price for such period,  or (iii) if
          market  value  cannot  be  calculated  as of  such  date on any of the
          foregoing  bases,  the Market  Price  shall be the value  thereof,  as
          agreed upon by the Company and the Holder; provided,  however, that if
          the Company  and the Holder  cannot  agree on such  value,  such value
          shall be the average fair market value as reasonably  determined by an
          investment  banking  firm  selected  by  the  Company  and  reasonably
          acceptable  to the Holders of a majority in interest of the  Warrants,
          with the costs of the appraisal to be borne by the Company. The manner
          of  determining  the Market Price of the Common Stock set forth in the
          foregoing definition shall apply with respect to any other security in
          respect  of which a  determination  as to  market  value  must be made
          hereunder.

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

                    (l) Other Adjustments. If:

                    (1)  Maurizio  Vecchione  disposes  of any  shares of Common
               Stock beneficially owned by him while the Common Stock is trading
               at or below twenty-five dollars ($25) per share during the period
               beginning on the date of the Closing and ending on the earlier of
               (i) the first (1st)  anniversary  of the date of the Closing,  or
               (ii) the date on which Maurizio  Vecchione ceases to be President
               or CEO of the Company; or

                    (2)  Joyce  Freedman  or Lee  Freedman  (each a  "Freedman")
               dispose of any shares of Common Stock  beneficially owned by such
               Freedman  at any time  during the period  begining on the date of
               the  Closing  and  ending  on the date  which  is six (6)  months
               following the Closing,  then the Exercise Price shall be adjusted
               to the  Adjusted  Exercise  Price  (as  defined  herein)  if such
               adjustment  would  result in a decrease  in the  Exercise  Price;
               provided,  however, that the Exercise Price shall not be adjusted
               upon the  occurrence of a disposal  described in clause (1) until
               Maurizio  Vecchione  sells or  otherwise  transfers  in excess of
               fifty  thousand  (50,000)  shares  of Common  Stock in  aggregate
               during such period at a price less than twenty-five dollars ($25)
               pursuant to Rule 144. For any disposal of Common Stock  described
               hereunder, the "Adjusted Exercise Price" shall mean the lesser of
               (a) the lowest  closing bid price of the Common  Stock during the
               thirty (30) trading day period  beginning on the trading day (the
               "Announcement Date") immediately  preceding the day on which such
               disposal was publicly announced and (b) the price per share which
               Vecchione or such Freedman, as applicable, received in connection
               with  such  disposal;  provided,  however,  that if the  Adjusted
               Exercise  Price  described  above is  greater  than the  Exercise
               Price, then the Adjusted Exercise Price shall be equal to (c) the
               lowest  closing bid price of the Common  Stock  during the thirty
               (30)  trading  day  period  beginning  on the  Announcement  Date
               divided by (d) the closing  bid price of the Common  Stock on the
               Announcement Date times (e) the Exercise Price.

     5. Cap Amount.

          (a) Prior to Nasdaq  Approval (as defined in the  Securities  Purchase
     Agreement) or the 4460  Shareholder  Approval (as defined in the Securities
     Purchase  Agreement),  unless  otherwise  permitted by The Nasdaq  National
     Market or unless the rules thereof no longer are applicable to the Company,
     in no event shall the total  number of shares of Common Stock issued at the
     Closing under the  Securities  Purchase  Agreement and upon exercise of the
     Warrants  exceed  the  maximum  number of shares of Common  Stock  that the
     Company can without  stockholder  approval so issue pursuant to Nasdaq Rule
     4460(i) (or any  successor  rule) (the "Cap Amount") upon Closing under the
     Securities  Purchase Agreement and the exercise of the Warrants,  which, as
     of the date of  initial  issuance  of  Common  Stock  and  Warrants  to the
     Holders,  which amount is one million,  two hundred thirty two thousand and
     forty five (1,232,045)  shares.  The Cap Amount shall be allocated pro rata
     among the  Holders  based on the  number  of  shares  of  Common  Stock and
     Warrants  issued  to each  Holder.  In the  event a  Holder  shall  sell or
     otherwise transfer any of such Holder's Warrants,  each transferee shall be
     allocated a pro rata portion of such  transferor's  Cap Amount.  A Holder's
     allocable  portion of the Cap Amount shall be allocated first to the Common
     Stock  issued to the Holder at the Closing  under the  Securities  Purchase
     Agreement,  then  to the  First  Warrants  (as  defined  in the  Securities
     Purchase  Agreement)  and  only  the  Warrants  shall  be  subject  to  the
     limitation imposed by this Section 5(a).

          (b) Prior to the earlier of Second Nasdaq  Approval (as defined in the
     Securities Purchase Agreement) or the 4310 Shareholder Approval (as defined
     in the Securities  Purchase  Agreement),  unless otherwise permitted by The
     Nasdaq National Market or unless the rules thereof no longer are applicable
     to the Company, in no event shall this Warrant be exercisable.

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

     7. No  Rights or  Liabilities  as a  Shareholder.  This  Warrant  shall not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company.  No provision of this Warrant,  in the absence of affirmative action by
the Holder to purchase  Warrant Shares,  and no mere  enumeration  herein of the
rights or  privileges  of the Holder,  shall give rise to any  liability  of the
Holder for the Exercise Price or as a shareholder  of the Company,  whether such
liability is asserted by the Company or by creditors of the Company.

     8. Transfer, Exchange, Redemption and Replacement of Warrant.

          a. Restriction on Transfer. This Warrant and the rights granted to the
     Holder  are  transferable,  in  whole or in part,  upon  surrender  of this
     Warrant,  together  with a  properly  executed  assignment  in the  Form of
     Assignment  attached  hereto as  Exhibit  2, at the office or agency of the
     Company  referred to in Section  8(e) below,  provided,  however,  that any
     transfer or assignment shall be subject to the provisions of the Securities
     Purchase  Agreement.  Until due presentment for registration of transfer on
     the books of the  Company,  the  Company  may treat the  registered  holder
     hereof as the owner and holder  hereof for all  purposes,  and the  Company
     shall  not be  affected  by any  notice  to the  contrary.  Notwithstanding
     anything  to  the  contrary  contained  herein,  the  registration   rights
     described in Section 9 hereof are  assignable  only in accordance  with the
     provisions of the Securities Purchase Agreement.
 
          b. Warrant Exchangeable for Different  Denominations.  This Warrant is
     exchangeable,  upon the  surrender  hereof by the  Holder at the  office or
     agency of the Company  referred to in Section 8(e) below, for new Warrants,
     in  the  form  hereof,  of  different  denominations  representing  in  the
     aggregate  the right to purchase the number of shares of Common Stock which
     may be purchased  hereunder,  each of such new  Warrants to  represent  the
     right to  purchase  such  number of shares  as shall be  designated  by the
     Holder of at the time of such surrender.

          c.  Replacement  of  Warrant.  Upon  receipt  of  evidence  reasonably
     satisfactory to the Company of the loss, theft, destruction,  or mutilation
     of this Warrant or, in the case of any such loss,  theft,  or  destruction,
     upon delivery,  of an indemnity agreement  reasonably  satisfactory in form
     and amount to the  Company,  or, in the case of any such  mutilation,  upon
     surrender and  cancellation of this Warrant,  the Company,  at its expense,
     will execute and deliver,  in lieu  thereof,  a new  Warrants,  in the form
     hereof, in such denominations as Holder may request.

          d.  Cancellation;  Payment of  Expenses.  Upon the  surrender  of this
     Warrant in  connection  with any  transfer,  exchange,  or  replacement  as
     provided in this Section 8, this Warrant shall be promptly  canceled by the
     Company.  The Company shall pay all issuance  taxes (other than  securities
     transfer  taxes) and charges  payable in connection  with the  preparation,
     execution, and delivery of Warrants pursuant to this Section 8.

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

          f. Redemption at Company's Option.

               1. On the first (1st) anniversary of the date hereof and for five
          (5) days  thereafter,  the  Company  shall have the right to elect the
          redemption for cash  ("Redemption at Company's  Option") of all or any
          part of the then unexercised  portion of this Warrant for the Optional
          Redemption   Amount  (as  herein   defined),   which  right  shall  be
          exercisable by delivery of an Optional  Redemption  Notice (as defined
          herein)  in   accordance   with  the   procedures   set  forth  below.
          Notwithstanding  the delivery of an Optional  Redemption  Notice,  the
          Holder  shall  have  the  right  to  exercise  all or any part of this
          Warrant up to and including the date of redemption;  provided, however
          that the Company may effect a Redemption at Company's  Option only if:
          (a) there has not occurred any material breach of any of the Company's
          representationss,   warranties  or  covenants   under  the  Securities
          Purchase  Agreement  and the  Company  is not in default of any of its
          obligations under the Securities  Purchase Agreement and the Warrants;
          (b) the  registration  statement  required  to be filed by the Company
          pursuant to the Securities  Purchase  Agreement covering the Purchased
          Shares  (as  defined in the  Securities  Purchase  Agreement)  and the
          Warrant Shares issuable upon conversion of the Warrants,  is effective
          and  available  for  trading;  (c) the  Common  Stock,  including  all
          Purchased Shares and Warrant Shares,  is listed on the Nasdaq National
          Market and trading in the Common Stock is not suspended by Nasdaq, the
          Securities and Exchange  Commission or other regulatory  authority and
          no  de-listing  or  suspension  shall  be  reasonably  likely  for the
          foreseeable  future;  (d) since December 31, 1998, the Company has not
          suffered any  Material  Adverse  Effect (as defined in the  Securities
          Purchase  Agreement) and nothing has occurred which would be likely to
          cause a Material Adverse Effect, and (e) the closing sale price of the
          Common  Stock on each of the fifteen  (15)  trading  days  immediately
          preceding  the first (1st)  anniversary  is greater  than the Exercise
          Price.  For purposes of this  Section  8(f),  the Optional  Redemption
          Amount is equal to (x) one cent ($0.01) times (y) the number of shares
          underlying the portion of the Warrant to be redeemed,  as specified in
          the Optional  Redemption Notice.  Upon timely delivery of the Optional
          Redemption  Notice,  the Optional  Redemption  Amount shall be paid to
          Holder on the date of redemption.

               2. The Company shall effect the  Redemption  at Company's  Option
          under this  Section 8(f) by  delivering  written  notice  thereof (the
          "Optional  Redemption  Notice") on the first (1st)  anniversary of the
          date  hereof  or  within  five (5) days  thereafter  to  Holder at the
          facsimile  number set forth below Holder's name on the signature pages
          of the Securities Purchase Agreement or at such other facsimile number
          as Holder  shall have  provided  in writing to the  Company.  Once the
          Company  has  delivered  such  Optional   Redemption   Notice,  it  is
          irrevocable  and  binding.  The  Optional  Redemption  Notice shall be
          deemed to have been  delivered to Holder:  (i) if such fax is received
          by  Holder  on or prior to 3:00  p.m.  New York  time,  on the date of
          transmission of the Company's fax; and (ii) if such fax is received by
          Holder  after  3:00  p.m.  New York  time,  on the next  business  day
          following  the date of  transmission  provided  that,  for any  notice
          required under this subsection to be valid, a copy of such notice must
          be sent to Holder on the same day by overnight  courier.  The Optional
          Redemption  Notice shall  specify the portion of the Warrant which the
          Company  elects to redeem by specifying the number of shares of Common
          Stock as to which the Warrant is being  redeemed.  The  Redemption  at
          Company's  Option shall occur on the  thirtieth  (30th) day  following
          delivery of the  Optional  Redemption  Notice (or if such day is not a
          business day, on the next business day thereafter).

     9.  Registration  Rights.  The initial  holder of this Warrant (and certain
assignees  thereof) is entitled  to the benefit of such  registration  rights in
respect of the Warrant Shares as are set forth in Section 7(c) of the Securities
Purchase Agreement.

     10.  Notices.  Any notice herein required or permitted to be given shall be
in writing and may be personally  served or delivered by courier or by confirmed
telecopy,  and shall be deemed  delivered at the time and date of receipt (which
shall include  telephone  line facsimile  transmission).  The addresses for such
communications shall be:

                  If to the Company:

                           ModaCAD, Inc.
                           3861 Sepulveda Blvd.
                           Culver City, CA 90230
                           Telecopy: (310) 751-2120
                           Attention: President

                           with a copy to:

                           Coudert Brothers
                           1055 West Seventh Street - 20th Floor
                           Los Angeles, CA  90017
                           Telecopy:  (213) 689-4467
                           Attention:  John A. St. Clair

and if to the Holder,  at such address as Holder shall have  provided in writing
to the Company,  or at such other address as each such party furnishes by notice
given in accordance with this Section 10.

     11.  Governing  Law;  Jurisdiction.  This Warrant  shall be governed by and
construed in accordance  with the laws of the State of California  applicable to
contracts  made and to be  performed  in the State of  California.  The  Company
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the State of California and the state courts located in the County of
Santa Clara in the State of  California  in any suit or  proceeding  based on or
arising under this Warrant and irrevocably  agrees that all claims in respect of
such  suit  or  proceeding  may  be  determined  in  such  courts.  The  Company
irrevocably  waives the defense of an  inconvenient  forum to the maintenance of
such suit or proceeding.  The Company agrees that a final nonappealable judgment
in any such suit or proceeding  shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

     12. Miscellaneous.

          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument in writing signed by the Company and the Holder.

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

          c. [Intentionally deleted].

          d.  Assignability.  This Warrant shall be binding upon the Company and
     its successors and assigns and shall inure to the benefit of Holder and its
     successors  and  assigns.  The Holder  shall  notify the  Company  upon the
     assignment of this Warrant.

          e.  Weekends,  Etc.  If the  end of the  Exercise  Period  falls  on a
     Saturday,  Sunday or legal holiday, the end of the Exercise Period shall be
     extended automatically until 5:00 p.m. the next business day.

                                      * * *

<PAGE>


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



     ModaCAD, Inc.
     By: /S/ JOYCE FREEDMAN
         ------------------
     Name: Joyce Freedman
     Title:Chief Executive Officer

<PAGE>
                           FORM OF EXERCISE AGREEMENT

         (To be Executed by the Holder in order to Exercise the Warrant)

     The  undersigned  hereby  irrevocably   exercises  the  right  to  purchase
____________  of the  shares of common  stock of  ModaCAD,  Inc.,  a  California
corporation (the  "Company"),  evidenced by the attached  Warrant,  and herewith
makes payment of the Exercise  Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.

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

     (ii) The undersigned  requests that stock  certificates  for such shares be
issued,  and a Warrant  representing  any unexercised  portion hereof be issued,
pursuant  to the  Warrant in the name of the  Holder  (or such  other  person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:

Date:               

Signature of Holder

Name of Holder (Print)

Address:


<PAGE>



                               FORM OF ASSIGNMENT

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

Name of Assignee                    Address                        No. of Shares


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


Date:____________, _____,

In the presence of



                  Name:                                                         


                  Signature:                                                    
                               Title of Signing Officer or Agent (if any):

                  Address:      

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


<PAGE>
                                   EXHIBIT B

CONFIDENTIAL INFORMATION TRANSMITTAL RECORD ("CITR")
CITR DATE:__________________ , 199 __________    CNDA # _______________________
    (Date Disclosure(s) will commence)       (Fill in Number from Executed CNDA)

Participant's Name: ___________________________________________________________
                                  (Use Same Name as on CNDA)
    ___________________________________________________________________________
                                (Location of Disclosure)
    ___________________________________________________________________________
         City                  State                              Zip Code

Intel and Participant  agree that the Confidential  Information  described below
shall be kept  confidential by the receiving party.  This CITR  incorporates all
the terms and  conditions of the  Corporate  Non-Disclosure  Agreement  ("CNDA")
executed by the parties.

1.   Describe  Confidential  Information  disclosed by each party. (Be specific.
     Include subject or product,  any document title,  drawing/document  number,
     date, rev., etc.) Identify  visuals,  foils, and verbal  disclosures.  (Use
     additional sheets if necessary).  Intel Confidential Information: All Intel
     Confidential  Information,  including  oral  disclosures,  disclosed by the
     board  observer  representing  Intel  at  any  of  Participant's  board  of
     directors meetings where Intel's board observer was in attendance,  as such
     attendance is documented by the  Participant's  board of director  meetings
     minutes.   Participant's   Confidential   Information:   All  Participant's
     Confidential Information, including oral disclosures,  pertaining to any of
     Participant's  board of directors meetings that is disclosed to Intel prior
     to   Participant's   board   meetings,   all   Participant's   Confidential
     Information,   including  oral   disclosures,   disclosed   during  any  of
     Participant's  board of  directors  meetings  for  those  portions  of such
     meetings where Intel's board observer was in attendance, as such attendance
     is documented by the Participant's board of director meetings minutes,  and
     all  other   Participant's   Confidential   Information,   including   oral
     disclosures,  disclosed to Intel's board  observer in their  capacity as an
     observer of Participant's board of directors.

2.   This  CITR  covers  the  above  described  Confidential  Information  to be
     conveyed  commencing on the CITR Date stated above provided it is marked as
     required under the CNDA.

3.   Unless a shorter period is indicated  below,  the disclosing party will not
     assert any claims of breach or  misappropriation  of trade secrets  against
     the receiving  party arising from the receiving  party's  disclosure of the
     disclosing party's Confidential  Information under this CITR more than five
     (5) years  from the date  when such  information  was  disclosed.  However,
     unless at least one of the  exceptions  set forth in  Section 4 of the CNDA
     has occurred,  the receiving party will continue to treat such Confidential
     Information as the  confidential  information  of the disclosing  party and
     only disclose any such Confidential  Information to third parties under the
     terms of a non-disclosure agreement.

     If initialed  and filled in below,  the period  after which the  disclosing
     party agrees not to assert claims against the receiving  party with respect
     to the  Confidential  Information  disclosed  under this CITR will be _____
     months  (not less than  twenty-four  (24)  months  nor more than sixty (60)
     months). (_____/_____)

4.   Either party may at any time request in writing the immediate return of all
     or part of its Confidential Information disclosed hereunder, and all copies
     thereof, and the receiving party shall promptly comply with such request.

5.   All other terms and  conditions  of the executed  CNDA shall remain in full
     force and effect.  Nothing  contained herein shall be construed as amending
     or modifying the terms of the CNDA referenced above.

6.   Both parties  understand and acknowledge  that no license under any patent,
     copyright,  trade secret or other intellectual property right is granted to
     or conferred  upon either party in this Agreement or by the transfer of any
     information  by one party to the  other  party as  contemplated  hereunder,
     either expressly, by implication,  inducement,  estoppel or otherwise,  and
     that any license under such  intellectual  property  rights must be express
     and in writing.  

                                   PARTICIPANT:________________________________ 
                                   (Company Name,  Division/Sub  if applicable)

INTEL  CORPORATION  
2200 Mission  College Blvd.        ____________________________________________
Santa Clara, CA 95052-8119         Address

                                   ____________________________________________
                                   City, State, Zip
[{"type": "8-K", "sequence": "1", "description": "STOCK & WARRANT PURCHASE/INVESTOR RIGHTS AGREEMENT", "secsgml_size_bytes": 336262}]
{"company-data": {"conformed-name": "MODACAD INC", "cik": "0001008130", "assigned-sic": "7372", "irs-number": "954145930", "state-of-incorporation": "CA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "333-01166-LA", "film-number": "99593858"}, "business-address": {"street1": "3861 SEPULVEDA BLVD", "city": "CULVER CITY", "state": "CA", "zip": "90230", "phone": "3103129826"}, "mail-address": {"street1": "3861 SEPULVEDA BLVD", "city": "CULVER CITY", "state": "CA", "zip": "90230"}}
U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 8-K

                                 CURRENT REPORT
                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 7, 1999

                                 MODACAD, INC. 
--------------------------------------------------------------------------------
        (Exact name of registrant as specified in its charter)

          California                    33-31166                 95-4145930
-------------------------------     ----------------    ------------------------
(State or other jurisdiction of        (Commission             (IRS Employer
incorporation or organization)          File Number)         Identification No.)

    3861 Sepulveda Blvd., Culver City                            90230
----------------------------------------                ------------------------
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code            (310) 751-2100   
                                                        ------------------------

                               Not Applicable
--------------------------------------------------------------------------------
          (Former name or former address, if changed since last report)
Item 5.  Other Events

ModaCAD,  Inc.  ("ModaCAD")  reports  its  transaction  with  Intel  Corporation
("Intel")  pursuant to an  agreement  under which  Intel  Corporation  purchased
455,218 shares of ModaCAD's common stock and,  subject to shareholder  approval,
warrants to purchase  538,674  shares of ModaCAD's  common  stock.  See attached
press  release  issued on April 9, 1999 and the Stock and Warrant  Purchase  and
Investor Rights Agreement  between ModaCAD and Intel, both of which are, by this
reference, incorporated herein.

                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                                ModaCAD, INC.

Date: April 14, 1999                           By:   /s/  LEE FREEDMAN
                                                     ---------------------------
                                                     Lee Freedman
                                                     Vice President, Finance and
                                                     Chief Financial Officer
PRESS RELEASE

Modacad Closes Investment Round

LOS ANGELES,  CALIFORNIA, April 9, 1999 . . . . Modacad, Inc. (NASDAQ: MODA), an
e-Commerce solutions provider for the fashion industry,  today announced that it
has completed a privately placed  investment of common stock and warrants valued
at $8.5  million.  The lead  financial  investor  was  Castle  Creek  Technology
Partners,   LLC,  and  other  financial   investors  included  Marshall  Capital
Management,  Inc.,  an affiliate of Credit  Suisse First  Boston.  Concurrently,
Modacad  announced that Intel Corporation has taken a $5 million equity position
in Modacad in exchange for its right to present and future royalty streams under
an existing business agreement.  

The financial  investors,  led by Castle Creek,  received $8.5 million of common
stock priced at $10.98 per share.  Additionally,  these investors  received five
year  warrants to purchase  271,889  shares of Modacad stock at a premium of 25%
above  the  common  stock  purchase  price,  as well as one  year  cash-exercise
warrants to purchase  323,678  shares of Modacad stock at a premium of 20% above
the common stock purchase price and 15-month  cash-exercise warrants to purchase
323,678  shares of Modacad stock also at a premium of 20% above the common stock
purchase price.  The  exerciseability  of the warrants is subject to shareholder
approval.  

"This  investment  will expand our  institutional  shareholder  base and give us
access to the capital  necessary  to  accelerate  our  expansion in the Internet
e-Commerce  marketplace,"  stated Maurizio  Vecchione,  Modacad's  president and
chief operating officer.

In return for its royalty  streams,  Intel received $5 million of Modacad common
stock, also priced at $10.98 per share. Intel also received warrants to purchase
a  proportionate  number of shares of Modacad  stock  with  terms  substantially
similar  to the  warrants  issued  to the  investors  led by Castle  Creek.  The
agreement  with Intel enables  Modacad to apply its revenue toward the execution
of its internet strategy while maintaining its working relationship with Intel.

"Provided  the  value  of  Modacad   stock   increases   sufficiently   and  the
cash-exercise  warrants  are  exercised,  we  would  have  access  to  up  to an
additional  $13.5  million  in  cash,"  stated  Maurizio  Vecchione,   Modacad's
president and chief operating officer.

As the result of this transaction,  Intel and Castle Creek will each become 6.2%
shareholders in Modacad. PaineWebber Incorporated and ING Baring Furman Selz LLC
acted as placement agents and advisors to Modacad.  

Founded  in 1988,  Modacad is an enabler of  e-Commerce  for  manufacturers  and
consumers.  With more than 11 years of  experience,  the Company is a recognized
leader in 3D rendering and digital content management. Modacad recently launched
a new apparel e-commerce site at www.styleclick.com,  featuring fashion, fitness
and beauty products,  that allows users to comparison shop among leading brands.
The  investment  will  increase  Modacad's  ability  to  develop  the market for
styleclick.com and to enhance its web-based  merchandising products. 

For further  information,  or a complete  investor  kit,  contact  Gail  Laguna,
Investor  Relations  manager,  at  310-751-2100  or visit  ModaCAD's web site at
www.modacad.com.
MODACAD, INC.

            STOCK AND WARRANT PURCHASE AND INVESTOR RIGHTS AGREEMENT

     This  Stock and  Warrant  Purchase  and  Investor  Rights  Agreement  (this
"Agreement")  is made and  entered  into as of  April 7,  1999,  by and  between
ModaCAD, Inc., a California corporation (the "Company"),  and Intel Corporation,
a Delaware corporation (the "Investor").

                                    RECITALS

     WHEREAS, the Company and the Investor entered into that certain Development
Agreement, dated as of November 12, 1997 (the "Development Agreement");

     WHEREAS, pursuant to the terms hereof, the parties have agreed to terminate
the  future  royalty  obligations  under  the  Development  Agreement,  and,  in
consideration thereof, the Company has agreed to grant to the Investor an equity
stake in the Company on the terms and conditions of this Agreement;

     WHEREAS,  the Company  desires to sell to the  Investor,  and the  Investor
desires to purchase from the Company,  shares of Common Stock,  no par value, of
the Company (the "Common Stock"),  on the terms and conditions set forth in this
Agreement; and

     WHEREAS,  the Company has agreed to issue to the  Investor  three  separate
warrants,   in  the  forms  attached  hereto  as   Exhibits A-1,   A-2  and  A-3
(respectively,  the  "First  Warrants,"  the  "Second  Warrants"  and the "Third
Warrants"  and,  collectively,  the  "Warrants"),  to purchase an  aggregate  of
538,673  shares of Common  Stock (the  "Warrant  Shares"),  subject to the terms
thereof and to the terms of this Agreement.

     NOW,  THEREFORE,  in  consideration of the foregoing  recitals,  the mutual
promises hereinafter set forth, and other good and valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

     1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS

          (a) Authorization. The Company's Board of Directors will, prior to the
     Closing,  authorize the issuance,  pursuant to the terms and  conditions of
     this Agreement,  of shares of Common Stock in an amount equal to the number
     of Purchased Shares (as defined in Section 1(b)), and shall further reserve
     for issuance the number of shares of Common Stock issuable upon exercise of
     the Warrants.

          (b)  Agreement to Purchase  and Sell  Securities.  The Company  hereby
     agrees to issue and sell to the Investor at the Closing (as defined below),
     and the Investor  hereby agrees to acquire from the Company at the Closing,
     455,217 shares of Common Stock (collectively,  the "Purchased Shares") at a
     price per share of $10.9838 (the "Purchase Price").  The aggregate Purchase
     Price for the Purchased  Shares shall be $5,000,000,  which amount shall be
     deemed paid by the Investor upon execution of the Amendment.

          (c) Issuance of Warrants.  At the Closing,  the Company  shall execute
     and deliver to the Investor the Warrants.

     2. CLOSING.  The purchase and sale of the Purchased Shares and the issuance
of the Warrants shall take place at the offices of Coudert  Brothers,  1055 West
Seventh Street - 20th Floor, Los Angeles, CA 90017, on April 7,  1999 or at such
other time and place as the  Purchaser  and the Company may mutually  agree upon
(which time and place are referred to in this  Agreement as the  "Closing").  At
the  Closing,  the Company  will deliver to the  Investor  this  Agreement,  the
Warrants and certificates  representing the Purchased  Shares, in each case duly
executed  by the  Company,  in addition to the  documents  required  pursuant to
Section 6 below.  Closing  documents may be delivered by facsimile with original
signature pages sent by overnight  courier.  The date of the Closing is referred
to herein as the Closing Date.

     3.  REPRESENTATIONS  AND  WARRANTIES  OF THE  COMPANY.  The Company  hereby
represents  and warrants to the Investor that the  statements in this  Section 3
are true and correct,  except as set forth in the Disclosure  Letter (as defined
in Section 7(a)):

          (a)  Organization  Good Standing and  Qualification.  The Company is a
     corporation duly organized, validly existing and in good standing under the
     laws of the State of California  and has all corporate  power and authority
     required to (a) carry on its business as presently conducted, and (b) enter
     into this Agreement, the Warrants and the other agreements, instruments and
     documents   contemplated   hereby,   and  to  consummate  the  transactions
     contemplated  hereby and  thereby.  The Company is qualified to do business
     and is in good  standing  in each  jurisdiction  in which the failure to so
     qualify would have a Material  Adverse  Effect.  As used in this Agreement,
     "Material Adverse Effect" means a material adverse effect on, or a material
     adverse  change  in,  or a group of such  effects  on or  changes  in,  the
     business,   operations,   financial   condition,   results  of  operations,
     prospects,   assets  or  liabilities  of  the  applicable   party  and  its
     subsidiaries, taken as a whole.

          (b) Capitalization.  The capitalization of the Company, without giving
     effect to the transactions  contemplated by this Agreement,  is as follows.
     The authorized stock of the Company  consists only of 15,000,000  shares of
     Common Stock, of which  6,164,874  shares were issued and outstanding as of
     April 6, 1999.  All such shares of Common Stock have been duly  authorized,
     and all such  issued  and  outstanding  shares  of Common  Stock  have been
     validly issued,  are fully paid and nonassessable and are free and clear of
     all  liens,  claims  and  encumbrances,  other  than any  liens,  claims or
     encumbrances created by or imposed upon the holders thereof. As of the date
     hereof,  the Company has also reserved 1,650,000 shares of Common Stock for
     issuance  upon  exercise  of  options  or other  stock  awards  granted  to
     officers, directors,  employees or independent contractors or affiliates of
     the Company under the Company's stock incentive plans. All shares of Common
     Stock  subject to issuance  as  aforesaid,  upon  issuance on the terms and
     conditions  specified  in  the  instruments  pursuant  to  which  they  are
     issuable,  will  be  duly  authorized,   validly  issued,  fully  paid  and
     nonassessable.  There are no other equity  securities,  options,  warrants,
     calls,  rights,  commitments  or  agreements  of any character to which the
     Company is a party or by which it is bound obligating the Company to issue,
     deliver,  sell,  repurchase  or redeem,  or cause to be issued,  delivered,
     sold,  repurchased  or  redeemed,  any shares of the  capital  stock of the
     Company or obligating  the Company to grant,  extend or enter into any such
     equity security, option, warrant, call, right, commitment or agreement. The
     Company  does not  have any  subsidiaries,  nor  does the  Company  own any
     capital stock,  assets  comprising the business of,  obligations of, or any
     other interest  (including  any equity or partnership  interest) in, or any
     outstanding loan or advance to or from, any person or entity.

          (c)  Due  Authorization.  All  corporate  actions  on the  part of the
     Company,  its officers,  directors and stockholders  (other than the Nasdaq
     Authorizations  (as  herein  defined))  necessary  for  the  authorization,
     execution,  delivery  of, and the  performance  of all  obligations  of the
     Company under this  Agreement,  the  Amendment  and the  Warrants,  and the
     authorization,  issuance,  reservation  for issuance and delivery of all of
     the Purchased  Shares being sold under this  Agreement and all Common Stock
     issuable  upon exercise of the  Warrants,  have been or will be taken,  and
     this  Agreement and the Warrants  constitute  the legal,  valid and binding
     obligations of the Company,  enforceable  against the Company in accordance
     with  their  terms,   except  (a) as  may  be  limited  by   (i) applicable
     bankruptcy,   insolvency,   reorganization   or  others   laws  of  general
     application  relating to or affecting the enforcement of creditors'  rights
     generally and (ii) the effect of rules of law governing the availability of
     equitable  remedies and (b) as rights to indemnity or  contribution  may be
     limited under federal or state  securities  laws or by principles of public
     policy thereunder.

          (d) Valid Issuance of Stock.

               (i) Valid  Issuance.  The  shares  of  Common  Stock to be issued
          pursuant to this  Agreement and upon the exercise of the Warrants will
          be, upon  payment  therefor by the  Investor in  accordance  with this
          Agreement,   or  exercise  in  accordance  with  the  Warrants,   duly
          authorized,  validly issued, fully paid and non-assessable.  The Board
          of Directors of the Company has  unanimously  approved the issuance of
          the  Purchased  Shares  pursuant to the terms  hereof and of shares of
          Common Stock  issuable upon full exercise of the First  Warrants,  the
          Second  Warrants and the Third Warrants  pursuant to the terms thereof
          (without  giving  effect  to any  limitations  on  exercise  contained
          therein, including for purposes of Nasdaq Rule 4460(i) and Nasdaq Rule
          4310(c)(25)(H)(1)(b))  (the "Nasdaq Authorizations"),  has unanimously
          recommended  to the  stockholders  of the Company the  approval of the
          Nasdaq  Authorizations and will seek Shareholder  Approval (as defined
          below)  at the  Company's  next  annual  meeting,  which is  currently
          scheduled for June 29, 1999.  No further  corporate  authorization  or
          approval (other than the  Shareholder  Approval) is required under the
          rules of the Nasdaq with respect to the  transaction  contemplated  by
          this Agreement,  including,  without  limitation,  the issuance of the
          Shares and Warrant Shares and the inclusion thereof for trading on the
          Nasdaq.

               (ii) Compliance with Securities Laws. Assuming the correctness of
          the  representations  made by the  Investor in Section 4  hereof,  the
          Purchased  Shares,  the  Warrants,  and all  shares  of  Common  Stock
          issuable upon exercise of the Warrants, will be issued to the Investor
          in compliance with applicable exemptions from (i) the registration and
          prospectus  delivery  requirements  of the  Securities Act of 1933, as
          amended  (the   "Securities   Act")  and  (ii) the   registration  and
          qualification  requirements  of all applicable  securities laws of the
          states of California and Delaware.

          (e)   Governmental   Consents.   No   consent,   approval,   order  or
     authorization of, or registration qualification,  designation,  declaration
     or filing  with,  or notice to, any  federal,  state or local  governmental
     authority  on the part of the Company is required  in  connection  with the
     issuance of the Purchased  Shares and the Warrants to the Investor,  or the
     consummation of the other  transactions  contemplated by this Agreement and
     the Warrants.  As used herein, the term "HSR Requirements" means compliance
     with the filing and other requirements of the  Hart-Scott-Rodino  Antitrust
     Improvements Act of 1976, as amended (the "HSR Act").

          (f) Non-Contravention. The execution, delivery and performance of this
     Agreement,  the  Amendment  and  the  Warrants  by  the  Company,  and  the
     consummation by the Company of the transactions  contemplated hereby and by
     the Amendment and the Warrants  (including issuance of the Purchased Shares
     and the  Warrants,  and issuance of shares of Common Stock upon exercise of
     the  Warrants),  do not and will not  (i) contravene  or conflict  with the
     Articles  of  Incorporation  or Bylaws of the  Company;  (ii) constitute  a
     violation  of any  provision of any  federal,  state,  local or foreign law
     binding upon or applicable to the Company; or (iii) constitute a default or
     require  any  consent  under,  give  rise  to  any  right  of  termination,
     cancellation or  acceleration  of, or to a loss of any benefit to which the
     Company is entitled  under,  or result in the creation or imposition of any
     lien, claim or encumbrance on any assets of the Company under, any contract
     to which the  Company is a party or any  permit,  license or similar  right
     relating to the Company or by which the Company may be bound or affected.

          (g)  Litigation.   There  is  no  action,  suit,  proceeding,   claim,
     arbitration  or  investigation  ("Action")  pending  or, to the best of the
     Company's knowledge,  threatened:  (a) against the Company, its activities,
     properties or assets,  or any officer,  director or employee of the Company
     in connection  with such officer's,  director's or employee's  relationship
     with,  or actions  taken on behalf of, the  Company,  or (b) that  seeks to
     prevent,  enjoin,  alter or delay  the  transactions  contemplated  by this
     Agreement,  the  Amendment  or  the  Warrants  (including  issuance  of the
     Purchased Shares or the Warrants). The Company is not a party to or subject
     to the provisions of any order, writ, injunction, judgment or decree of any
     court or government agency or instrumentality.  No Action by the Company is
     currently  pending nor does the Company  intend to initiate any Action that
     is reasonably likely to be material to the Company.

          (h) Compliance with Law and Charter  Documents.  The Company is not in
     violation or default of any provisions of its Articles of  Incorporation or
     Bylaws, both as amended.  The Company has complied in all material respects
     and is in material  compliance with all applicable  statutes,  laws, rules,
     regulations  and  orders of the  United  States of  America  and all states
     thereof,  foreign  countries  and other  governmental  bodies and  agencies
     having jurisdiction over the Company's business or properties.

          (i) SEC Documents.

               (1) Reports.  The Company has furnished to the Investor  prior to
          the date  hereof  a  complete  and  correct  list of all  registration
          statements, reports and proxy statements filed by the Company with the
          SEC on or after December 31, 1997 (the Company's Annual Report on Form
          10-KSB for the fiscal  year ended  December 31,  1997,  its  Quarterly
          Reports on Form 10-QSB for the fiscal quarters ended March 31, June 30
          and September 30,  1998, and all such other  registration  statements,
          reports and proxy  statements are  collectively  referred to herein as
          the "SEC Documents").  Each of the SEC Documents, as of the respective
          date  thereof (or if amended or  superseded  by a filing  prior to the
          Closing Date,  then on the date of such filing),  did not, and each of
          the registration statements, reports and proxy statements filed by the
          Company  with the SEC after the date  hereof and prior to the  Closing
          will not,  as of the date  thereof (or if amended or  superseded  by a
          filing  after  the  date of this  Agreement,  then on the date of such
          filing),  contain any untrue  statement of a material  fact or omit to
          state a material fact necessary in order to make the  statements  made
          therein, in light of the circumstances under which they were made, not
          misleading.  The  Company  is not a party  to any  material  contract,
          agreement or other arrangement that was required to have been filed as
          an exhibit to the SEC Documents that was not so filed.

               (2) Financial  Statements.  The Company has provided the Investor
          with  copies  of  its  audited  financial   statements  (the  "Audited
          Financial  Statements") for the fiscal year ended  December 31,  1998,
          and its unaudited financial  statements for the two-month period ended
          February 28,  1999 (the "Balance Sheet Date"). Since the Balance Sheet
          Date,  the  Company  has  duly  filed  with  the SEC all  registration
          statements,  reports and proxy  statements  required to be filed by it
          under the  Securities  Exchange Act of 1934, as amended (the "Exchange
          Act"), and the Securities Act. The audited and unaudited  consolidated
          financial  statements  of the Company  included  in the SEC  Documents
          filed prior to the date hereof  fairly  present,  in  conformity  with
          generally accepted accounting principles ("GAAP") (except, in the case
          of the  Form 10-QSB's,  as may otherwise be permitted by  Form 10-QSB)
          applied on a consistent  basis  (except as otherwise  may be stated in
          the notes thereto), the consolidated financial position of the Company
          and its  consolidated  subsidiaries  as at the dates  thereof  and the
          consolidated  results  of  their  operations  and cash  flows  for the
          periods then ended (subject to normal  year-end  audit  adjustments in
          the case of unaudited interim financial statements).

          (j) Absence of Certain  Changes Since  Balance  Sheet Date.  Since the
     Balance  Sheet Date,  the business and  operations of the Company have been
     conducted in the ordinary course  consistent with past practice,  and there
     has not been:

               (i) any declaration,  setting aside or payment of any dividend or
          other  distribution  of the assets of the Company  with respect to any
          shares of capital stock of the Company or any  repurchase,  redemption
          or other  acquisition  by the Company or any subsidiary of the Company
          of any outstanding shares of the Company's capital stock;

               (ii) any damage,  destruction or loss,  whether or not covered by
          insurance, except for such occurrences, individually and collectively,
          that are not material to the Company;

               (iii)  any  waiver by the  Company  of a  valuable  right or of a
          material debt owed to it, except for such  waivers,  individually  and
          collectively, that are not material;

               (iv) any material  change or  amendment  to, or any waiver of any
          material  right under a material  contract or arrangement by which the
          Company or any of its assets or properties is bound or subject, except
          for changes,  amendments or waivers that are expressly provided for or
          disclosed in this Agreement;

               (v) any  change  by the  Company  in its  accounting  principles,
          methods or  practices or in the manner it keeps its  accounting  books
          and records, except any such change required by a change in GAAP; or

               (vi) any other event or  condition of any  character,  except for
          such  events  and  conditions  that have not  resulted,  and could not
          reasonably be expected to result, either individually or collectively,
          in a Material Adverse Effect.

          (k) Invention Assignment and Confidentiality  Agreement. Each employee
     and  consultant  or  independent  contractor  of the Company  whose  duties
     include the  development of products or  Intellectual  Property (as defined
     below),  and each former employee and consultant or independent  contractor
     whose duties included the development of products or Intellectual Property,
     has entered into and executed an invention  assignment and  confidentiality
     agreement  in  customary  form or an  employment  or  consulting  agreement
     containing substantially similar terms.

          (l) Intellectual Property.

               (i)  Ownership or Right to Use. The Company has sole title to and
          owns, or is licensed or otherwise possesses legally enforceable rights
          to use,  all  patents  or  patent  applications,  software,  know-how,
          registered  or  unregistered  trademarks  and  service  marks  and any
          applications therefor,  registered or unregistered  copyrights,  trade
          names,  and  any  applications   therefor,   trade  secrets  or  other
          confidential  or  proprietary  information  ("Intellectual  Property")
          necessary  to enable the Company to carry on its business as currently
          conducted,  except  where any  deficiency,  or group of  deficiencies,
          would not have a Material Adverse Effect.

               (ii) Licenses; Other Agreements. The Company is not currently the
          licensee of any material portion of the  Intellectual  Property of the
          Company.  There are not  outstanding any licenses or agreements of any
          kind  relating  to any  Intellectual  Property  owned by the  Company,
          except for agreements  with  customers of the Company  entered into in
          the ordinary  course of the Company's  business and other licenses and
          agreements that,  collectively,  are not material.  The Company is not
          obligated to pay any royalties or other payments to third parties with
          respect to the marketing, sale, distribution,  manufacture, license or
          use of any  Intellectual  Property,  except as the  Company  may be so
          obligated in the ordinary course of its business,  as disclosed in the
          Company's SEC Documents or where the aggregate amount of such payments
          could not reasonably be expected to be material.

               (iii) No Infringement.  The Company has not violated or infringed
          in any material respect,  and is not currently violating or infringing
          in any  material  respect,  and  the  Company  has  not  received  any
          communications  alleging  that the Company (or any of its employees or
          consultants) has violated or infringed,  any Intellectual  Property of
          any other person or entity.

               (iv)  Employees  and  Consultants.  To the best of the  Company's
          knowledge,  no employee of or consultant to the Company is in material
          default under any term of any material employment contract,  agreement
          or arrangement relating to Intellectual Property of the Company or any
          material  non-competition  arrangement,  other contract or restrictive
          covenant  relating to the  Intellectual  Property of the Company.  The
          Intellectual  Property  of the Company  (other  than any  Intellectual
          Property duly  acquired or licensed from third  parties) was developed
          entirely by the employees of or  consultants to the Company during the
          time they were  employed or retained by the  Company,  and to the best
          knowledge of the Company, at no time during conception or reduction to
          practice of such  Intellectual  Property of the Company  were any such
          employees or consultants  operating  under any grant from a government
          entity or agency or subject to any  employment  agreement or invention
          assignment or non-disclosure  agreement or any other obligation with a
          third party that would  materially and adversely  affect the Company's
          rights in the Intellectual  Property of the Company. Such Intellectual
          Property  of the  Company  does  not,  to the  best  knowledge  of the
          Company,  include any invention or other intellectual property of such
          employees  or  consultants  made prior to the time such  employees  or
          consultants   were  employed  or  retained  by  the  Company  nor  any
          intellectual  property of any previous  employer of such  employees or
          consultants  nor the  intellectual  property  of any  other  person or
          entity.

               (v) Year 2000 Compliance.

                    (a)  All of the  Company's  and its  subsidiaries'  material
               products  (including  products  currently under development) will
               record,  store,  process and calculate and present calendar dates
               falling on and after  December 31, 1999,  and will  calculate any
               information  dependent  on or  relating to such dates in the same
               manner  and with  the  same  functionality,  data  integrity  and
               performance as the products record, store, process, calculate and
               present  calendar  dates  on or  before  December  31,  1999,  or
               calculate any information  dependent on or relating to such dates
               (collectively,  "Year  2000  Compliant").  Each of the  Company's
               Internet web sites and all of the Company's and its subsidiaries'
               material  products will lose no  significant  functionality  with
               respect to the  introduction of records  containing dates falling
               on or after  December  31,  1999.  All of the  Company's  and its
               subsidiaries'  internal  computer systems  comprised of software,
               hardware,  databases or embedded  control  systems related to the
               Company's  and  its  subsidiaries'  businesses  (collectively,  a
               "Business System"),  that constitutes any material part of, or is
               used in connection  with the use,  operation or enjoyment of, any
               material  tangible or  intangible  asset or real  property of the
               Company and its subsidiaries,  including its accounting  systems,
               are Year 2000  Compliant.  The current  versions of the Company's
               and  its  subsidiaries'   software  and  all  other  Intellectual
               Property  may be used  prior to,  during and after  December  31,
               1998,  such that such  software and  Intellectual  Property  will
               operate prior to, during and after such time period without error
               caused by date  data  that  represents  or  references  different
               centuries or more than one century.

                    (b) To the  knowledge of the Company,  all of the  Company's
               products and the conduct of the Company's business with customers
               and suppliers  will not be materially  adversely  affected by the
               advent of the year 2000, the advent of the  twenty-first  century
               or the  transition  from the twentieth  century  through the year
               2000 and into the twenty-first  century.  To the knowledge of the
               Company,  neither  the  Company  nor any of its  subsidiaries  is
               reasonably  likely to incur  material  expenses  arising  from or
               relating  to the  failure of any of its  Business  Systems or any
               products  (including  all  products  sold on or prior to the date
               hereof) as a result of the advent of the year 2000, the advent of
               the  twenty-first  century or the  transition  from the twentieth
               century through the year 2000.

          (m) Registration  Rights.  The Company is not currently subject to any
     agreement  providing any person or entity any rights  (including  piggyback
     registration  rights) to have any securities of the Company registered with
     the SEC or registered or qualified with any other governmental authority.

          (n) Title to Property  and Assets.  The  properties  and assets of the
     Company are owned by the Company free and clear of all mortgages,  deeds of
     trust,  liens,  charges,  encumbrances  and security  interests  except for
     statutory  liens  for  the  payment  of  current  taxes  that  are  not yet
     delinquent and liens, encumbrances and security interests that arise in the
     ordinary  course of business and do not in any material  respect affect the
     properties  and assets of the  Company.  With  respect to the  property and
     assets it leases,  the  Company is in  compliance  with such  leases in all
     material respects.

          (o) Tax  Matters.  The  Company  has filed all  material  tax  returns
     required to be filed,  which  returns are true and correct in all  material
     respects,  and the  Company has paid in full all taxes that have become due
     on or prior to the date  hereof (and will have paid when due all taxes that
     become  due after the date  hereof  and  prior to the  Closing),  including
     penalties and interest,  assessments,  fees and other  charges,  other than
     those  being  contested  in good  faith  and/or  those for  which  adequate
     reserves have been provided for.

          (p) Full Disclosure.  The information contained in this Agreement, the
     Disclosure  Letter (as defined in Section 7(a)) and the SEC Documents  with
     respect to the business,  operations,  assets,  results of  operations  and
     financial  condition of the Company,  are true and complete in all material
     respects and do not omit to state any material  fact or facts  necessary in
     order to make the statements  therein,  in light of the circumstances under
     which they were made, not misleading.

          (q) Finder's Fee. The Company neither is nor will be obligated for any
     finder's or broker's fee or commission in connection with this transaction.

     4. REPRESENTATIONS,  WARRANTIES AND CERTAIN AGREEMENTS OF THE INVESTOR. The
Investor hereby represents and warrants to the Company, and agrees that:

          (a) Organization  Good Standing and  Qualification.  The Investor is a
     corporation duly organized, validly existing and in good standing under the
     laws of the State of Delaware  and has all  corporate  power and  authority
     required to carry on its business as presently conducted.

          (b)  Authorization.  The  execution  of this  Agreement  has been duly
     authorized by all necessary  corporate  action on the part of the Investor.
     This  Agreement   constitutes  the  Investor's  legal,  valid  and  binding
     obligation,  enforceable  in  accordance  with its terms,  except as may be
     limited by (a) (i) applicable  bankruptcy,  insolvency,  reorganization  or
     other laws of general application  relating to or affecting the enforcement
     of  creditors'  rights  generally  and  (ii)  the  effect  of  rules of law
     governing the  availability  of equitable  remedies.  The Investor has full
     corporate  power and  authority  to enter  into this  Agreement,  except as
     rights to indemnity or  contribution  may be limited under federal or state
     securities laws or by principles of public policy thereunder.

          (c)   Governmental   Consents.   No   consent,   approval,   order  or
     authorization of, or registration,  qualification, designation, declaration
     or filing with, any federal,  state or local governmental  authority on the
     part of the Investor is required in connection  with the acquisition of the
     Purchased Shares and the Warrants by the Investor.

          (d) Non-Contravention. The execution, delivery and performance of this
     Agreement  by the  Investor,  and the  consummation  by the Investor of the
     transactions  contemplated  hereby,  do not and will not (i)  contravene or
     conflict with the Certificate of  Incorporation  or Bylaws of the Investor;
     (ii) constitute a violation of any provision of any federal,  state,  local
     or  foreign  law  binding  upon or  applicable  to the  Investor;  or (iii)
     constitute a default or require any consent  under,  give rise to any right
     of  termination,  cancellation  or  acceleration  of,  or to a loss  of any
     benefit to which the Investor is entitled  under, or result in the creation
     or  imposition  of any  lien,  claim or  encumbrance  on any  assets of the
     Investor  under,  any  contract  to which  the  Investor  is a party or any
     permit,  license or similar right  relating to the Investor or by which the
     Investor may be bound or affected.

          (e)  Litigation.  There is no Action pending against the Investor that
     seeks to prevent,  enjoin, alter or delay the transactions  contemplated by
     this Agreement.

          (f) Purchase for Own Account. The Purchased Shares and the Warrant are
     being acquired for  investment  for the  Investor's  own account,  not as a
     nominee or agent,  and not with a view to the public resale or distribution
     thereof within the meaning of the  Securities  Act, and the Investor has no
     present  intention of selling,  granting any participation in, or otherwise
     distributing  the same. The Investor also  represents  that it has not been
     formed for the specific  purpose of acquiring the  Purchased  Shares or the
     Warrants.

          (g) Investment Experience.  The Investor understands that the purchase
     of the Purchased  Shares and the Warrants  involves  substantial  risk. The
     Investor has  experience  as an investor in  securities  of  companies  and
     acknowledges that it is able to fend for itself, can bear the economic risk
     of its  investment  in the  Purchased  Shares  and has such  knowledge  and
     experience  in  financial  or  business  matters  that  it  is  capable  of
     evaluating the merits and risks of this investment in the Purchased  Shares
     and protecting its own interests in connection with this investment.

          (h)  Accredited  Investor  Status.  The  Investor  is  an  "accredited
     investor"  within  the  meaning  of  Regulation  D  promulgated  under  the
     Securities Act.

          (i) Restricted Securities. The Investor understands that the Purchased
     Shares, the Warrants, and the shares of Common Stock issuable upon exercise
     of the Warrants are  characterized  as  "restricted  securities"  under the
     Securities  Act,  inasmuch as they are being acquired from the Company in a
     transaction  not involving a public  offering and that under the Securities
     Act and applicable  regulations  thereunder  such  securities may be resold
     without  registration  under the  Securities  Act only in  certain  limited
     circumstances.  The  Investor  is  familiar  with  Rule 144 of the SEC,  as
     presently in effect, and understands the resale limitations imposed thereby
     and by the Securities Act.

          (j)  Legends.  The  Investor  agrees  that  the  certificates  for the
     Purchased  Shares and the shares of Common Stock  issuable upon exercise of
     the Warrants shall bear the following legend:

     "THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
     STATE OF THE UNITED STATES.  THE SECURITIES  REPRESENTED  HEREBY MAY NOT BE
     OFFERED OR SOLD OR  OTHERWISE  TRANSFERRED  IN THE ABSENCE OF AN  EFFECTIVE
     REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS,
     OR UNLESS OFFERED,  SOLD OR TRANSFERRED  PURSUANT TO AN AVAILABLE EXEMPTION
     FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS."

     In addition,  the Investor  agrees that the Company may place stop transfer
     orders with its  transfer  agents with  respect to such  certificates.  The
     appropriate  portion  of the legend and the stop  transfer  orders  will be
     removed promptly upon delivery to the Company of such satisfactory evidence
     as  reasonably  may be  required  by the  Company  that such legend or stop
     orders are not required to ensure compliance with the Securities Act.

          (k) Finder's  Fee.  Investor  neither is nor will be obligated for any
     finder's or broker's fee or commission in connection with this transaction.

     5. CONDITIONS TO THE INVESTOR'S  OBLIGATIONS AT CLOSING. The obligations of
the  Investor  under  Sections  l and 2 of this  Agreement  are  subject  to the
fulfillment  or  waiver,  on or before  the  Closing,  of each of the  following
conditions:

          (a)  Representations  and Warranties True. Each of the representations
     and  warranties  of the  Company  contained  in Section 3 shall be true and
     correct in all  material  respects on and as of the date of the  Disclosure
     Letter (as defined in Section  7(a) below) and on and as of the date of the
     Closing, except as set forth in the Disclosure Letter, with the same effect
     as  though  such  representations  and  warranties  had been made as of the
     Closing.

          (b)  Performance.  The Company shall have  performed and complied with
     all agreements, obligations and conditions contained in this Agreement that
     are  required  to be  performed  or  complied  with by it on or before  the
     Closing and shall have obtained all approvals,  consents and qualifications
     necessary to complete the purchase and sale described herein.

          (c) Securities Exemptions.  The offer and sale of the Purchased Shares
     and  the  Warrants  to the  Investor  pursuant  to this  Agreement  and the
     Warrants  shall  be  exempt  from  the  registration  requirements  of  the
     Securities Act and the registration  and/or  qualification  requirements of
     all applicable state securities laws.

          (d) Proceedings and Documents.  All corporate and other proceedings in
     connection  with  the  transactions  contemplated  at the  Closing  and all
     documents  incident  thereto shall be reasonably  satisfactory  in form and
     substance to the  Investor,  and the Investor  shall have received all such
     counterpart originals and certified or other copies of such documents as it
     may reasonably request.  Such documents shall include but not be limited to
     the following:

               (i) Certified  Charter  Documents.  A copy of (i) the Articles of
          Incorporation  certified as of a recent date by the Secretary of State
          of  California  as a complete and correct copy  thereof,  and (ii) the
          Bylaws of the  Company (as  amended  through the date of the  Closing)
          certified  by the  Secretary of the Company as a true and correct copy
          thereof as of the Closing.

               (ii) Board Resolutions. A copy, certified by the Secretary of the
          Company,  of the  resolutions of the Board of Directors of the Company
          providing for the approval of this  Agreement and the Warrants and the
          issuance  of the  Purchased  Shares  and the  shares of  Common  Stock
          issuable  upon  exercise  of  the  Warrants,  and  the  other  matters
          contemplated hereby and thereby.

               (iii)  Registrar and Transfer Agent  Certificate.  A certificate,
          executed by the Company's  registrar and transfer agent certifying the
          number of  outstanding  shares of Common  Stock of the Company as of a
          recent date reasonably acceptable to the Investor.

          (e) Opinion of Company  Counsel.  The Investor  will have  received an
     opinion on behalf of the Company, dated as of the date of the Closing, from
     Coudert Brothers,  counsel to the Company, in a form reasonably  acceptable
     to the Investor.

          (f) No  Material  Adverse  Effect.  Between  the date  hereof  and the
     Closing,  there shall not have occurred any Material  Adverse Effect to the
     Company.

          (g) Nasdaq  Requirements.  All  requirements  of the  Nasdaq  National
     Market in connection with the  transactions  contemplated by this Agreement
     and  the  Warrants  shall  have  been  complied  with by the  Company.  The
     Purchased Shares and the shares of Common Stock issuable upon conversion of
     the Warrants shall have been approved for quotation on the Nasdaq  National
     Market.

          (h) Other Actions.  The Company shall have executed such certificates,
     agreements,  instruments and other documents,  and taken such other actions
     as shall be customary or reasonably requested by the Investor in connection
     with the transactions contemplated hereby.

     6. CONDITIONS TO THE COMPANY'S  OBLIGATIONS AT CLOSING.  The obligations of
the Company to the Investor under this Agreement are subject to the  fulfillment
or waiver, on or before the Closing, of each of the following conditions:

          (a)  Representations  and  Warranties  True. The  representations  and
     warranties of the Investor contained in Section 4 shall be true and correct
     in all material  respects on and as of the date hereof and on and as of the
     date of the Closing with the same effect as though such representations and
     warranties had been made as of the Closing.

          (b)  Performance.  The Investor shall have performed and complied with
     all agreements, obligations and conditions contained in this Agreement that
     are  required  to be  performed  or  complied  with by it on or before  the
     Closing and shall have obtained all approvals,  consents and qualifications
     necessary to complete the purchase and sale described herein.

          (c) Securities Exemptions.  The offer and sale of the Purchased Shares
     and the Warrants to the Investor pursuant to this Agreement shall be exempt
     from  the   registration   requirements  of  the  Securities  Act  and  the
     registration  and/or  qualification  requirements  of all applicable  state
     securities laws.

          (d) Proceedings and Documents.  All corporate and other proceedings in
     connection  with  the  transactions  contemplated  at the  Closing  and all
     documents  incident  thereto will be  reasonably  satisfactory  in form and
     substance  to the  Company  and to the  Company's  legal  counsel,  and the
     Company will have received all such counterpart  originals and certified or
     other copies of such documents as it may reasonably request.

          (e) Other Actions. The Investor shall have executed such certificates,
     agreements,  instruments and other documents,  and taken such other actions
     as shall be customary or reasonably  requested by the Company in connection
     with the transactions contemplated hereby.

     7. COVENANTS OF THE PARTIES.

          (a) Disclosure  Letter.  At the Closing,  the Company shall deliver to
     the  Investor  a  disclosure  letter in a form  agreed  upon by each of the
     Company and the Investor (the "Disclosure  Letter"),  which shall set forth
     exceptions,  if any,  to the  representations  and  warranties  made by the
     Company in Article 3 hereof. Such Disclosure Letter shall be organized such
     that any exceptions  specifically identify the representation and warranty,
     by section,  to which they relate, and shall clearly identify the nature of
     the  exception,   to  the  Investor's  reasonable   satisfaction.   In  any
     determination  of whether the Investor is entitled to  indemnification  for
     the  breach  of  any  representations  or  warranties  set  forth  in  this
     Agreement,  only the final form of the Disclosure  Letter (i.e.,  the final
     disclosure  letter  agreed upon by the Company and the  Investor)  shall be
     relevant,  and the  identification  of any  matters  on any  drafts  of the
     Disclosure  Letter shall not be introduced as evidence or otherwise used in
     any manner in connection therewith.

          (b) Election of Board of Directors.  The Company  hereby agrees to use
     its best efforts to change the  composition of Company's Board of Directors
     (the  "Board"),  within three (3) months from the date hereof,  so that the
     Board shall consist of exactly seven (7)  directors,  with four (4) of such
     directors  being  outside  directors.  The Company  agrees that at its next
     meeting of shareholders  following the Closing, the Company shall make such
     proposals  and take all  actions  within its control and shall use its best
     efforts to cause its shareholders to vote, to change the Company's Articles
     of  Incorporation  and Bylaws,  as  appropriate,  to (i)  require  that the
     composition of the Board include at least a majority of outside  directors,
     and (ii)  provide  that the  number of  directors  may not be  changed to a
     number greater than nine (9) except by amendment to the Company's  Articles
     of Incorporation and Bylaws.

          (c) Registration Rights.

               (i) Definitions. For purposes of this Section 7(c):

                    (A) Registration.  The terms  "register,"  "registered," and
               "registration" refer to a registration  effected by preparing and
               filing a registration statement in compliance with the Securities
               Act  of  1933,  as  amended,  (the  "Securities  Act"),  and  the
               declaration  or ordering of  effectiveness  of such  registration
               statement

                    (B)   Registrable   Securities.    The   term   "Registrable
               Securities"  means:  (y) the  Purchased  Shares and any shares of
               Common Stock of the Company  issued or issuable  upon exercise of
               the  Warrants;  and (z) any shares of Common Stock of the Company
               or other  securities  of the Company  issued as (or issuable upon
               the  conversion  or  exercise  of any  warrant,  right  or  other
               security that is issued as) a dividend or other distribution with
               respect to, or in exchange for or in  replacement  of, any of the
               securities  described in the  immediately  preceding  clause (y).
               Notwithstanding  the foregoing,  "Registrable  Securities"  shall
               exclude  (i) any  Registrable  Securities  sold by a person  in a
               transaction  in which  rights  under  this  Section  7(c) are not
               assigned  in   accordance   with  this   Agreement  or  (ii)  any
               Registrable  Securities sold in a public  offering,  whether sold
               pursuant to Rule 144 promulgated  under the Securities Act, or in
               a registered offering, or otherwise.

                    (C) Registrable  Securities Then Outstanding.  The number of
               shares of "Registrable  Securities then  outstanding"  shall mean
               the number of shares of Purchased Shares,  shares of Common Stock
               and other securities that are Registrable Securities and are then
               issued and outstanding.

                    (D) Holder.  For  purposes of this  Section  7(c),  the term
               "Holder" means any person owning of record Registrable Securities
               that have not been sold to the  public  or  pursuant  to Rule 144
               promulgated under the Securities Act or any permitted assignee of
               record of such  Registrable  Securities to whom rights under this
               Section  7(c) have been duly  assigned  in  accordance  with this
               Agreement.

                    (E) Form S-3.  The term "Form S-3" means such form under the
               Securities  Act  as is in  effect  on  the  date  hereof  or  any
               successor registration form under the Securities Act subsequently
               adopted by the SEC that  permits  inclusion or  incorporation  of
               substantial  information by reference to other documents filed by
               the Company with the SEC.

               (ii)  Form  S-3  Registration.  Within  the  fifteen  day  period
          following  the Closing  Date,  the Company  shall use best  efforts to
          cause to be filed and  become  effective  with the SEC a  Registration
          Statement  on Form S-3 relating to all of the  Registrable  Securities
          (in the event such  registration  statement  is not  effective on such
          date,  the Company  shall  continue to use all  reasonable  commercial
          efforts to cause it to become  effective until it becomes  effective),
          such  Registration  Statement  to be effected  only for sales or other
          transfers  by the Investor in  connection  with  offerings,  sales and
          transfers not constituting an underwritten public offering;  provided,
          however,  that in the event Form S-3 is not  available to the Company,
          the Company  shall file such other form as may be available if Holders
          who hold  Registrable  Securities  with a market value of at least One
          Million Dollars  ($1,000,000) deliver a written request to the Company
          that the Company do so,  where such market value is  determined  as of
          the date of such written request.  The Company shall also use its best
          efforts to obtain any related  qualifications,  registrations or other
          compliances that may be necessary under any applicable "blue sky" laws
          in  each  jurisdiction   reasonably   requested  by  the  Holders.  In
          connection with such registration, the Company will:

                    (A) Notice.  Promptly give written  notice to the Holders of
               the  proposed  registration  and  any  related  qualification  or
               compliance; and

                    (B)  Registration.  Effect  such  registration  and all such
               qualifications  and compliances and as would permit or facilitate
               the sale and  distribution of all or such portion of such Holders
               or Holders'  Registrable  Securities  within the  timeframes  set
               forth  in this  Section  7(c)(ii);  provided,  however,  that the
               Company  shall not be obligated to effect any such  registration,
               qualification or compliance  pursuant to this Section 7(c)(ii) in
               any  particular  jurisdiction  in  which  the  Company  would  be
               required  to  qualify  to do  business  or to  execute  a general
               consent to service of  process in  effecting  such  registration,
               qualification or compliance and shall be obligated to effect only
               one such registration in any six (6) month period.

                    (C) Expenses. The Company shall pay all expenses incurred in
               connection  with  the  registration   pursuant  to  this  Section
               7(c)(ii),  excluding  underwriters'  or  brokers'  discounts  and
               commissions  relating  to shares sold by the  Holders,  including
               federal  and "blue sky"  registration,  filing and  qualification
               fees,  printers' and accounting fees, and fees and  disbursements
               of counsel.

                    (D)  Maintenance.  The  Company  shall use best  efforts  to
               maintain the effectiveness of the Form S-3 registration statement
               filed under this Section  7(c)(ii)  until the earlier of: (a) the
               date on which all of the  Registrable  Securities have been sold;
               and (b)  the  first  anniversary  of the  effective  date of such
               registration statement; provided, however, that unless all of the
               Registrable  Securities  held by the  Investor  as of such  first
               anniversary  could  then  be  sold  in a  single  transaction  in
               accordance  with  Rule  144  under  the  Securities  Act  without
               exceeding the volume limitations thereof, if the Company receives
               written  notice from the Investor that the Investor may be deemed
               to  be  an  "affiliate"  of  the  Company  for  purposes  of  the
               Securities  Act,  the date in this  Clause (b) shall be  extended
               until the Investor advises the Company that it no longer believes
               it may be deemed such an "affiliate."

                    (E)  Effectiveness  Failure  Sale.  If the Company  fails to
               cause any  Registration  Statement  required to become  effective
               pursuant to this Section  7(c)(ii) to be filed before one hundred
               eighty (180) days after the  Closing,  as to the shares of Common
               Stock to be covered by that Registration  Statement,  each Holder
               shall be entitled to sell (an  "Effectiveness  Failure  Sale") at
               any time and from time to time to the  Company,  and the  Company
               shall be required to purchase, all or any of its shares of Common
               Stock  at a price  per  share  equal  to the  greater  of (i) one
               hundred fifty percent  (150%) of the Purchase Price and (ii) fair
               market value for the Common Stock.

                    (F) Right to Sell. After any Registration Statement required
               to be filed  pursuant  to this  Section  7(c)  has been  declared
               effective  by the SEC,  if during  any twelve  (12) month  period
               sales of all the Registrable  Securities  cannot be made pursuant
               to such Registration  Statement for more than thirty (30) days in
               aggregate,  then each  Holder  shall be  entitled  to sell to the
               Company,  and the Company  shall be required to purchase,  all or
               any of its shares of Common  Stock at a price per share  equal to
               the  greater  of (i) one  hundred  fifty  percent  (150%)  of the
               Purchase Price and (ii) fair market value for the Common Stock.

                    (G)  Effecting a Sale.  In order to effect an  Effectiveness
               Failure  Sale,  a  Holder  (a  "Selling  Holder")  shall  fax (or
               otherwise deliver) a notice (the "Notice of Sale") to the Company
               indicating  the  number  of  shares  of  Common  Stock to be sold
               pursuant to such Effectiveness  Failure Sale. Upon receipt by the
               Company  of a  facsimile  copy of a Notice of Sale from a Selling
               Holder,  the Company shall  immediately  send, via  facsimile,  a
               confirmation  to the Selling  Holder  stating  that the Notice of
               Sale has been  received  and the name and  telephone  number of a
               contact person at the Company regarding the Effectiveness Failure
               Sale. Within five (5) business days after the Notice of Sale, the
               Holder shall surrender or cause to be surrendered to the Company,
               the  certificates  representing  the shares of Common Stock to be
               sold hereunder, along with a copy of the Notice of Sale.

                    (H)  Payments by the Company.  The Company  shall cause each
               Registration  Statement  filed  pursuant  to Section  7(c)(ii) to
               become  effective as soon as  practicable,  but in no event later
               than  the  sixtieth  (60th)  day (or the  one  hundred  twentieth
               (120th)  day if the  SEC  reviews  such  Registration  Statement)
               following   the   applicable   filing  date  (the   "Registration
               Deadline"). If any Registration Statement required to be filed by
               the Company  pursuant to Section  7(c)(ii) hereof is not declared
               effective  by the SEC on or before  the  applicable  Registration
               Deadline  (a   "Registration   Failure"),   or  (ii)  after  such
               Registration  Statement has been  declared  effective by the SEC,
               sales of all the Registrable  Securities  cannot be made pursuant
               to the  registration  statement (by reason of a stop order or the
               Company's  failure to update the  registration  statement  or any
               other reason outside the control of the Holders) (a "Registration
               Suspension"),  then the Company will make payments to the Holders
               in such amounts and at such times as shall be determined pursuant
               to this  subsection  (H) as partial relief for the damages to the
               Holders  by reason  of any such  delay in or  reduction  of their
               ability to sell the  Registrable  Securities  (which remedy shall
               not be  exclusive  of any other  remedies  available at law or in
               equity).  In the event of a  Registration  Failure,  the  Company
               shall pay to the Holders an amount equal to (1) .02 times (2) the
               aggregate  Funded Amount times (3) the number of months (prorated
               per day for partial months)  following the Registration  Deadline
               prior to the date the  Registration  Statement  filed pursuant to
               Section  7(c)(ii) is declared  effective by the SEC. In addition,
               in the event of a Registration Suspension,  the Company shall pay
               to  the  Holders  an  amount  equal  to (4)  .02  times  (5)  the
               Applicable Funded Amount times (6) the number of months (prorated
               per day for partial  months)  from (x) the date on which sales of
               all the  Registrable  Securities  first cannot be made to (y) the
               date on which sales of all the  Registrable  Securities can again
               be made.  For the purposes of this  Section,  "Applicable  Funded
               Amount"  shall  mean (7)  Funded  Amount  times (8) the number of
               Purchased Shares and Warrant Shares then owned by the Holders (or
               issuable at that time as Warrant Shares upon full exercise of the
               Warrants,   without  regard  to  any  limitations  on  conversion
               thereof)  divided  by (9) the  number of  Purchased  Shares  (and
               Warrant  Shares  issuable  upon  full  exercise  of the  Warrants
               without  regard  to  any   limitations  on  conversion   thereof)
               originally purchased. Amounts to be paid pursuant to this Section
               shall be paid pro rata to the  Investor  based upon the number of
               Purchased  Shares and Warrant  Shares  owned and  Warrant  Shares
               issuable upon full conversion of the Warrants by each Holder, and
               shall be paid in cash.  Such  payments  shall be made within five
               (5) days  after the end of each  period  that  gives rise to such
               obligation,  provided  that, if any such period  extends for more
               than  thirty  (30)  days,  payments  shall be made for each  such
               thirty (30) day period within five (5) days after the end of such
               thirty (30) day period.

               (iii)  Obligations  of  the  Company.   In  connection  with  the
          Registration  Statement  filed pursuant to Section  7(c)(ii) above and
          the  registration  of any  other  Registrable  Securities  under  this
          Agreement, the Company shall, as expeditiously as reasonably possible:

                    (A)  Amendments and  Supplements.  Prepare and file with the
               SEC  such  amendments  and   supplements  to  such   registration
               statement  and  the  prospectus  used  in  connection  with  such
               registration  statement  as may be  necessary  to comply with the
               provisions of the Securities Act with respect to the  disposition
               of all securities covered by such registration statement.

                    (B)  Prospectuses.  Furnish to the  Holders  such  number of
               copies of a prospectus,  including a preliminary  prospectus,  in
               conformity with the  requirements of the Securities Act, and such
               other  documents  as they  may  reasonably  request  in  order to
               facilitate the disposition of the Registrable Securities owned by
               them that are included in such registration.

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

                    (D)  Underwriting.  In the event of any underwritten  public
               offering,  enter  into  and  perform  its  obligations  under  an
               underwriting  agreement in usual and  customary  form  (including
               customary  indemnification  of the  underwriters by the Company),
               with the managing  underwriter(s)  of such offering.  Each Holder
               participating  in such  underwriting  shall  also  enter into and
               perform  its  obligations  under  such  an  agreement;  provided,
               however, that it shall not be considered customary to require any
               of  the  Holders  to  provide   representations   and  warranties
               regarding the Company or  indemnification of the underwriters for
               material misstatements or omissions in the registration statement
               or prospectus for such offering.

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

                    (F) Opinion and Comfort Letter.  Furnish,  at the request of
               any Holder requesting registration of Registrable Securities,  on
               the date that such  Registrable  Securities  are delivered to the
               underwriters  for sale, if such securities are being sold through
               underwriters,  or, if such  securities are not being sold through
               underwriters,  on the date that the  registration  statement with
               respect to such  securities  becomes  effective,  (i) an opinion,
               dated as of such date,  of the counsel  representing  the Company
               for the purposes of such  registration,  in form and substance as
               is customarily  given to underwriters  in an underwritten  public
               offering and reasonably satisfactory to a majority in interest of
               the   Holders   requesting   registration,   addressed   to   the
               underwriters,  if any, and to the Holders requesting registration
               of  Registrable  Securities  and  (ii)  in the  event  that  such
               securities  are being  sold  through  underwriters,  a  "comfort"
               letter  dated as of such  date,  from the  independent  certified
               public  accountants  of the Company,  in form and substance as is
               customarily given by independent  certified public accountants to
               underwriters  in an  underwritten  public offering and reasonably
               satisfactory to a majority in interest of the Holders  requesting
               registration,  addressed to the  underwriters  and to the Holders
               requesting registration of Registrable Securities.

               (iv) Furnish  Information.  It shall be a condition  precedent to
          the obligations of the Company to take any action pursuant to Sections
          7(c)(ii)  that the selling  Holders  shall furnish to the Company such
          information regarding themselves,  the Registrable  Securities held by
          them, and the intended  method of  disposition  of such  securities as
          shall be  reasonably  requested  by the  Company to timely  effect the
          registration of their Registrable Securities.

               (v) Indemnification.

                    (A) By the  Company.  To the extent  permitted  by law,  the
               Company  will  indemnify  and  hold  harmless  each  Holder,  the
               partners, officers, shareholders,  employees, representatives and
               directors of each Holder,  any  underwriter (as determined in the
               Securities  Act) for such  Holder and each  person,  if any,  who
               controls  such  Holder or  underwriter  within the meaning of the
               Securities  Act or  the  Securities  Exchange  Act  of  1934,  as
               amended,  against any losses,  claims,  damages,  or  Liabilities
               (joint or  several)  to which they may become  subject  under the
               Securities  Act, the Exchange Act or other  federal or state law,
               insofar as such  losses,  claims,  damages,  or  liabilities  (or
               actions in respect thereof) arise out of or are based upon any of
               the following statements, omissions or violations (collectively a
               "Violation"):

                         (x) any untrue statement or alleged untrue statement of
                    a material fact  contained in such  registration  statement,
                    including any  preliminary  prospectus  or final  prospectus
                    contained therein or any amendments or supplements thereto;

                         (y) the omission or alleged omission to state therein a
                    material fact required to be stated therein, or necessary to
                    make the statements therein not misleading, or

                         (z) any  violation or alleged  violation by the Company
                    of the  Securities  Act,  the  Exchange  Act, any federal or
                    state  securities law or any rule or regulation  promulgated
                    under the Securities Act, the Exchange Act or any federal or
                    state securities law in connection with the offering covered
                    by such registration statement;

                    and the Company will  reimburse  each such Holder,  partner,
                    officer, shareholder,  employee,  representative,  director,
                    underwriter  or  controlling  person  for any legal or other
                    expenses  reasonably  incurred  by  them,  as  incurred,  in
                    connection  with  investigating  or defending any such loss,
                    claim, damage, liability or action; provided,  however, that
                    the indemnity  agreement  contained in this subsection shall
                    not apply to amounts  paid in  settlement  of any such loss,
                    claim,  damage,  liability or action if such  settlement  is
                    effected  without the consent of the Company  (which consent
                    shall not be unreasonably  withheld),  nor shall the Company
                    be liable in any such case for any such loss, claim, damage,
                    liability  or action to the extent  that it arises out of or
                    is based upon a Violation  that occurs in reliance  upon and
                    in conformity with written  information  furnished expressly
                    for use in connection with such registration by such Holder,
                    partner,  officer,  shareholder,  employee,  representative,
                    director, underwriter or controlling person of such Holder.

                    (B) By Selling Holders. To the extent permitted by law, each
               selling Holder will indemnify and hold harmless the Company, each
               of its  directors,  each of its  officers  who  have  signed  the
               registration  statement,  each  person,  if any, who controls the
               Company within the meaning of the Securities Act, any underwriter
               and any other Holder selling  securities under such  registration
               statement  or any of  such  other  Holder's  partners,  officers,
               shareholders,  employees,  representatives  and directors and any
               person  who  controls  such  Holder  within  the  meaning  of the
               Securities Act or the Exchange Act,  against any losses,  claims,
               damages or liabilities (joint or several) to which the Company or
               any such officer or director,  controlling person, underwriter or
               other  such  Holder,  partner,  officer,  shareholder,  employee,
               representative,  director  or  controlling  person of such  other
               Holder may become subject under the Securities  Act, the Exchange
               Act or  other  federal  or state  law,  insofar  as such  losses,
               claims,  damages or liabilities  (or actions in respect  thereto)
               arise out of or are based upon any Violation, in each case to the
               extent (and only to the  extent)  that such  Violation  occurs in
               reliance  upon  and  in  conformity   with  written   information
               furnished by such Holder  expressly  for use in  connection  with
               such registration;  and each such Holder will reimburse any legal
               or other expenses  reasonably incurred by the Company or any such
               officer or director,  controlling  person,  underwriter  or other
               Holder, partner, officer, shareholder,  employee, representative,
               director or controlling person of such other Holder in connection
               with  investigating  or defending any such loss,  claim,  damage,
               liability  or  action:  provided,  however,  that  the  indemnity
               agreement contained in this subsection shall not apply to amounts
               paid in settlement of any such loss, claim, damage,  liability or
               action if such settlement is effected  without the consent of the
               Holder,  which consent shall not be  unreasonably  withheld;  and
               provided further,  that the total amounts payable in indemnity by
               a Holder under this subsection or otherwise in respect of any and
               all Violations shall not exceed in the aggregate the net proceeds
               received by such Holder in the  registered  offering out of which
               such Violations arise.

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

                    (D) Defect  Eliminated  in Final  Prospectus.  The foregoing
               indemnity  agreements  of the  Company and Holders are subject to
               the condition that,  insofar as they relate to any Violation made
               in a  preliminary  prospectus  but  eliminated or remedied in the
               amended  prospectus  on  file  with  the  SEC  at  the  time  the
               registration  statement  in  question  becomes  effective  or the
               amended prospectus filed with the SEC pursuant to SEC Rule 424(b)
               (the "Final  Prospectus"),  such  indemnity  agreement  shall not
               inure  to the  benefit  of any  person  if a  copy  of the  Final
               Prospectus was timely furnished to the indemnified  party and was
               not furnished to the person asserting the loss, liability,  claim
               or damage at or prior to the time such  action is required by the
               Securities Act.

                    (E) Contribution. In order to provide for just and equitable
               contribution  to joint  liability under the Securities Act in any
               case in which either (i) any Holder  exercising rights under this
               Agreement,  or any controlling person of any such Holder, makes a
               claim for  indemnification  pursuant to this  section,  but it is
               judicially determined (by the entry of a final judgment or decree
               by a court of competent  jurisdiction  and the expiration of time
               to appeal or the denial of the last  right of  appeal)  that such
               indemnification may not be enforced in such case  notwithstanding
               the fact that this section provides for  indemnification  in such
               case,  or  (ii)  contribution  under  the  Securities  Act may be
               required  on the  part of any  such  selling  Holder  or any such
               controlling person in circumstances for which  indemnification is
               provided  under this section;  then,  and in each such case,  the
               Company and such Holder will contribute to the aggregate  losses,
               claims,  damages  or  liabilities  to which  they may be  subject
               (after  contribution from others) in such proportion so that such
               Holder  is  responsible  for  the  portion   represented  by  the
               percentage  that the  public  offering  price of its  Registrable
               Securities  offered by and sold under the registration  statement
               bears to the public  offering price of all securities  offered by
               and sold under such registration  statement,  and the Company and
               other selling Holders are responsible for the remaining  portion;
               provided,  however,  that,  in any such case:  (A) no such Holder
               will be required to contribute any amount in excess of the public
               offering  price of all such  Registrable  Securities  offered and
               sold by such Holder pursuant to such registration statement;  and
               (B) no person or entity  guilty of  fraudulent  misrepresentation
               (within the meaning of Section 11(f) of the Securities  Act) will
               be entitled to contribution from any person or entity who was not
               guilty of such fraudulent misrepresentation.

                    (F)  Survival.  The  obligations  of the Company and Holders
               under  this  Section   7(c)(v)  shall  survive  until  the  fifth
               anniversary  of the  completion  of any  offering of  Registrable
               Securities  in  a  registration  statement,   regardless  of  the
               expiration  of any statutes of  limitation  or extensions of such
               statutes.

               (vi) No Registration  Rights to Third Parties.  Without the prior
          written consent of the Investor, the Company covenants and agrees that
          it shall not grant, or cause or permit to be created,  for the benefit
          of any person or entity any  registration  rights of any kind (whether
          similar to the demand,  "piggyback" or Form S-3  registration  rights)
          relating  to  shares  of the  Company's  Common  Stock  or  any  other
          securities  of the Company  that are  superior  to the rights  granted
          under this Section 7(c).

               (vii)  Suspension   Provisions.   Notwithstanding  the  foregoing
          subsections of this Section 7(c), the Company shall not be required to
          take any action with respect to the registration or the declaration of
          effectiveness of the registration  statement  following written notice
          to the  Holders  from  the  Company  (a  "Suspension  Notice")  of the
          existence  of any  state  of  facts  or  the  happening  of any  event
          (including pending negotiations relating to, or the consummation of, a
          transaction, or the occurrence of any event that the Company believes,
          in good faith, requires additional disclosure of material,  non-public
          information  by the  Company in the  registration  statement  that the
          Company  believes it has a bona fide business  purpose for  preserving
          confidentiality  or that renders the Company unable to comply with the
          published  rules  and  regulations  of the SEC  promulgated  under the
          Securities  Act or the  Securities  Exchange  Act, as in effect at any
          relevant time (the "Rules and Regulations"))  that would result in (1)
          the registration statement,  any amendment or post-effective amendment
          thereto, or any document  incorporated therein by reference containing
          an untrue statement of a material fact or omitting to state a material
          fact required to be stated therein or necessary to make the statements
          therein  not  misleading,  or (2)  the  prospectus  issued  under  the
          registration  statement,  any prospectus  supplement,  or any document
          incorporated  therein by reference  including  an untrue  statement of
          material fact or omitting to state a material fact  necessary in order
          to make the  statements  therein,  in the  light of the  circumstances
          under which they were made, not misleading,  provided that the Company
          (1) shall not issue a Suspension Notice more than once in any 12 month
          period,  (2) shall use its best  efforts to  remedy,  as  promptly  as
          practicable,  but in any event within  ninety (90) days of the date on
          which the Suspension Notice was delivered, the circumstances that gave
          rise to the Suspension Notice and deliver to the Holders  notification
          that the  Suspension  Notice is no longer in effect  and (3) shall not
          issue a Suspension  Notice for any period  during which the  Company's
          executive  officers are not  similarly  restrained  from  disposing of
          shares of the  Company's  Common  Stock.  Upon receipt of a Suspension
          Notice from the  Company,  all time limits  applicable  to the Holders
          under this Section 7(c) shall  automatically  be extended by an amount
          of time  equal to the  amount  of time  the  Suspension  Notice  is in
          effect, the Holders will forthwith discontinue disposition of all such
          shares pursuant to the  registration  statement until receipt from the
          Company of copies of prospectus  supplements or amendments prepared by
          or  on  behalf  of  the  Company  (which  the  Company  shall  prepare
          promptly),  together with a notification that the Suspension Notice is
          no longer in effect,  and if so directed by the  Company,  the Holders
          will  deliver to the  Company  all copies in their  possession  of the
          prospectus  covering such shares current at the time of receipt of any
          Suspension Notice.

          (d)  Obligations  Regarding  Confidential  Information.   Confidential
     Information  (as defined  below) shall not be disclosed by any party hereto
     to any third  party  except in  accordance  with the  provisions  set forth
     below. For purposes of this Agreement, the term "Confidential  Information"
     refers to the following  items: (i) the existence of this Agreement and the
     Warrants,  and (ii) the  terms and  provisions  of this  Agreement  and the
     Warrants,  provided,  however,  that  Confidential  Information  shall  not
     include any information that was (i) publicly known and generally available
     in the public domain prior to its  disclosure by the Company,  (ii) becomes
     publicly  known and  generally  available in the public  domain  through no
     action or  inaction on the part of the  Company or (iii)  becomes  publicly
     known by written consent or other action of the Investor.

               (i)  Press   Releases,   Etc.  No   announcement   regarding  the
          Confidential    Information   in   a   press   release,    conference,
          advertisement,  announcement,  professional or trade publication, mass
          marketing materials or otherwise may be made without the prior written
          consent of each of the parties hereto.

               (ii) Permitted  Disclosures.  Notwithstanding the foregoing,  (i)
          any party may  disclose  any of the  Confidential  Information  to its
          current  or bona fide  prospective  investors,  employees,  investment
          bankers,  lenders,  accountants and attorneys, in each case only where
          such   persons  or  entities  are  under   appropriate   nondisclosure
          obligations  (the Company shall be responsible  for any failure of any
          such person to comply with the provisions of this Section  7(d));  and
          (ii) the Investor may disclose its investment in the Company and other
          Confidential Information to third parties or to the public at its sole
          discretion  and,  if it does so, the  Company  shall have the right to
          disclose to third  parties any such  information  disclosed in a press
          release or other public announcement by the Investor.

               (iii) Legally Compelled  Disclosure.  In the event that any party
          is  requested  or  becomes  legally   compelled   (including   without
          limitation,  pursuant to securities laws and  regulations) to disclose
          the existence of this  Agreement or any of the Financing  Terms hereof
          in  contravention  of the provisions of this Section 7(d),  such party
          (the  "Disclosing   Party")  shall  provide  the  other  parties  (the
          "Non-Disclosing  Parties")  with prompt written notice of that fact so
          that  the  appropriate  party  may  seek  (with  the  cooperation  and
          reasonable   efforts  of  the  other  parties)  a  protective   order,
          confidential treatment or other appropriate remedy. In such event, the
          Disclosing  Party shall  furnish only that portion of the  information
          which is legally  required and shall  exercise  reasonable  efforts to
          obtain reliable assurance that confidential treatment will be accorded
          such   information   to  the  extent   reasonably   requested  by  any
          Non-Disclosing Party.

               (iv) Other Information. The provisions of this Section 7(d) shall
          be in addition to, and not in substitution  for, the provisions of any
          separate nondisclosure agreement executed by any of the parties hereto
          with  respect  to the  transactions  contemplated  hereby.  Additional
          disclosures  and  exchange  of  confidential  information  between the
          Company and Investor (including without  limitation,  any exchanges of
          information with any Investor board observer) shall be governed by the
          terms of the  Corporate  Non-Disclosure  Agreement  No.  96432,  dated
          9/25/97,  executed by the Company and Investor,  and any  Confidential
          Information   Transmittal   Records  (CITR)   provided  in  connection
          therewith.  The CITR that shall govern the  exchanges of  confidential
          information  with any  Investor  board  observer  shall be in the form
          attached hereto as Exhibit B.

               (v) All notices under this Section 7(d) shall be made pursuant to
          Section 10(e) of this Agreement.

          (e) Board and Committee Observer.

               (1) So long as the Investor,  together with its  subsidiaries  of
          which the Investor  beneficially  owns, either directly or indirectly,
          at  least  fifty  percent  (50%)  of the  voting  securities  (each  a
          "Majority  Owned  Subsidiary"  and  collectively,  the "Majority Owned
          Subsidiaries"),  hold the equivalent of at least  twenty-five  percent
          (25%) of the Purchased  Shares and/or Warrant Stock (as defined in the
          Warrant), such number to be proportionately adjusted for stock splits,
          stock  dividends  and  similar  events,  the  Company  will  permit  a
          representative  of  the  Investor  (the  "Observer"),  to  attend  all
          meetings of the  Company's  Board of Directors  (the  "Board") and all
          committees of the Board (whether in person,  telephonic or other) in a
          non-voting,  observer  capacity  and shall  provide  to the  Investor,
          concurrently  with the  members of the Board or such Board  committee,
          and in the  same  manner,  notice  of such  meeting  and a copy of all
          materials provided to such members. Upon a good faith determination by
          the Board and upon the advice of counsel, the Observer may be excluded
          from  any   meeting  if  (A)   deemed   necessary   to   protect   the
          attorney-client privilege of the Company or (B) a conflict of interest
          exists  between the  Observer or Intel and the Company with respect to
          matters to be discussed by the Board or committee thereof.

               (2) Exchanges of confidential and proprietary information between
          the Company and the Investor  Observer  shall be governed by the terms
          of the Corporate  Non-Disclosure  Agreement No. 96432, dated September
          25,  1997,  executed  by  the  Company  and  the  Investor,   and  any
          Confidential  Information  Transmittal  Records provided in connection
          therewith.  The Company  acknowledges that the Observer may, from time
          to time,  have  information  that may be of  interest  to the  Company
          ("Information")  regarding a wide variety of matters including, by way
          of example only, (a) the Investor's technologies,  plans and services,
          and plans and  strategies  relating  thereto,  (b)  current and future
          investments  the  Investor  has made,  may make,  may  consider or may
          become   aware  of  with   respect  to  other   companies   and  other
          technologies,  products and services,  including,  without limitation,
          companies, technologies, products and services that may be competitive
          with  the  Company's,   and  (c)  developments  with  respect  to  the
          technologies, products and services, and plans and strategies relating
          thereto,   of  other  companies,   including  companies  that  may  be
          competitive with the Company. The Company recognizes that a portion of
          such  Information may be of interest to the Company.  Such Information
          may or may not be known by the  Observer.  The Company,  as a material
          part of the consideration for this Agreement, agrees that the Investor
          and its Observer shall have no duty to disclose any Information to the
          Company  or permit the  Company  to  participate  in any  projects  or
          investments  based on any Information,  or to otherwise take advantage
          of any  opportunity  that may be of interest to the Company if it were
          aware of such Information,  and hereby waives, to the extent permitted
          by law,  any claim  based on the  corporate  opportunity  doctrine  or
          otherwise   that  could  limit  the   Investor's   ability  to  pursue
          opportunities  based on such  Information  or that would  require  the
          Investor,  Observer to disclose any such Information to the Company or
          offer any opportunity relating thereto to the Company.

          (f) Rights of Participation.

               (i)  General.  As used in this  Agreement,  the  "Initial  Rights
          Period"  means the period from the date  hereof  until the earlier of:
          (1)  such  time as the  Investor,  together  with its  Majority  Owned
          Subsidiaries, no longer hold the equivalent of at least twenty percent
          (20%) of the  Purchased  Shares,  such  number  to be  proportionately
          adjusted for stock splits,  stock dividends and similar events, or (2)
          the third  anniversary  date of the Closing  Date.  During the Initial
          Rights  Period,  the  Investor and each other person or entity to whom
          rights under this Section  7(f) have been duly  assigned  (each of the
          Investor and each such  assignee,  a  "Participation  Rights  Holder")
          shall have a right of first  refusal to  purchase  such  Participation
          Rights  Holder's  Pro  Rata  Share  (as  defined  below)  of  all  New
          Securities  (as defined  below) that the Company may from time to time
          issue during such period (such New Securities would be allocated among
          the Participation  Rights Holders who elect to exercise their right to
          purchase  such New  Securities  on a pro rata basis  according  to the
          number of  Purchased  Shares  held by each such  Participation  Rights
          Holder  (where  any  shares  of Common  Stock  held as a result of the
          exercise of the Warrants  shall be deemed for these  purposes to still
          be Purchased Shares)). The rights described in the preceding sentence,
          as further  described  in this  Section  7(f),  are referred to as the
          "Right of Participation".

               (ii) Pro Rata Share. "Pro Rata Share" means, with respect to each
          Participation  Rights  Holder,  the  ratio  of the  following  numbers
          calculated  immediately  prior to the  issuance of the New  Securities
          giving rise to the Right of  Participation:  (A) the Participant Share
          Number (as defined below) for such Participation Rights Holder, to (B)
          the  difference  between (1) the sum of (a) the total number of shares
          of Common  Stock and other  voting  capital  stock of the Company then
          outstanding,  plus (b) the  number of shares of voting  capital  stock
          issuable  upon the  exercise,  conversion  or  exchange  of any  other
          security  of the  Company  then  outstanding  and  (2) the  number  of
          Dilutive  Securities  issued since the last Notice Date  excluding any
          Maintenance Securities issued pursuant to the last Maintenance Notice.

               (iii) New Securities.  "New  Securities"  means any Common Stock,
          Preferred  Stock or other  voting  capital  stock or  security  of the
          Company,  whether  now  authorized  or not,  and  rights,  options  or
          warrants to purchase  such Common  Stock or  Preferred  Stock or other
          voting  capital  stock  or  security,   and  securities  of  any  type
          whatsoever that are, or may become,  convertible  into or exchangeable
          or  exercisable  for Common  Stock,  Preferred  Stock or other  voting
          capital  stock or  security;  provided,  however,  that the term  "New
          Securities" shall not include:

                    (A) up to  2,500,000  shares of Common  Stock (or options or
               warrants  therefor) issued to employees,  officers,  directors or
               consultants of the Company pursuant to any stock purchase,  stock
               option,  stock  incentive and other employee  benefit plans,  and
               agreements  having  similar  purpose and effect,  approved by the
               Board,  and any  increase  in  such  number  that is  unanimously
               approved  by the Board and  approved by the  shareholders  of the
               Company;

                    (B) the Purchased Shares issued under this Agreement;

                    (C)  shares of Common  Stock  issued  upon  exercise  of the
               Warrants  or any  other  convertible  securities  of the  Company
               outstanding on the date hereof;

                    (D) any securities issued in connection with any stock split
               stock, dividend or other similar event in which all Participation
               Rights Holders are entitled to participate on a pro rata basis;

                    (E) any securities  issued upon the exercise,  conversion or
               exchange of any outstanding security if such outstanding security
               constituted a New Security;

                    (F) any  securities  issued  pursuant to the  acquisition of
               another Person, or subsidiary or division thereof, by the Company
               by   consolidation,   merger,   purchase  of  assets,   or  other
               reorganization;

                    (G) up to 750,000 shares of Common Stock issued to strategic
               investors in transactions  that are  unanimously  approved by the
               Board; or

                    (H) any shares of Common Stock or  warrants,  and any shares
               of Common Stock issued upon exercise of such warrants,  issued or
               to be  issued to  certain  institutional  investors  in a private
               placement of  securities  by the Company which is being closed on
               or about the date of the Closing hereunder.

               (iv) Participant Share Number.  "Participant Share Number",  with
          respect  to a  Participant  Rights  Holder,  means  the sum of (1) the
          number of Purchased Shares held by such Participant, (2) the number of
          shares of Common Stock issued upon exercise of the  Warrants,  (3) the
          number of shares of other  voting  capital  stock or  security  of the
          Company  held by such  Participant,  and (4) the  number  of shares of
          Common Stock or other voting  capital stock or security  issuable upon
          the  exercise,  conversion  or exchange  of any other  security of the
          Company held by such Participant (including the Warrants).

               (v) Purchase  Price.  The purchase price paid by the  Participant
          Rights  Holder for the New  Securities  shall equal the sales price of
          the New Securities.

               (vi) Procedures. If the Company proposes to undertake an issuance
          of New  Securities  (in a single  transaction  or a series of  related
          transactions)  in circumstances  that entitled a Participation  Rights
          Holder to  participate  therein in accordance  this Section 7(f),  the
          Company shall give to each Participation  Rights Holder written notice
          of its intention to issue New Securities (the "Participation Notice"),
          describing the amount and the type of New Securities and the price and
          the general  terms upon which the  Company  proposes to issue such New
          Securities.  Each Participation  Rights Holder shall have fifteen (15)
          business  days  from the  date of  receipt  of any such  Participation
          Notice to agree in writing to  purchase  up to the  maximum  number of
          such New Securities that such Participation  Rights Holder is entitled
          to purchase for the purchase price  specified in Section 7(f)(v) above
          and upon the  terms  and  conditions  specified  in the  Participation
          Notice by giving written notice to the Company and stating therein the
          quantity  of New  Securities  to be  purchased  (not  to  exceed  such
          maximum).  If any  Participation  Rights  Holder  fails to so agree in
          writing  within such 15 business day period,  then such  Participation
          Rights Holder shall forfeit the right hereunder to participate in such
          sale of New Securities;  provided,  however, that until the expiration
          of the Initial Rights Period,  any  Participation  Rights Holders that
          have  elected  to  exercise  their  Right  of  Participation  shall be
          entitled to  exercise  such right with  respect to any New  Securities
          where such right has been forfeited by such other Participation Rights
          Holder(s),  and the Company  shall follow  repeat the  procedures  set
          forth  in  this  Section  7(f)  to  ascertain   whether  the  electing
          Participation  Rights  Holders  desire  to  purchase  such  other  New
          Securities. All sales hereunder shall be consummated concurrently with
          the closing of the transaction triggering the Right of Participation.

               (ix) Failure to  Exercise.  Upon the  expiration  of such fifteen
          (15) business day period,  the Company  shall have one hundred  twenty
          (120)  days   thereafter,   subject  to  extensions   for   regulatory
          compliance,  to sell the New Securities described in the Participation
          Notice (with respect to which the Participation Rights Holders' rights
          of first  refusal  hereunder  were not  exercised),  or enter  into an
          agreement to do so within sixty (60) days thereafter  (which agreement
          must be  consummated  within one hundred  twenty  (120) days after its
          execution,  subject to extensions for regulatory  compliance),  at the
          price (or a higher price) and upon non-price terms not materially more
          favorable   to  the   purchasers   thereof   than   specified  in  the
          Participation  Notice. If the Company has not issued and sold such New
          Securities within such 120-day period, or entered into an agreement to
          do  so  within  sixty  (60)  days  thereafter  (and  consummated  such
          agreement  within such  120-day  period),  then the Company  shall not
          thereafter  issue  or sell  any New  Securities  without  again  first
          offering  such New  Securities  to the  Participation  Rights  Holders
          pursuant to this Section 7(f).

          (g) Nasdaq National Market.  The Company shall use its best efforts to
     cause  the  Purchased  Shares  and  shares of Common  Stock  issuable  upon
     exercise  of the  Warrants  to be  approved  for  quotation  on the  Nasdaq
     National  Market as  promptly  as  practicable  after the date  hereof.  In
     addition, the Company agrees to maintain the listing of its Common Stock on
     the Nasdaq  National  Market,  Nasdaq Small Cap, New York Stock Exchange or
     American Stock Exchange for at least three years after the Closing Date.

          (h)  Accounting.  The Company hereby agrees to hire a Big 5 Accounting
     firm no  later  than  June 30,  1999  for the  purpose  of  performing  the
     Company's  regular  audit  and  financial  reporting  requirements  for all
     activities beginning January 1, 1999. In addition,  Company agrees that the
     Company's  accountants  will  engage  Ernst & Young LLP for the  purpose of
     rendering an opinion on the  appropriate  accounting  treatment of: (i) the
     conversion  of  the  Investor's   future  payment   obligations  under  the
     Development  Agreement into an equity stake in the Company  pursuant to the
     Amendment and this Agreement;  and (ii) the Company's next round of private
     equity financing which is anticipated to be closed concurrently herewith or
     within  five (5) days  hereof.  Such  opinions of Ernst & Young LLP will be
     based on the  terms of this  Agreement.  Furthermore,  the  Company  hereby
     agrees  to  provide  a copy of the  opinions  of  Ernst & Young  LLP to the
     Investor, and the Company agrees to abide by such opinions.

          (i) Covenant Not to Sue. The Company  hereby  agrees that it shall not
     assert in any way any patent or related  rights  against the Investor,  its
     subsidiaries or affiliates, or their customers,  direct or indirect, agents
     or contractors,  for the manufacture,  use, import, offer for sale, or sale
     of  Investor's  products,  to the extent  that the claims of such rights to
     Intellectual  Property  are  asserted  against  any of  Investor's  general
     purpose  microprocessors  and/or  chipset  products,  either  alone  or  in
     combination with another product or products,  for so long as Investor does
     not  assert a  patent  claim  against  the  Company,  its  subsidiaries  or
     affiliates, or their customers,  direct or indirect, agents and contractors
     for the manufacture,  use, import,  offer for sale or sale of the Company's
     products.  If the Company assigns or attempts to assign ownership of any of
     its patents to a third party not bound by this covenant not to sue (whether
     directly or by operation of law),  then effective  upon such  assignment or
     attempted  assignment,  the  Company  agrees  that  Investor  shall  have a
     nonexclusive,  nontransferable license, without right of sublicense,  under
     such assigned  patents to make,  use and sell  Investor's  general  purpose
     microprocessor and chipset products.

          (j) Certain  Prohibited  Issuances.  Except  pursuant to the Company's
     stock option plans,  management and/or director stock plans and "strategic"
     investments from industry participants, the Company agrees not to issue any
     discounted or variable priced equity or equity like securities  issued in a
     private  placement for one year from the Closing Date of the Company's next
     round of private equity financing.

          (k) Certain  Expenses.  At the Closing,  the Company  shall pay to the
     Investor a flat fee of $10,000 to cover the  Investor's  expenses  (whether
     external  or  internal)   arising  in  connection  with  the   transactions
     contemplated by this Agreement.

          (l) Termination of Royalty  Obligations.  Section 7 of the Development
     Agreement is hereby  terminated and of no further force or effect,  and the
     parties  acknowledge that all future royalty obligations of the Company are
     hereby released;  provided,  however, that the provisions of Section 7.5 of
     the Development  Agreement  (regarding audit rights) shall remain in effect
     with respect to royalty payments made prior to the date hereof.

          (m)  Vecchione  and  Freedman  Transactions.   If  Maurizio  Vecchione
     disposes  of any Common  Stock  beneficially  owned by him while the Common
     Stock is trading at or below twenty five dollars ($25) per share during the
     period  beginning  on the date of the  Closing and ending on the earlier of
     (i) the first (1st)  anniversary  of the date of the  Closing,  or (ii) the
     date on which  Maurizio  Vecchione  ceases  to be  President  or CEO of the
     Company,  the Company  shall pay to the Investor an amount equal to (x) the
     number of  Purchased  Shares and Warrant  Shares then held by the  Investor
     times (y) the  difference  between  (m) the closing bid price of the Common
     Stock on the  trading  day  immediately  preceding  the day on  which  such
     disposal was publicly announced (the "Vecchione Announcement Date") and (n)
     the lowest  closing  bid price of the Common  Stock  during the thirty (30)
     trading day period beginning on the Vecchione  Announcement Date; provided,
     however,  that the Company  shall not be required to make such payment with
     respect to any sales until Maurizio Vecchione sells or otherwise  transfers
     in excess of fifty  thousand  (50,000)  shares of Common Stock in aggregate
     during such period at a price less than twenty five dollars ($25)  pursuant
     to Rule 144. If Joyce Freedman or Lee Freedman or any other member of their
     family (each a "Freedman")  dispose of any stock beneficially owned by such
     Freedman at any time during the period beginning on the date of the Closing
     and ending on the date which is six (6) months  following the Closing,  the
     Company  shall pay to the  Investor  an amount  equal to (x) the  number of
     Purchased Shares and Warrant Shares then held by the Investor times (y) the
     difference  between (m) the  closing  bid price of the Common  Stock on the
     trading  day  immediately  preceding  the day on which  such  disposal  was
     publicly  announced (the "Freedman  Announcement  Date") and (n) the lowest
     closing bid price of the Common  Stock  during the thirty (30)  trading day
     period beginning on the Freedman Announcement Date.

          (n) Share  Authorization.  The Company  shall use its best  efforts to
     have Nasdaq  confirm in writing that the  Purchased  Shares and the Warrant
     Shares  issuable  upon full  exercise  of the First  Warrants,  the  Second
     Warrants and the Third Warrants are not subject to Nasdaq Rule 4460(i) (the
     "Nasdaq  Approval").  The Company  shall also use its best  efforts to have
     Nasdaq confirm in writing that the Shares and the Warrant  Shares  issuable
     upon  full  exercise  of the  Warrants  are  not  subject  to  Nasdaq  Rule
     4310(c)(25)(H)(i)(b) (the "Second Nasdaq Approval"). The Company shall also
     use its best efforts to obtain the  Shareholder  Approval no later than the
     Approval  Date (as defined  below),  except to the extent such  Shareholder
     Approval is not  required by virtue of receipt by the Company of either the
     Nasdaq Approval or the Second Nasdaq Approval, as applicable.  For purposes
     hereof,  the  "Approval  Date" means the Company's  next annual  meeting of
     stockholders,  which meeting shall be held no later than July 30, 1999. For
     purposes  hereof,  "Shareholder  Approval" means (i)  authorization  by the
     stockholders of the Company of the issuance of Shares pursuant to the terms
     hereof and shares of Common Stock  issuable  upon the exercise of the First
     Warrants,  the Second Warrants and the Third Warrants (in each case without
     giving effect to any limitations on the exercise  thereof)  pursuant to the
     terms thereof and, if necessary,  the elimination of any prohibitions under
     the rules or  regulations  of any  stock  exchange,  interdealer  quotation
     system or other  self-regulatory  organization  with  jurisdiction over the
     Company  or  any of  its  securities  on the  Company's  ability  to  issue
     Purchased  Shares and shares of Common  Stock  upon  exercise  of the First
     Warrants,  the Second Warrants and the Third Warrants (in each case without
     giving effect to any  limitations on the exercise  thereof),  including all
     necessary  approvals  under  each of (i)  Nasdaq  Rule  4460(i)  (the "4460
     Shareholder  Approval") and (ii) Nasdaq Rule  4310(c)(25)(H)(1)(I)(b)  (the
     "4310  Shareholder  Approval").  In  addition,  the  Company  shall  have a
     definitive proxy statement seeking to obtain Shareholder Approval mailed to
     each stockholder of the Company at least twenty (20) business days prior to
     the Approval  Date.  The Company shall deliver any SEC comments it receives
     with respect to its proxy  statement to the Investor and will not file such
     proxy statement (or any revisions thereto), whether such proxy statement is
     in  preliminary or definitive  form,  without the approval of the Investor,
     which  approval  shall not be  unreasonably  withheld  or  delayed.  If the
     Company fails to obtain Shareholder  Approval by the Approval Date, and has
     not  then  obtained  each of the  Nasdaq  Approval  and the  Second  Nasdaq
     Approval,  the  Investor  may, at its  option,  (the  "Repurchase  Option")
     require the Company to  purchase  all or any portion of the First  Warrant,
     the Second  Warrant  and/or the Third  Warrant held by the Investor for the
     Repurchase Price (as herein  defined),  subject to the limitation on shares
     set forth below.  The "Repurchase  Price" means a price equal to the number
     of shares of Common Stock the Investor has  exercised the option to require
     the Company to purchase  times the greater of (x) one hundred fifty percent
     (150%) of the Black-Scholes  Amount (as herein defined) of such Warrant and
     (y) the amount  equal to the excess of the  closing bid price of the Common
     Stock on the date of the  Closing  over the closing bid price of the Common
     Stock on the date on which the Repurchase Option is elected. Such number of
     shares may include all shares of Common  Stock the Investor  could  receive
     upon exercise of such Warrant  without giving effect to any  limitations on
     the  exercise  thereof,  but  only  to  the  extent  such  Warrant  is  not
     exercisable  due to  failure  to obtain  Shareholder  Approval,  the Nasdaq
     Approval  and/or the Second Nasdaq  Approval.  The Company may elect to pay
     the Investor the Repurchase Price either (m) in cash or (n) if, in the good
     faith business  judgment of the Company's  board of directors,  the Company
     does not have  sufficient  liquidity  to pay some or all of the  Repurchase
     Price,  in cash (the "Cash  Portion")  to the extent  that the  Company has
     sufficient  liquidity and in a promissory note (the  "Repurchase  Note") to
     the Investor with a one-year term, interest equal to the then-current prime
     rate and in principal amount equal to the difference between the Repurchase
     Price and the Cash Portion.  If the Company  elects to deliver a Repurchase
     Note, then the Company shall repay the  outstanding  principal and interest
     on the  Repurchase  Note at the end of the  one-year  term and,  during the
     one-year term, shall take all reasonable  necessary  actions to ensure that
     such outstanding  principal and interest will be timely paid (and shall not
     take any  actions  inconsistent  with  such  objective).  From time to time
     during the  one-year  term,  the Company  shall  pre-pay  such  outstanding
     principal and interest to the extent that it has sufficient  liquidity,  it
     being understood and agreed that no such repayment shall be required if, in
     the good faith business  judgment of the Company's board of directors,  the
     Company  does  not  have any  such  liquidity  with  which to make any such
     repayment.  If the  Company  delivers  a  Repurchase  Note and  during  the
     one-year  term of such note,  obtains  Shareholder  Approval as required by
     this Section 7(n), the Company may, at its election,  require the holder of
     a  Repurchase  Note to exchange  such  Repurchase  Note for a Warrant  with
     identical  terms to the Warrant (or part thereof) which was  repurchased by
     the Company (the "Original  Warrant"),  entitling such holder to purchase a
     number of shares of Common  Stock  equal to (I) the number of shares  which
     could have been  purchased by exercise of the Original  Warrant  times (II)
     the then-current  outstanding principal and interest on the Repurchase Note
     divided by (III) the original  principal  amount of the Repurchase Note, at
     an exercise  price equal to the exercise  price of the Original  Warrant at
     the time of the  repurchase  (with such number of shares and such  exercise
     price being appropriately  adjusted to give effect to any adjustments which
     would  have been made to the  exercise  price and number of shares had such
     Warrant remained outstanding from the time of the repurchase until the date
     of exchange).

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following  variable  values at the time of applicable to the purchase:  (i)
     the current  market  price of the Common  Stock equal to the closing  trade
     price on the date of the Closing; (ii) volatility of the Common Stock equal
     to volatility of the Common Stock on the date of the Closing;  (iii) a risk
     free rate equal to the interest rate on the United States  treasury bill or
     treasury note with a maturity  corresponding  to the remaining  term of the
     Warrant on the date of the Closing; and (iv) an exercise price equal to the
     Exercise  Price on the date of the Closing.  In the event such  calculation
     function is no longer  available  utilizing the Bloomberg  online page, the
     Holder shall calculate such amount in its reasonable  discretion  using the
     closest  available  alternative  mechanism  and  variable  values  to those
     available   utilizing  the  Bloomberg  online  page  for  such  calculation
     function.

     8. INDEMNIFICATION.

          (a) Agreement to Indemnify.

               (i)  Company   Indemnity.   The  Investor,   its  Affiliates  and
          Associates,  and  each  officer,  director,   shareholder,   employer,
          representative  and agent of any of the foregoing  (collectively,  the
          "Investor Indemnitees") shall each be indemnified and held harmless to
          the extent set forth in this  Section 8 by the Company with respect to
          any and all  Damages  (as  defined  below)  incurred  by any  Investor
          Indemnitee   as   a   proximate    result   of   any   inaccuracy   or
          misrepresentation  in, or breach  of,  any  representation,  warranty,
          covenant or agreement made by the Company in this Agreement (including
          any exhibits and schedules  hereto).  Indemnification  claims  arising
          from the  registration  of Purchased  Shares  under  Federal and state
          securities laws are covered by Section 7(b) and not this Section 8.

               (ii) Investor Indemnity.  The Company, its respective  Affiliates
          and Associates,  and each officer,  director,  shareholder,  employer,
          representative  and agent of any of the foregoing  (collectively,  the
          "Company  Indemnitees") shall each be indemnified and held harmless to
          the extent set forth in this Section 8, by the Investor, in respect of
          any and all Damages incurred by any Company  Indemnitee as a proximate
          result of any  inaccuracy or  misrepresentation  in, or breach of, any
          representation,  warranty,  covenant or agreement made by the Investor
          in  this   Agreement.   Indemnification   claims   arising   from  the
          registration  of Purchased  Shares under Federal and state  securities
          laws are covered by Section 7(c) and not this Section 8.

               (iii) Equitable Relief. Nothing set forth in this Section 8 shall
          be deemed to prohibit or limit any  Investor  Indemnitee's  or Company
          Indemnitee's  right at any time before,  on or after the  Closing,  to
          seek  injunctive  or other  equitable  relief  for the  failure of any
          Indemnifying Party to perform or comply with any covenant or agreement
          contained herein.

          (b) Survival.  All  representations and warranties of the Investor and
     the Company  contained herein and all claims of any Investor  Indemnitee or
     Company Indemnitee in respect of any inaccuracy or  misrepresentation in or
     breach hereof, shall survive the Closing until the third anniversary of the
     date of this  Agreement,  regardless of whether the  applicable  statute of
     limitations,  including  extensions thereof,  may expire. All covenants and
     agreements  of the  Investor and the Company  contained  in this  Agreement
     shall  survive  the  Closing in  perpetuity  (except to the extent any such
     covenant  or  agreement  shall  expire  by its  terms).  All  claims of any
     Investor  Indemnitee or Company Indemnitee in respect of any breach of such
     covenants or agreements  shall survive the Closing until the  expiration of
     three years following the non-breaching  party's obtaining actual knowledge
     of such breach.

          (c) Claims for Indemnification.  If any Investor Indemnitee or Company
     Indemnitee (an "Indemnitee") shall believe that such Indemnitee is entitled
     to  indemnification  pursuant to this  Section 8 in respect of any Damages,
     such Indemnitee  shall give the appropriate  Indemnifying  Party (which for
     purposes hereof, in the case of an Investor Indemnitee,  means the Company,
     and in the case of a Company Indemnitee, means the Investor) prompt written
     notice thereof. Any such notice shall set forth in reasonable detail and to
     the extent  then known the basis for such  claim for  indemnification.  The
     failure of such Indemnitee to give notice of any claim for  indemnification
     promptly shall not adversely  affect such  Indemnitee's  right to indemnity
     hereunder  except to the extent  that such  failure  adversely  affects the
     right of the  Indemnifying  Party to assert any reasonable  defense to such
     claim.  Each such  claim  for  indemnity  shall  expressly  state  that the
     Indemnifying  Party  shall have only the twenty  (20)  business  day period
     referred  to in the next  sentence  to  dispute  or deny  such  claim.  The
     Indemnifying  Party shall have  twenty (20)  business  days  following  its
     receipt of such notice either (a) to acquiesce in such claim by giving such
     Indemnitee  written  notice  of such  acquiescence  or (b) to object to the
     claim by giving such  Indemnitee  written notice of the  objection.  If the
     Indemnifying Party does not object thereto within such twenty (20) business
     day period,  such  Indemnitee  shall be entitled to be indemnified  for all
     Damages  reasonably and proximately  incurred by such Indemnitee in respect
     of such claim. If the Indemnifying  Party objects to such claim in a timely
     manner, the senior management of the Company and the Investor shall meet to
     attempt to resolve such dispute.  If the dispute  cannot be resolved by the
     senior  management,  either  party may make a  written  demand  for  formal
     dispute  resolution  and specify  therein the scope of the dispute.  Within
     thirty (30) days after such written notification, the parties agree to meet
     for one (1) day with an impartial  mediator and consider dispute resolution
     alternatives  other than  litigation.  If an alternative  method of dispute
     resolution  is not  agreed  upon  within  thirty  days  after  the  one day
     mediation,  either party may begin litigation proceedings.  Nothing in this
     section shall be deemed to require arbitration.

          (d) Defense of Claims. In connection with any claim that may give rise
     to  indemnity  under this  Section 8  resulting  from or arising out of any
     claim or Proceeding against an Indemnitee by a person or entity that is not
     a party hereto,  the Indemnifying  Party may (unless such Indemnitee elects
     not to seek indemnity  hereunder for such claim) but shall not be obligated
     to, upon written notice to the relevant  Indemnitee,  assume the defense of
     any such claim or Proceeding if the Indemnifying Party with respect to such
     claim or Proceeding  acknowledges to the Indemnitee the Indemnitee's  right
     to indemnity  pursuant  hereto to the extent provided herein (as such claim
     may have been  modified  through  written  agreement  of the  parties)  and
     provides assurances,  reasonably satisfactory to such Indemnitee,  that the
     Indemnifying  Party will be  financially  able to satisfy such claim to the
     extent  provided  herein if such claim or Proceeding is decided  adversely;
     provided, however, that nothing set forth herein shall be deemed to require
     the  Indemnifying  Party to waive  any  crossclaims  or  counterclaims  the
     Indemnifying Party may have against the Indemnified Party for damages.  The
     Indemnified Party shall be entitled to retain separate counsel,  reasonably
     acceptable  to the  Indemnifying  Party,  if the  Indemnified  Party  shall
     determine,  upon the written advice of counsel, that an actual or potential
     conflict  of  interest  exists  between  the  Indemnifying  Party  and  the
     Indemnified  Party in connection  with such  Proceeding.  The  Indemnifying
     Party shall be  obligated to pay the  reasonable  fees and expenses of such
     separate  counsel  to the  extent  the  Indemnified  Party is  entitled  to
     indemnification  by the  Indemnifying  Party with  respect to such claim or
     Proceeding under this Section 8(d). If the  Indemnifying  Party assumes the
     defense of any such  claim or  Proceeding,  the  Indemnifying  Party  shall
     select  counsel  reasonably  acceptable  to such  Indemnitee to conduct the
     defense of such claim or Proceeding,  shall take all steps necessary in the
     defense  or  settlement  thereof  and  shall at all  times  diligently  and
     promptly pursue the resolution  thereof.  If the  Indemnifying  Party shall
     have assumed the defense of any claim or Proceeding in accordance with this
     Section 8(d),  the  Indemnifying  Party shall be authorized to consent to a
     settlement of, or the entry of any judgment arising from, any such claim or
     Proceeding,  with the prior written consent of such  Indemnitee,  not to be
     unreasonably withheld; provided, however, that the Indemnifying Party shall
     pay or cause to be paid  all  amounts  arising  out of such  settlement  or
     judgment  concurrently  with the effectiveness  thereof;  provided further,
     that the Indemnifying  party shall not be authorized to encumber any of the
     assets of any Indemnitee or to agree to any restriction that would apply to
     any Indemnitee or to its conduct of business;  and provided further, that a
     condition  to any such  settlement  shall  be a  complete  release  of such
     Indemnitee and its Affiliates,  directors,  officers,  employees and agents
     with respect to such claim, including any reasonably foreseeable collateral
     consequences  thereof.  Such Indemnitee shall be entitled to participate in
     (but not control) the defense of any such action,  with its own counsel and
     at its own  expense.  Each  Indemnitee  shall,  and shall cause each of its
     Affiliates,  directors,  officers, employees and agents to, cooperate fully
     with the Indemnifying Party in the defense of any claim or Proceeding being
     defended by the  Indemnifying  Party  pursuant to this Section 8(d). If the
     Indemnifying  Party does not assume the defense of any claim or  Proceeding
     resulting therefrom in accordance with the terms of this Section 8(d), such
     Indemnitee may defend against such claim or Proceeding in such manner as it
     may deem  appropriate,  including  settling such claim or Proceeding  after
     giving notice of the same to the Indemnifying  Party, on such terms as such
     Indemnitee  may  deem  appropriate.  If any  Indemnifying  Party  seeks  to
     question  the  manner  in which  such  Indemnitee  defended  such  claim or
     Proceeding  or the  amount  of or  nature  of  any  such  settlement,  such
     Indemnifying Party shall have the burden to prove by a preponderance of the
     evidence that such  Indemnitee did not defend such claim or Proceeding in a
     reasonably prudent manner.

          (e) Certain  Definitions.  As used in this Section 8, (a)  "Affiliate"
     means, with respect to any person or entity,  any person or entity directly
     or indirectly controlling, controlled by or under direct or indirect common
     control with such other person or entity;  (b) "Associate" means, when used
     to indicate a relationship with any person or entity,  (1) any other person
     or entity of which such first  person or entity is an officer,  director or
     partner or is, directly or indirectly,  the beneficial owner of ten percent
     (10%) or more of any class of equity  securities,  membership  interests or
     other comparable ownership interests issued by such other person or entity,
     (2) any trust or other  estate in which such  first  person or entity has a
     ten  percent  (10%) or more  beneficial  interest or as to which such first
     person or entity serves as trustee or in a similar fiduciary capacity,  and
     (3) any  relative or spouse of such first person or entity who has the same
     home as such first person or entity or who is a director or officer of such
     first person or entity; (c) "Damages" means all demands, claims, actions or
     causes  of  action,   assessments,   losses,   damages,   costs,  expenses,
     liabilities,  judgments,  awards, fines, response costs, sanctions,  taxes,
     penalties,  charges and amounts paid in settlement,  including (1) interest
     on cash  disbursements in respect of any of the foregoing at the prime rate
     of Chase  Manhattan  Bank,  as in  effect  from  time to  time,  compounded
     quarterly, from the date each such cash disbursement is made until the date
     the party incurring such cash  disbursement  shall have been indemnified in
     respect thereof, and (2) reasonable  out-of-pocket costs, fees and expenses
     (including  reasonable costs,  fees and expenses of attorneys,  accountants
     and other agents of, or other  parties  retained  by, such party),  and (d)
     "Proceeding"  means  any  action,   suit,  hearing,   arbitration,   audit,
     proceeding  (public  or  private)  or  investigation  that  is  brought  or
     initiated by or against any federal,  state, local or foreign  governmental
     authority or any other person or entity.

     9.  ASSIGNMENT.   The  rights  of  the  Investor  under   Section 7(c)  and
Section 7(f)  shall be freely  transferable.  No  assignment  permitted  by this
Section 9 shall be effective  until the Company is given  written  notice by the
assigning party stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned.
In all cases,  any such assignee  shall receive such assigned  rights subject to
all the terms and conditions of this Agreement.

     10. MISCELLANEOUS.

          (a) Successors and Assigns. The terms and conditions of this Agreement
     will inure to the benefit of and be binding upon the respective  successors
     and assigns of the parties.

          (b) Governing  Law. This  Agreement  will be governed by and construed
     under the  internal  laws of the State of  Delaware,  without  reference to
     principles of conflict of laws or choice of laws.

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

          (d)  Headings.  The headings and captions  used in this  Agreement are
     used for  convenience  only and are not to be  considered  in construing or
     interpreting this Agreement.  All references in this Agreement to sections,
     paragraphs,  exhibits and schedules will, unless otherwise provided,  refer
     to sections  and  paragraphs  hereof and exhibits  and  schedules  attached
     hereto, all of which exhibits and schedules are incorporated herein by this
     reference.

          (e) Notices.  Any notice  required or permitted  under this  Agreement
     shall be given in writing,  shall be effective when received,  and shall in
     any event be deemed received and effectively  given upon personal  delivery
     to the party to be notified or three (3) business  days after  deposit with
     the United States Post Office,  by registered  or certified  mail,  postage
     prepaid, or one (1) business day after deposit with a nationally recognized
     courier  service  such as  Fedex  for  next  business  day  delivery  under
     circumstances in which such service  guarantees next business day delivery,
     or one (1) business day after  facsimile  with copy delivered by registered
     or certified mail, in any case,  postage prepaid and addressed to the party
     to be  notified at the address  indicated  for such party on the  signature
     page  hereof or at such other  address as the  Investor  or the Company may
     designate by giving at least ten (10) days advance  written notice pursuant
     to this Section 10(e).

          (f) No Finder's  Fees.  The Investor will  indemnify and hold harmless
     the Company from any liability for any  commission or  compensation  in the
     nature of a finders' or broker's  fee for which the  Investor or any of its
     officers,   partners,  employees  or  consultants,  or  representatives  is
     responsible. The Company will indemnify and hold harmless the Investor from
     any  liability  for any  commission  or  compensation  in the  nature  of a
     finder's  or  broker's  fee for which the  Company or any of its  officers,
     employees or consultants or representatives is responsible.

          (g)  Amendments  and Waivers.  The provisions of Section 7(c), (f) and
     (j) of this Agreement may be amended and the observance of any term of this
     Agreement may be waived (either  generally or in a particular  instance and
     either  retroactively or  prospectively),  only with the written consent of
     the Company,  the  Investor (so long as the Investor  shall hold any of the
     Purchased  Shares or the shares of Common  Stock  into which the  Purchased
     Shares are convertible) and the holders of Purchased Shares representing at
     least a majority of the total  aggregate  number of  Purchased  Shares then
     outstanding.  The remaining  provisions of this  Agreement  (including  the
     provisions  of  Clauses (b),  (d),  (e),  (g),  (h),  (i),  (j)  and (k) of
     Section 7,  and all of  Section 8,  may not be amended  without the written
     consent of the Company and the Investor, which may be withheld in either of
     their sole and absolute  discretions.  Any amendment or waiver  effected in
     accordance with this Section 10(g)  will be binding upon the Investor,  the
     Company and their respective successors and assigns.

          (h)  Severability.  If any  provision of this  Agreement is held to be
     unenforceable  under  applicable  law, such provision will be excluded from
     this  Agreement and the balance of the Agreement  will be interpreted as if
     such provision were so excluded and will be enforceable in accordance  with
     its terms.

          (i) Entire Agreement.  This Agreement,  together with all exhibits and
     schedules hereto, constitutes the entire agreement and understanding of the
     parties with respect to the subject  matter hereof and  supersedes  any and
     all prior negotiations,  correspondence,  agreements, understandings duties
     or  obligations  between the  parties  with  respect to the subject  matter
     hereof.

          (j) Further Assurances. From and after the date of this Agreement upon
     the request of the Company or the  Investor,  the Company and the  Investor
     will execute and deliver such instruments, documents or other writings, and
     take such other  actions,  as may be  reasonably  necessary or desirable to
     confirm and carry out and to  effectuate  fully the intent and  purposes of
     this Agreement.

          (k) Meaning of Include and  Including.  Whenever in this Agreement the
     word "include" or "including" is used, it shall be deemed to mean "include,
     without limitation" or "including, without limitation," as the case may be,
     and the language following  "include" or "including" shall not be deemed to
     set forth an exhaustive list.

          (l) Fees, Costs and Expenses. Except as set forth in Section 7(k), all
     fees, costs and expenses (including attorney's' fees and expenses) incurred
     by either part hereto in connection with the  preparation,  negotiation and
     execution of this  Agreement and the Warrants and the  consummation  of the
     transactions   contemplated   hereby  and  thereby   (including  the  costs
     associated   with  any  filings  with,  or  compliance   with  any  of  the
     requirements  of,  any  governmental  authorities),  shall  be the sole and
     exclusive responsibility of such party.

          (m) Competition. Nothing set forth herein shall be deemed to preclude,
     limit or restrict the Company's or the  Investor's  ability to compete with
     the other.

          (n) Cooperation in HSR Act Filings.

               (i) In the event an exercise of any of the Warrants (or any other
          action by the Investor  with respect to any  securities of the Company
          held by the  Investor)  that  would  require a filing by the  Investor
          under the  Hart-Scott-Rodino  Antitrust  Improvements Act of 1976 (the
          "HSR Act"), the Investor and its respective  affiliates (including any
          "ultimate parent entity",  as defined in the HSR Act), and the Company
          and its respective affiliates (including any "ultimate parent entity",
          as  defined in the HSR Act),  shall  promptly  prepare  and make their
          respective filings and thereafter shall make all required or requested
          submissions  under the HSR Act or any  analogous  applicable  law,  if
          required.  In taking  such  actions  or making any such  filings,  the
          parties  hereto  shall  furnish  information  required  in  connection
          therewith and seek timely to obtain any applicable actions,  consents,
          approvals or waivers of governmental authorities;  provided,  however,
          that the parties hereto shall  cooperate with each other in connection
          with the  making  of all  such  filings  to the  extent  permitted  by
          applicable law. Without  limiting the generality of the foregoing,  to
          the extent  permitted by  applicable  law and so long as the following
          will  not  involve  the  disclosure  of  confidential  or  proprietary
          information of one party hereto to another, each party shall cooperate
          with the other by (a) providing copies of all documents to be filed to
          the  non-filing  party  and its  advisors  prior  to  filing  and,  if
          requested,   accepting  reasonable  additions,  deletions  or  changes
          suggested in  connection  therewith  and  (b) providing  to each other
          party  copies  of all  correspondence  from  and  to any  governmental
          authority in connection with any such filing.

               (ii) Notwithstanding the foregoing,  neither the Investor nor any
          of its  affiliates  shall be under any  obligation  to comply with any
          request or requirement  imposed by the Federal Trade  Commission  (the
          "FTC"),   the   Department  of  Justice  (the  "DofJ")  or  any  other
          governmental  authority in  connection  with the  compliance  with the
          requirements  of the HSR Act,  or any  other  applicable  law,  if the
          Investor,  in the exercise of its  reasonable  discretion,  deems such
          request  or  requirement  unduly  burdensome.   Without  limiting  the
          generality of the  foregoing,  the Investor  shall not be obligated to
          comply with any request by, or any  requirement  of, the FTC, the DofJ
          or any other governmental  authority:  (i) to disclose information the
          Investor deems it in its best interests to keep confidential;  (ii) to
          dispose of any  assets or  operations;  or  (iii) to  comply  with any
          proposed   restriction   on  the  manner  in  which  it  conducts  its
          operations.  In the event the Investor  shall receive a second request
          in respect of its HSR Filing  determined by it to be unduly burdensome
          and it shall prove  unable to  negotiate a means  satisfactory  to the
          Investor for complying with such  burdensome  second  request,  or the
          Federal  Trade  Commission  or  Department of Justice shall impose any
          condition on the Investor or its affiliates in respect  thereof deemed
          unacceptable  by the  Investor,  the  Company and the  Investor  shall
          cooperate in good faith to negotiate an alternative  transaction  that
          provides the Investor  with the economic  benefits it would receive if
          it  converted  the  Purchased  Shares (or took any such  other  action
          referenced  in the  first  parenthetical  in  the  first  sentence  of
          Clause (i)).

          (o) Stock Splits,  Dividends and other Similar Events.  The provisions
     of this Agreement (including the number of shares of Common Stock and other
     securities described herein) shall be appropriately adjusted to reflect any
     stock split, stock dividend, reorganization or other similar event that may
     occur with respect to the Company after the date hereof.

             [The balance of this page is intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
     of the date and year first above written.

MODACAD, INC.                             INTEL CORPORATION

By:                                       By:      

Name:                                     Name:    

Title:                                    Title:   

Address: 3861 Sepulveda Blvd.             Address:2200 Mission College Boulevard
         Culver City, CA 90230                    Santa Clara, California 95052
Facsimile No:(310) 751-2120               Facsimile No.:(408) 765-6038
Attention: President                      Attn: Treasurer

with copies to:                           with copies to:

Coudert Brothers                          Intel Corporation
1055 West Seventh Street - 20th Floor     Attention: General Counsel
Los Angeles, CA  90017                    2200 Mission College Boulevard
Telecopy:  (213) 689-4467                 Santa Clara, California 95052
Attention:  John A. St. Clair
                                          and

                                          Gibson, Dunn & Crutcher LLP
                                          Attention: Gregory T. Davidson
                                          1530 Page Mill Road
                                          Palo Alto, California 94304        
                                          Telephone No.: (650) 849-5300
                                          Facsimile No.:  (650) 849-5333

{Signature  page to Stock and Warrant  Purchase  and Investor  Rights  Agreement
between INTEL CORPORATION and MODACAD, INC.}
EXHIBIT A-1
THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,  OR THE SECURITIES  LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES  REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES UNDER APPLICABLE  SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED   PURSUANT  TO  AN  AVAILABLE   EXEMPTION   FROM  THE   REGISTRATION
REQUIREMENTS OF THOSE LAWS.

                                Right to Purchase 159,326 Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT

     THIS  CERTIFIES  THAT,  for  value  received,   Intel  Corporation  or  its
registered  assigns,  is entitled to purchase from  ModaCAD,  Inc., a California
corporation (the "Company"),  at any time or from time to time during the period
specified in Section 2 hereof,  One Hundred  Fifty-Nine  Thousand  Three Hundred
Twenty-Five  (159,325)  fully  paid and  nonassessable  shares of the  Company's
common stock (the "Common  Stock"),  at an initial  exercise price of $10.98 per
share (the "Exercise Price"), subject to adjustment as contained in Section 1(f)
hereof.  This Warrant is being issued pursuant to that certain Stock and Warrant
Purchase and Investor Rights  Agreement dated April 7,  1999 between the Company
and Holder (the "Securities Purchase Agreement"). The number of shares of Common
Stock  purchasable  hereunder (the "Warrant  Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "Warrants" means
this Warrant and the other warrants of the Company issued  pursuant to the terms
of the Securities Purchase Agreement.

     The term  "Closing Bid Price" means,  for any security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the  Company and  reasonably  acceptable  to the holder  hereof (the
"Holder")  if  Bloomberg  Financial  Markets is not then  reporting  closing bid
prices of such security  (collectively,  "Bloomberg"),  or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market  on the  electronic  bulletin  board  of such  security  as  reported  by
Bloomberg,  or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market  makers for such security as reported in
the "pink  sheets" by the  National  Quotation  Bureau,  Inc. If the Closing Bid
Price  cannot  be  calculated  for  such  security  on  such  date on any of the
foregoing  bases,  the Closing Bid Price of such security on such date shall the
value thereof, as agreed upon by the Company and the Holder; provided,  however,
that if the Company and the Holder cannot agree on such value,  such value shall
be the fair market value as reasonably  determined by an investment banking firm
selected by the Company and  reasonably  acceptable to the Holder with the costs
of such appraisal to be borne by the Company.

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

     1.  Mechanics of Exercise.  Subject to the  provisions  hereof,  including,
without  limitation,  the  limitations  contained in Section  8(f) hereof,  this
Warrant may be exercised as follows:

          (a) Manner of  Exercise.  This Warrant may be exercised by the Holder,
     in whole or in part, by the surrender of this Warrant (or evidence of loss,
     theft,  destruction or mutilation  thereof in accordance  with Section 8(c)
     hereof),  together  with a  completed  exercise  agreement  in the  Form of
     Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
     to the Company at the Company's  principal executive offices (or such other
     office  or  agency  of the  Company  as it may  designate  by notice to the
     Holder),  and upon (i)  payment to the  Company in cash,  by  certified  or
     official bank check or by wire transfer for the account of the Company,  of
     the  Exercise  Price  for the  Warrant  Shares  specified  in the  Exercise
     Agreement (ii) cancellation by the Holder of indebtedness of the Company to
     the  Holder,  (iii) a  combination  of (i) and (ii),  or (iv) if the Holder
     elects to effect a Cashless  Exercise (as defined in Section  12(c) below),
     delivery  to the  Company of a written  notice of an  election  to effect a
     Cashless  Exercise  for  the  Warrant  Shares  specified  in  the  Exercise
     Agreement.  The Warrant Shares so purchased shall be deemed to be issued to
     the Holder or Holder's designees, as the record owner of such shares, as of
     the date on which this Warrant shall have been  surrendered,  the completed
     Exercise Agreement shall have been delivered,  and payment (or notice of an
     election  to  effect a  Cashless  Exercise)  shall  have been made for such
     shares as set forth above.  In lieu of the payment methods set forth above,
     when permitted by law and applicable regulations (including Nasdaq and NASD
     rules),  the Holder may pay the  Exercise  Price  through a "same day sale"
     commitment  from the Holder (and if  applicable a  broker-dealer  that is a
     member  of  the  National   Association  of  Securities  Dealers  (a  "NASD
     Dealer")),  whereby the Holder  irrevocably elects to exercise this Warrant
     and to sell a portion of the Shares so  purchased  to pay for the  Exercise
     Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
     (or, in the case of the NASD Dealer,  upon receipt) of such Warrant  Shares
     to forward the Exercise Price directly to the Company.

          (b) Issuance of  Certificates.  Subject to Section 1(c),  certificates
     for the Warrant Shares so purchased,  representing  the aggregate number of
     shares  specified  in the  Exercise  Agreement,  shall be  delivered to the
     Holder within a reasonable  time,  not exceeding  three (3) business  days,
     after this Warrant shall have been so exercised  (the  "Delivery  Period").
     The  certificates  so delivered  shall be in such  denominations  as may be
     reasonably  requested by the Holder and shall be  registered in the name of
     Holder or such other name as shall be  designated  by such Holder.  If this
     Warrant shall have been exercised only in part,  then,  unless this Warrant
     has expired,  the Company shall, at its expense, at the time of delivery of
     such  certificates,  deliver to the Holder a new Warrant  representing  the
     number of shares  with  respect to which this  Warrant  shall not then have
     been exercised.

          (c) Exercise  Disputes.  In the case of any dispute with respect to an
     exercise,  the Company shall promptly issue such number of shares of Common
     Stock as are not disputed in accordance with this Section.  If such dispute
     involves the  calculation of the Exercise  Price,  the Company shall submit
     the disputed calculations to a nationally recognized independent accounting
     firm (selected by the Company) via facsimile within three (3) business days
     of receipt of the Exercise  Agreement.  The accounting firm shall audit the
     calculations  and  notify  the  Company  and the  converting  Holder of the
     results no later than two (2)  business  days from the date it receives the
     disputed  calculations.  The accounting firm's  calculation shall be deemed
     conclusive,  absent  manifest  error.  The  Company  shall  then  issue the
     appropriate  number  of  shares of  Common  Stock in  accordance  with this
     Section.

          (d) Fractional  Shares. No fractional shares of Common Stock are to be
     issued upon the exercise of this Warrant,  but the Company shall pay a cash
     adjustment  in respect of any  fractional  share which would  otherwise  be
     issuable in an amount equal to the same fraction of the Exercise Price of a
     share of Common  Stock (as  determined  for  exercise of this  Warrant into
     whole shares of Common Stock);  provided that in the event that  sufficient
     funds are not legally available for the payment of such cash adjustment any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (e)  Buy-In.  If (i) the  Company  fails for any  reason  (other  than
     Holder's  failure to pay to the Company the Exercise Price or to deliver to
     the  Company a duly  executed  Exercise  Agreement)  to deliver  during the
     Delivery  Period  shares of Common Stock to Holder upon an exercise of this
     Warrant and (ii) after the applicable  Delivery Period with respect to such
     an exercise,  Holder purchases (in an open market transaction or otherwise)
     shares of Common Stock to make delivery upon a sale by Holder of the shares
     of Common  Stock (the "Sold  Shares")  which Holder was entitled to receive
     upon such exercise (a "Buy-in"),  the Company shall pay Holder (in addition
     to any other remedies available to Holder) the amount by which (x) Holder's
     total  purchase  price  (including  brokerage  commission,  if any) for the
     shares of  Common  Stock so  purchased  exceeds  (y) the  lesser of (A) the
     Exercise Price or (B) the net proceeds  received by Holder from the sale of
     the Sold Shares.  Holder  shall  provide the Company  written  notification
     indicating any amounts payable to Holder pursuant to this subsection.

     2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date  hereof and before 5:00 P.M.,  Pacific  Time on the
fifth (5th) anniversary of the date hereof (the "Exercise Period").  The Company
hereby  acknowledges  that  exercise  of this  Warrant by Holder may subject the
Company and/or the Holder to the filing  requirements  of the  Hart-Scott-Rodino
Antitrust  Improvements Act of 1976, as amended, (the "HSR Act") and that Holder
may be prevented  from  exercising  this Warrant  until the  expiration or early
termination  of  all  waiting   periods   imposed  by  the  HSR  Act  ("HSR  Act
Restrictions").  If on or before the end of the Exercise  Period Holder has sent
the Notice of Exercise  to Company and Holder has not been able to complete  the
exercise of this Warrant prior to the end of the Exercise  Period because of HSR
Act  Restrictions,  the Holder  shall be  entitled  to  complete  the process of
exercising  this  Warrant,  for a period of  ten (10)  business  days  following
termination  of the HSR Act  Restrictions,  in  accordance  with the  procedures
contained  herein  notwithstanding  the fact that  completion of the exercise of
this Warrant would take place after the end of the Exercise Period.

     3. Certain  Agreements  of the Company.  The Company  hereby  covenants and
agrees as follows:

          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
     accordance with the terms of this Warrant,  be validly issued,  fully paid,
     and non-assessable and free from all taxes, liens, claims and encumbrances.

          (b)  Reservation of Shares.  During the Exercise  Period,  the Company
     shall at all  times  have  authorized,  and  reserved  for the  purpose  of
     issuance upon exercise of this  Warrant,  a sufficient  number of shares of
     Common Stock to provide for the exercise of this Warrant.

          (c) Listing.  From and after the date of issuance of this Warrant, the
     Company  shall have  secured and shall  thereafter,  for at least three (3)
     years after the date of issuance of this  Warrant,  maintain the listing of
     the shares of Common Stock  issuable upon exercise of this Warrant upon The
     Nasdaq  National  Market,  the Nasdaq SmallCap  Market,  the New York Stock
     Exchange or the American Stock  Exchange,  as required by the provisions of
     the  Securities  Purchase  Agreement  and  upon  each  national  securities
     exchange or automated quotation system, if any, upon which shares of Common
     Stock are then listed or become listed and shall  maintain,  so long as any
     other shares of Common Stock shall be so listed, such listing of all shares
     of  Common  Stock  from time to time  issuable  upon the  exercise  of this
     Warrant; and the Company shall so list on each national securities exchange
     or automated  quotation system, as the case may be, and shall maintain such
     listing of any other shares of capital  stock of the Company  issuable upon
     the  exercise of this Warrant so long as any shares of the same class shall
     be listed on such  national  securities  exchange  or  automated  quotation
     system.

          (d) Certain Actions Prohibited.  The Company will not, by amendment of
     its   charter  or  through   any   reorganization,   transfer   of  assets,
     consolidation,  merger,  dissolution,  issue or sale of securities,  or any
     other  voluntary  action,   avoid  or  seek  to  avoid  the  observance  or
     performance  of  any  of  the  terms  to be  observed  or  performed  by it
     hereunder,  but will at all times in good faith  assist in the carrying out
     of all the provisions of this Warrant and in the taking of all such actions
     as may  reasonably  be  requested by the Holder of this Warrant in order to
     protect the exercise  privilege of the Holder of this  Warrant,  consistent
     with the tenor and purpose of this Warrant. Without limiting the generality
     of the  foregoing,  the  Company  will  take  all  such  actions  as may be
     necessary or  appropriate in order that the Company may validly and legally
     issue fully paid and nonassessable shares of Common Stock upon the exercise
     of this Warrant.

     4.  Antidilution  Provisions.  During the  Exercise  Period or until  fully
exercised,  the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of
     Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
     if and whenever  after the initial  issuance of this  Warrant,  the Company
     issues or sells,  or in  accordance  with  Section 4(b) hereof is deemed to
     have issued or sold, any shares of Common Stock for no consideration or for
     a consideration per share less than the Market Price (as herein defined) on
     the date of issuance (a "Dilutive  Issuance"),  then effective  immediately
     upon  the  Dilutive  Issuance,  the  Exercise  Price  will be  adjusted  in
     accordance with the following formula:

     E' = (E) (O + P/M) / (CSDO)
 

     where:

     E' = the adjusted Exercise Price
     E = the then current Exercise Price;
     M = the then current Market Price;
     O = the number of shares of Common Stock  outstanding  immediately  prior 
     to the Dilutive Issuance;
     P = the aggregate consideration, calculated as set forth in Section 4(b) 
     hereof, received by the Company upon such Dilutive Issuance; and
     CSDO = the total number of shares of Common Stock Deemed  Outstanding (as 
     herein defined) immediately after the Dilutive Issuance.

          (b)  Effect on  Exercise  Price of Certain  Events.  For  purposes  of
     determining  the adjusted  Exercise  Price under  Section 4(a) hereof,  the
     following will be applicable:

               (i)  Issuance of Rights or Options.  If the Company in any manner
          issues or grants  any  warrants,  rights or  options,  whether  or not
          immediately exercisable,  to subscribe for or to purchase Common Stock
          or other securities exercisable,  convertible into or exchangeable for
          Common Stock ("Convertible Securities"),  but not to include the grant
          or exercise of any stock or options  which may hereafter be granted or
          exercised  under any employee or Director  benefit plan of the Company
          now  existing  or to be  implemented  in the  future,  so  long as the
          issuance  of such stock or options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose  (such  warrants,  rights and options to
          purchase  Common  Stock  or  Convertible  Securities  are  hereinafter
          referred to as  "Options"),  and the price per share for which  Common
          Stock is issuable  upon the  exercise of such Options is less than the
          Market Price on the date of issuance  ("Below Market  Options"),  then
          the maximum  total number of shares of Common Stock  issuable upon the
          exercise of all such Below Market  Options  (assuming  full  exercise,
          conversion or exchange of Convertible Securities, if applicable) will,
          as of the date of the issuance or grant of such Below Market  Options,
          be deemed to be  outstanding  and to have been  issued and sold by the
          Company  for such  price per  share.  For  purposes  of the  preceding
          sentence,  the price per share for which Common Stock is issuable upon
          the exercise of such Below Market  Options is  determined  by dividing
          (i) the total amount, if any, received or receivable by the Company as
          consideration  for the  issuance  or  granting  of such  Below  Market
          Options,   plus   the   minimum   aggregate   amount   of   additional
          consideration, if any, payable to the Company upon the exercise of all
          such Below Market Options, plus, in the case of Convertible Securities
          issuable upon the exercise of such Below Market  Options,  the minimum
          aggregate  amount  of  additional   consideration   payable  upon  the
          exercise,  conversion or exchange thereof at the time such Convertible
          Securities first become exercisable,  convertible or exchangeable,  by
          (ii) the maximum total number of shares of Common Stock  issuable upon
          the  exercise  of  all  such  Below  Market  Options   (assuming  full
          conversion  of  Convertible  Securities,  if  applicable).  No further
          adjustment to the Exercise Price will be made upon the actual issuance
          of such Common Stock upon the exercise of such Below Market Options or
          upon the exercise,  conversion or exchange of  Convertible  Securities
          issuable upon exercise of such Below Market Options.

               (ii) Issuance of Convertible Securities.

                    (A) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities,  whether or not immediately  convertible
               (other  than where the same are  issuable  upon the  exercise  of
               Options)  and the  price per  share  for  which  Common  Stock is
               issuable   upon  such   exercise,   conversion  or  exchange  (as
               determined pursuant to Section 4(b)(ii)(B) if applicable) is less
               than the Market Price on the date of  issuance,  then the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities  will,  as  of  the  date  of  the  issuance  of  such
               Convertible  Securities,  be deemed to be outstanding and to have
               been issued and sold by the Company for such price per share. For
               the purposes of the preceding  sentence,  the price per share for
               which Common Stock is issuable upon such exercise,  conversion or
               exchange is determined by dividing (i) the total amount,  if any,
               received or  receivable by the Company as  consideration  for the
               issuance  or sale of all such  Convertible  Securities,  plus the
               minimum  aggregate  amount of additional  consideration,  if any,
               payable to the Company upon the exercise,  conversion or exchange
               thereof  at the time such  Convertible  Securities  first  become
               exercisable,  convertible  or  exchangeable,  by (ii) the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities.  No further  adjustment to the Exercise Price will be
               made  upon  the  actual  issuances  of  such  Common  Stock  upon
               exercise, conversion or exchange of such Convertible Securities.

                    (B) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities with a fluctuating conversion or exercise
               price or exchange ratio (a "Variable Rate Convertible Security"),
               then the price per share for which Common Stock is issuable  upon
               such  exercise,  conversion  or  exchange  for  purposes  of  the
               calculation  contemplated by Section  4(b)(ii)(A) shall be deemed
               to be the  lowest  price  per  share  which  would be  applicable
               assuming that (1) all holding period and other  conditions to any
               discounts  contained  in  such  Convertible  Security  have  been
               satisfied,  and (2) the  Market  Price on the date of issuance of
               such  Convertible  Security  was 80% of the Market  Price on such
               date (the "Assumed Variable Market Price").

               (iii) Change in Option Price or Conversion  Rate.  Except for the
          grant or  exercise  of any stock or  options  which may  hereafter  be
          granted or exercised  under any  employee or Director  benefit plan of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance of such stock or options is approved by a majority of
          the non-employee members of the Board of Directors of the Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established for such purpose,  if there is a change at any time in (i)
          the amount of additional consideration payable to the Company upon the
          exercise of any Options;  (ii) the amount of additional consideration,
          if any,  payable  to the  Company  upon the  exercise,  conversion  or
          exchange or any Convertible Securities; or (iii) the rate at which any
          Convertible Securities are convertible into or exchangeable for Common
          Stock (other than under or by reason of provisions designed to protect
          against  dilution),  the Exercise  Price in effect at the time of such
          change will be readjusted to the Exercise  Price which would have been
          in effect  at such time had such  Options  or  Convertible  Securities
          still outstanding  provided for such changed additional  consideration
          or changed  conversion rate, as the case may be, at the time initially
          granted, issued or sold.

               (iv)  Treatment of Expired  Options and  Unexercised  Convertible
          Securities.  If,  in any case,  the  total  number of shares of Common
          Stock  issuable  upon  exercise  of  any  Options  or  upon  exercise,
          conversion or exchange of any Convertible  Securities is not, in fact,
          issued and the rights to exercise such option or to exercise,  convert
          or  exchange  such  Convertible   Securities  shall  have  expired  or
          terminated,  the Exercise  Price then in effect will be  readjusted to
          the Exercise Price which would have been in effect at the time of such
          expiration or termination had such Options or Convertible  Securities,
          to the extent  outstanding  immediately  prior to such  expiration  or
          termination  (other than in respect of the actual  number of shares of
          Common Stock issued upon exercise or conversion  thereof),  never been
          issued.

               (v) Calculation of Consideration  Received.  If any Common Stock,
          Options or  Convertible  Securities  are  issued,  granted or sold for
          cash, the consideration received therefor for purposes of this Warrant
          will be the amount received by the Company therefor,  before deduction
          of  reasonable  commissions,  underwriting  discounts or allowances or
          other  reasonable   expenses  paid  or  incurred  by  the  Company  in
          connection  with  such  issuance,  grant or sale.  In case any  Common
          Stock,  Options  or  Convertible  Securities  are issued or sold for a
          consideration  part or all of  which  shall be other  than  cash,  the
          amount of the  consideration  other than cash  received by the Company
          will be the fair market value of such consideration  except where such
          consideration consists of freely-tradeable  securities,  in which case
          the amount of consideration received by the Company will be the Market
          Price  thereof as of the date of  receipt.  In case any Common  Stock,
          Options or Convertible  Securities  are issued in connection  with any
          merger  or  consolidation  in  which  the  Company  is  the  surviving
          corporation, the amount of consideration therefor will be deemed to be
          the fair market  value of such  portion of the net assets and business
          of the  non-surviving  corporation as is  attributable  to such Common
          Stock, Options or Convertible Securities, as the case may be. The fair
          market value of any  consideration  other than cash or securities will
          be determined in the good faith  reasonable  business  judgment of the
          Board of Directors.

               (vi) Exceptions to Adjustment of Exercise Price. No adjustment to
          the Exercise Price will be made (i) upon the exercise of any warrants,
          options or convertible  securities  issued and outstanding on the date
          hereof  in  accordance  with the terms of such  securities  as of such
          date;  (ii) upon the grant or exercise  of any stock or options  which
          may  hereafter be granted or exercised  under any employee or Director
          benefit plan of the Company now existing or to be  implemented  in the
          future,  so long as the  issuance of such stock or options is approved
          by a majority of the non-employee members of the Board of Directors of
          the  Company  or  a  majority  of  the  members  of  a  committee   of
          non-employee  directors  established for such purpose;  (iii) upon the
          issuance of the Common Shares (as defined in the  Securities  Purchase
          Agreement)  or Warrants  in  accordance  with terms of the  Securities
          Purchase Agreement; or (iv) upon the exercise of the Warrants.

          (c) Subdivision or Combination of Common Stock. If the Company, at any
     time after the initial  issuance of this Warrant,  subdivides (by any stock
     split, stock dividend, recapitalization,  reorganization,  reclassification
     or otherwise)  its shares of Common Stock into a greater  number of shares,
     then, after the date of record for effecting such subdivision, the Exercise
     Price  in   effect   immediately   prior  to  such   subdivision   will  be
     proportionately  reduced.  If the  Company,  at any time after the  initial
     issuance   of   this   Warrant,   combines   (by   reverse   stock   split,
     recapitalization, reorganization, reclassification or otherwise) its shares
     of Common Stock into a smaller  number of shares,  then,  after the date of
     record  for  effecting  such  combination,  the  Exercise  Price in  effect
     immediately prior to such combination will be proportionately increased.

          (d)  Adjustment  in Number of  Shares.  Upon  each  adjustment  of the
     Exercise  Price pursuant to the provisions of this Section 4, the number of
     shares of Common Stock  issuable  upon  exercise of this  Warrant  shall be
     adjusted by  multiplying  a number  equal to the  Exercise  Price in effect
     immediately  prior to such  adjustment  by the  number  of shares of Common
     Stock  issuable  upon  exercise of this Warrant  immediately  prior to such
     adjustment  and dividing  the product so obtained by the adjusted  Exercise
     Price.

          (e) Major Transactions. If the Company shall consolidate or merge with
     any other  corporation  or entity (other than a merger in which the Company
     is the  surviving or  continuing  entity and its capital stock is unchanged
     and unissued in such transaction (except for Common Stock constituting less
     than twenty percent (20%) of the Company's Common Stock then  outstanding))
     or  any  subsidiary  of  the  Company  shall  be a  party  to a  merger  or
     consolidation  or other  extraordinary  transaction  and the Company issues
     twenty  percent  (20%) or more of its  Common  Stock  in any  such  merger,
     consolidation or other  transaction or there shall occur any share exchange
     pursuant  to which  all of the  outstanding  shares  of  Common  Stock  are
     converted  into other  securities  or property or any  reclassification  or
     change of the  outstanding  shares of Common  Stock (each of the  foregoing
     being a "Major Transaction"), then each holder of a Warrant may thereafter,
     at its  option,  be  entitled  to (a) in the event  that the  Common  Stock
     remains  outstanding or holders of Common Stock receive any common stock or
     substantially similar equity interest, in each of the foregoing cases which
     is publicly  traded,  retain its Warrant and such Warrant shall continue to
     apply to such Common Stock or shall  apply,  as nearly as  practicable,  to
     such  other  common  stock or equity  interest,  as the case may be, or (b)
     regardless or whether (a) applies,  receive consideration,  in exchange for
     such Warrant, equal to the greater of, as determined in the sole discretion
     of such holder, (i) the number of shares of stock or securities or property
     of the Company, or of the entity resulting from such Major Transaction (the
     "Major  Transaction  Consideration"),  to which a holder  of the  number of
     shares of Common Stock  delivered  upon the exercise of such Warrant  would
     have been entitled upon such Major  Transaction  had such holder  exercised
     the Warrant  (without  regard to any limitations on conversion or elsewhere
     contained)   on  the  trading  date   immediately   preceding   the  public
     announcement of the transaction resulting in such Major Transaction and had
     such Common Stock been issued and  outstanding and had such Holder been the
     holder of record of such Common  Stock at the time of the  consummation  of
     such Major  Transaction,  and (ii) cash paid by the Company in  immediately
     available  funds, in an amount equal to one hundred and twenty five percent
     (125%) of the Black-Scholes  Amount (as defined herein) times the number of
     shares of Common  Stock for which this  Warrant  was  exercisable  (without
     regard to any  limitations on exercise herein  contained);  and the Company
     shall  make  lawful  provision  for the  foregoing  as a part of such Major
     Transaction and shall cause the issuer of any security in such  transaction
     which  constitutes  Registrable  Securities under the  registration  rights
     provisions of Section 7(c) of the Securities  Purchase  Agreement to assume
     all of the  Company's  obligations  thereunder.  No  sooner  than  ten (10)
     business  days  nor  later  than  five  (5)  business  days  prior  to  the
     consummation  of the  Major  Transaction,  but  not  prior  to  the  public
     announcement of such Major  Transaction,  the Company shall deliver written
     notice ("Notice of Major  Transaction") to each holder of a Warrant,  which
     Notice of Major  Transaction shall be deemed to have been delivered one (1)
     business day after the Company's sending such notice by telecopy  (provided
     that the Company sends a confirming  copy of such notice on the same day by
     overnight  courier)  of such  Notice of Major  Transaction.  Such Notice of
     Major  Transaction  shall  indicate  the  amount  and  type  of  the  Major
     Transaction  consideration  which such  holder of a Warrant  would  receive
     under this Section. If the Major Transaction Consideration does not consist
     entirely of United States currency, such holder may elect to receive United
     States  currency in an amount  equal to the value of the Major  Transaction
     Consideration in lieu of the Major Transaction  Consideration by delivering
     notice of such  election to the Company  within five (5)  business  days of
     such holder's receipt of the Notice of Major Transaction.

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following variable values: (i) the current market price of the Common Stock
     equal to the closing trade price on the last trading day before the date of
     the Notice of the Major  Transaction;  (ii)  volatility of the Common Stock
     equal to the  volatility  of the common  Stock  during the 100  trading day
     period preceding the date of the Notice of the Major  Transaction;  (iii) a
     risk free rate equal to the  interest  rate on the United  States  treasury
     bill or treasury note with a maturity  corresponding  to the remaining term
     of this  Warrant  on the date of the Notice of the Major  Transaction;  and
     (iv) an  exercise  price  equal  to the  Exercise  Price on the date of the
     Notice of the Major Transaction.  In the event such calculation function is
     no longer  available  utilizing the Bloomberg online page, the Holder shall
     calculate such amount in its sole  discretion  using the closest  available
     alternative  mechanism and variable values to those available utilizing the
     Bloomberg online page for such calculation function.

          (f) Distribution of Assets.  In case the Company shall declare or make
     any distribution of its assets (or rights to acquire its assets) to holders
     of Common  Stock as a  partial  liquidating  dividend,  by way of return of
     capital  or  otherwise  (including  any  dividend  or  distribution  to the
     Company's  shareholders  of cash or shares (or rights to acquire shares) of
     capital stock of a subsidiary)  (a  "Distribution"),  at any time after the
     initial  issuance of this  Warrant,  then the Holder shall be entitled upon
     exercise of this  Warrant  for the  purchase of any or all of the shares of
     Common  Stock  subject  hereto,  to receive  the amount of such  assets (or
     rights)  which  would have been  payable to the Holder had such Holder been
     the  holder  of such  shares  of Common  Stock on the  record  date for the
     determination of shareholders entitled to such Distribution.

          (g)  Notices of  Adjustment.  Upon the  occurrence  of any event which
     requires any adjustment of the Exercise Price, then, and in each such case,
     the Company  shall give notice  thereof to the Holder,  which  notice shall
     state the Exercise Price resulting from such adjustment and the increase or
     decrease  in the number of Warrant  Shares  purchasable  at such price upon
     exercise,  setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.  Such calculation  shall be
     certified by the chief financial officer of the Company.

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

          (i) No Fractional  Shares. No fractional shares of Common Stock are to
     be issued upon the exercise of this  Warrant,  but the Company  shall pay a
     cash adjustment in respect of any fractional share which would otherwise be
     issuable in an amount  equal to the same  fraction of the Market Price of a
     share of Common Stock; provided that in the event that sufficient funds are
     not  legally  available  for  the  payment  of  such  cash  adjustment  any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (j) Other Notices. In case at any time:

               (i) the Company  shall declare any dividend upon the Common Stock
          payable in shares of stock of any class or make any other distribution
          to the holders of the Common Stock;

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

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

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

               then, in each such case, the Company shall give to the Holder (a)
          notice of the date on which the books of the Company  shall close or a
          record  shall be taken for  determining  the  holders of Common  Stock
          entitled to receive any such dividend,  distribution,  or subscription
          rights or for determining the holders of Common Stock entitled to vote
          in   respect   of   any   such    reorganization,    reclassification,
          consolidation,  merger, sale,  dissolution,  liquidation or winding-up
          and (b) in the  case  of any  such  reorganization,  reclassification,
          consolidation,  merger, sale, dissolution,  liquidation or winding-up,
          notice of the date (or, if not then known, a reasonable  approximation
          thereof by the  Company)  when the same shall take place.  Such notice
          shall also specify the date on which the holders of Common Stock shall
          be entitled to receive such dividend,  distribution,  or  subscription
          rights or to exchange their Common Stock for stock or other securities
          or property  deliverable upon such  reorganization,  reclassification,
          consolidation, merger, sale, dissolution,  liquidation, or winding-up,
          as the case may be. Such notice  shall be given at least 30 days prior
          to the record date or the date on which the Company's books are closed
          in respect thereto,  but in no event earlier than public  announcement
          of such proposed transaction or event. Failure to give any such notice
          or any defect therein shall not affect the validity of the proceedings
          referred to in clauses (i), (ii), (iii) and (iv) above.

          (k) Certain Definitions.

               (i) "Common  Stock Deemed  Outstanding"  shall mean the number of
          shares of Common Stock actually  outstanding  (not including shares of
          Common Stock held in the treasury of the Company), plus (x) in case of
          any adjustment required by Section 4(a) resulting from the issuance of
          any  Options,  the  maximum  total  number of  shares of Common  Stock
          issuable upon the exercise of the Options for which the  adjustment is
          required  (including  any Common Stock issuable upon the conversion of
          Convertible  Securities  issuable upon the exercise of such  Options),
          and  (y) in the  case  of any  adjustment  required  by  Section  4(a)
          resulting from the issuance of any Convertible Securities, the maximum
          total number of shares of Common  Stock  issuable  upon the  exercise,
          conversion  or exchange of the  Convertible  Securities  for which the
          adjustment is required, as of the date of issuance of such Convertible
          Securities, if any.

               (ii) "Market Price," as of any date, (i) means the average of the
          Closing  Bid  Prices  for the shares of Common  Stock as  reported  to
          Nasdaq   National  Market  System  for  the  trading  day  immediately
          preceding such date, or (ii) if The Nasdaq  National Market is not the
          principal trading market for the Common Stock, the average of the last
          reported  bid prices on the  principal  trading  market for the Common
          Stock  during the same  period,  or, if there is no bid price for such
          period,  the last  reported  sales price for such period,  or (iii) if
          market  value  cannot  be  calculated  as of  such  date on any of the
          foregoing  bases,  the Market  Price  shall be the value  thereof,  as
          agreed upon by the Company and the Holder; provided,  however, that if
          the Company  and the Holder  cannot  agree on such  value,  such value
          shall be the average fair market value as reasonably  determined by an
          investment  banking  firm  selected  by  the  Company  and  reasonably
          acceptable  to the Holders of a majority in interest of the  Warrants,
          with the costs of the appraisal to be borne by the Company. The manner
          of  determining  the Market Price of the Common Stock set forth in the
          foregoing definition shall apply with respect to any other security in
          respect  of which a  determination  as to  market  value  must be made
          hereunder.

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

                    (l) Other Adjustments. If:

                    (1)  Maurizio  Vecchione  disposes  of any  shares of Common
               Stock beneficially owned by him while the Common Stock is trading
               at or below twenty-five dollars ($25) per share during the period
               beginning on the date of the Closing and ending on the earlier of
               (i) the first (1st)  anniversary  of the date of the Closing,  or
               (ii) the date on which Maurizio  Vecchione ceases to be President
               or CEO of the Company; or

                    (2)  Joyce  Freedman  or Lee  Freedman  (each a  "Freedman")
               dispose of any shares of Common Stock  beneficially owned by such
               Freedman at any time during the period  beginning  on the date of
               the  Closing  and  ending  on the date  which  is six (6)  months
               following the Closing,  then the Exercise Price shall be adjusted
               to the  Adjusted  Exercise  Price  (as  defined  herein)  if such
               adjustment  would  result in a decrease  in the  Exercise  Price;
               provided,  however, that the Exercise Price shall not be adjusted
               upon the  occurrence of a disposal  described in clause (1) until
               Maurizio  Vecchione  sells or  otherwise  transfers  in excess of
               fifty  thousand  (50,000)  shares  of Common  Stock in  aggregate
               during such period at a price less than twenty-five dollars ($25)
               pursuant to Rule 144. For any disposal of Common Stock  described
               hereunder, the "Adjusted Exercise Price" shall mean the lesser of
               (a) the lowest  closing bid price of the Common  Stock during the
               thirty (30) trading day period  beginning on the trading day (the
               "Announcement Date") immediately  preceding the day on which such
               disposal was publicly announced and (b) the price per share which
               Vecchione or such Freedman, as applicable, received in connection
               with  such  disposal;  provided,  however,  that if the  Adjusted
               Exercise  Price  described  above is  greater  than the  Exercise
               Price, then the Adjusted Exercise Price shall be equal to (c) the
               lowest  closing bid price of the Common  Stock  during the thirty
               (30)  trading  day  period  beginning  on the  Announcement  Date
               divided by (d) the  closing bid price of the Common  Stock on the
               Announcement Date times (e) the Exercise Price.

     5. Cap  Amount.  Prior to Nasdaq  Approval  (as  defined in the  Securities
Purchase  Agreement) or 4460 Shareholder  Approval (as defined in the Securities
Purchase Agreement), unless otherwise permitted by The Nasdaq National Market or
unless the rules thereof no longer are  applicable  to the Company,  in no event
shall the total number of shares of Common Stock issued at the Closing under the
Securities  Purchase  Agreement  and upon  exercise of the  Warrants  exceed the
maximum  number  of  shares  of  Common  Stock  that  the  Company  can  without
stockholder  approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor
rule) (the "Cap Amount") upon Closing under the  Securities  Purchase  Agreement
and the exercise of the Warrants,  which, as of the date of initial  issuance of
Common  Stock and Warrants to the  Holders,  which  amount is one  million,  two
hundred thirty two thousand and forty five  (1,232,045)  shares.  The Cap Amount
shall be allocated  pro rata among the Holders  based on the number of shares of
Common  Stock and Warrants  issued to each  Holder.  In the event a Holder shall
sell or otherwise transfer any of such Holder's Warrants,  each transferee shall
be  allocated a pro rata  portion of such  transferor's  Cap Amount.  A Holder's
allocable portion of the Cap Amount shall be allocated first to the Common Stock
issued to the Holder at the Closing  under the  Securities  Purchase  Agreement,
then to the First Warrants (as defined in the Securities Purchase Agreement) and
only the Warrants shall be subject to the limitation imposed by this Section 5.

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

     7. No  Rights or  Liabilities  as a  Shareholder.  This  Warrant  shall not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company.  No provision of this Warrant,  in the absence of affirmative action by
the Holder to purchase  Warrant Shares,  and no mere  enumeration  herein of the
rights or  privileges  of the Holder,  shall give rise to any  liability  of the
Holder for the Exercise Price or as a shareholder  of the Company,  whether such
liability is asserted by the Company or by creditors of the Company.

     8. Transfer, Exchange and Replacement of Warrant.

          a. Restriction on Transfer. This Warrant and the rights granted to the
     Holder  are  transferable,  in  whole or in part,  upon  surrender  of this
     Warrant,  together  with a  properly  executed  assignment  in the  Form of
     Assignment  attached  hereto as  Exhibit  2, at the office or agency of the
     Company  referred to in Section  8(e) below,  provided,  however,  that any
     transfer or assignment shall be subject to the provisions of the Securities
     Purchase  Agreement.  Until due presentment for registration of transfer on
     the books of the  Company,  the  Company  may treat the  registered  holder
     hereof as the owner and holder  hereof for all  purposes,  and the  Company
     shall  not be  affected  by any  notice  to the  contrary.  Notwithstanding
     anything  to  the  contrary  contained  herein,  the  registration   rights
     described in Section 9 hereof are  assignable  only in accordance  with the
     provisions of the Securities Purchase Agreement.
 
          b. Warrant Exchangeable for Different  Denominations.  This Warrant is
     exchangeable,  upon the  surrender  hereof by the  Holder at the  office or
     agency of the Company  referred to in Section 8(e) below, for new Warrants,
     in  the  form  hereof,  of  different  denominations  representing  in  the
     aggregate  the right to purchase the number of shares of Common Stock which
     may be purchased  hereunder,  each of such new  Warrants to  represent  the
     right to  purchase  such  number of shares  as shall be  designated  by the
     Holder of at the time of such surrender.

          c.  Replacement  of  Warrant.  Upon  receipt  of  evidence  reasonably
     satisfactory to the Company of the loss, theft, destruction,  or mutilation
     of this Warrant or, in the case of any such loss,  theft,  or  destruction,
     upon delivery,  of an indemnity agreement  reasonably  satisfactory in form
     and amount to the  Company,  or, in the case of any such  mutilation,  upon
     surrender and  cancellation of this Warrant,  the Company,  at its expense,
     will execute and deliver,  in lieu  thereof,  a new  Warrants,  in the form
     hereof, in such denominations as Holder may request.

          d.  Cancellation;  Payment of  Expenses.  Upon the  surrender  of this
     Warrant in  connection  with any  transfer,  exchange,  or  replacement  as
     provided in this Section 8, this Warrant shall be promptly  canceled by the
     Company.  The Company shall pay all issuance  taxes (other than  securities
     transfer  taxes) and charges  payable in connection  with the  preparation,
     execution, and delivery of Warrants pursuant to this Section 8.

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

     9.  Registration  Rights.  The initial  holder of this Warrant (and certain
assignees  thereof) is entitled  to the benefit of such  registration  rights in
respect of the Warrant Shares as are set forth in Section 7(c) of the Securities
Purchase Agreement.

     10.  Notices.  Any notice herein required or permitted to be given shall be
in writing and may be personally  served or delivered by courier or by confirmed
telecopy,  and shall be deemed  delivered at the time and date of receipt (which
shall include  telephone  line facsimile  transmission).  The addresses for such
communications shall be:

                  If to the Company:

                           ModaCAD, Inc.
                           3861 Sepulveda Blvd.
                           Culver City, CA 90230
                           Telecopy: (310) 751-2120
                           Attention: President

                           with a copy to:

                           Coudert Brothers
                           1055 West Seventh Street - 20th Floor
                           Los Angeles, CA  90017
                           Telecopy:  (213) 689-4467
                           Attention:  John A. St. Clair

and if to the Holder,  at such address as Holder shall have  provided in writing
to the Company,  or at such other address as each such party furnishes by notice
given in accordance with this Section 10.

     11.  Governing  Law;  Jurisdiction.  This Warrant  shall be governed by and
construed in accordance  with the laws of the State of California  applicable to
contracts  made and to be  performed  in the State of  California.  The  Company
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the State of California and the state courts located in the County of
Santa Clara in the State of  California  in any suit or  proceeding  based on or
arising under this Warrant and irrevocably  agrees that all claims in respect of
such  suit  or  proceeding  may  be  determined  in  such  courts.  The  Company
irrevocably  waives the defense of an  inconvenient  forum to the maintenance of
such suit or proceeding.  The Company agrees that a final nonappealable judgment
in any such suit or proceeding  shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

     12. Miscellaneous.

          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument in writing signed by the Company and the Holder.

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

          c.  Cashless  Exercise.   Notwithstanding  anything  to  the  contrary
     contained in this  Warrant,  this Warrant may be exercised by  presentation
     and  surrender  of this Warrant to the Company at its  principal  executive
     offices  with a  written  notice  of the  Holder's  intention  to  effect a
     Cashless  Exercise,  including  a  calculation  of the  number of shares of
     Common Stock to be issued upon such exercise in  accordance  with the terms
     hereof (a "Cashless  Exercise").  In the event of a Cashless  Exercise,  in
     lieu of paying the Exercise Price in cash, the Holder shall  surrender this
     Warrant for the number of shares of Common Stock  determined by multiplying
     the number of Warrant  Shares to which it would  otherwise be entitled by a
     fraction,  the numerator of which shall be the difference  between the then
     current Market Price per share of the Common Stock and the Exercise  Price,
     and the  denominator  of which shall be such then current  Market Price per
     share of Common Stock.

          d.  Assignability.  This Warrant shall be binding upon the Company and
     its successors and assigns and shall inure to the benefit of Holder and its
     successors  and  assigns.  The Holder  shall  notify the  Company  upon the
     assignment of this Warrant.

          e.  Weekends,  Etc.  If the  end of the  Exercise  Period  falls  on a
     Saturday,  Sunday or legal holiday, the end of the Exercise Period shall be
     extended automatically until 5:00 p.m. the next business day.

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

     ModaCAD, Inc.

     By:      /s/ JOYCE FREEDMAN
        ______________________________
     Name:   Joyce Freedman
     Title:  Chief Executive Officer
FORM OF EXERCISE AGREEMENT

         (To be Executed by the Holder in order to Exercise the Warrant)

     The  undersigned  hereby  irrevocably   exercises  the  right  to  purchase
____________  of the shares of common  stock of ModaCAD,  Inc.,  a  [California]
corporation (the "Company"),  evidenced by the attached  Warrant,  and [herewith
makes payment of the Exercise  Price with respect to such shares in full/ elects
to effect a Cashless  Exercise  pursuant  to the terms of the  Warrant],  all in
accordance with the conditions and provisions of said Warrant.

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

     (ii) The undersigned  requests that stock  certificates  for such shares be
issued,  and a Warrant  representing  any unexercised  portion hereof be issued,
pursuant  to the  Warrant in the name of the  Holder  (or such  other  person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:

Date:                                                      
Signature of Holder

Name of Holder (Print)

Address:
FORM OF ASSIGNMENT

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

Name of Assignee                  Address                          No. of Shares

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

Date:____________, _____,

In the presence of

Name:

Signature:
Title of Signing Officer or Agent (if any):

Address:

Note: The above signature should correspond exactly with the name on the face of
the within Warrant.
EXHIBIT A-2
THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,  OR THE SECURITIES  LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES  REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES UNDER APPLICABLE  SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED   PURSUANT  TO  AN  AVAILABLE   EXEMPTION   FROM  THE   REGISTRATION
REQUIREMENTS OF THOSE LAWS.

                                Right to Purchase 189,674 Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT

     THIS  CERTIFIES  THAT,  for  value  received,   Intel  Corporation  or  its
registered  assigns,  is entitled to purchase from  ModaCAD,  Inc., a California
corporation (the "Company"),  at any time or from time to time during the period
specified  in Section 2 hereof,  One Hundred  Eighty-Nine  Thousand  Six Hundred
Seventy-Four  (189,674)  fully paid and  nonassessable  shares of the  Company's
common stock (the "Common  Stock"),  at an initial  exercise price of $13.18 per
share (the  "Exercise  Price".  This  Warrant is being  issued  pursuant to that
certain Stock and Warrant  Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (the "Securities  Purchase  Agreement").
The  number of  shares  of Common  Stock  purchasable  hereunder  (the  "Warrant
Shares") and the Exercise Price are subject to adjustment as provided in Section
4 hereof.  The term "Warrants"  means this Warrant and the other warrants of the
Company issued pursuant to the terms of the Securities Purchase Agreement.

     The term  "Closing Bid Price" means,  for any security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the  Company and  reasonably  acceptable  to the holder  hereof (the
"Holder")  if  Bloomberg  Financial  Markets is not then  reporting  closing bid
prices of such security  (collectively,  "Bloomberg"),  or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market  on the  electronic  bulletin  board  of such  security  as  reported  by
Bloomberg,  or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market  makers for such security as reported in
the "pink  sheets" by the  National  Quotation  Bureau,  Inc. If the Closing Bid
Price  cannot  be  calculated  for  such  security  on  such  date on any of the
foregoing  bases,  the Closing Bid Price of such  security on such date shall be
the value  thereof,  as agreed upon by the  Company  and the  Holder;  provided,
however,  that if the Company and the Holder  cannot  agree on such value,  such
value shall be the fair market value as  reasonably  determined by an investment
banking firm  selected by the Company and  reasonably  acceptable  to the Holder
with the costs of such appraisal to be borne by the Company.

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

     1.  Mechanics of Exercise.  Subject to the  provisions  hereof,  including,
without  limitation,  the  limitations  contained in Section  8(f) hereof,  this
Warrant may be exercised as follows:

          (a) Manner of  Exercise.  This Warrant may be exercised by the Holder,
     in whole or in part, by the surrender of this Warrant (or evidence of loss,
     theft,  destruction or mutilation  thereof in accordance  with Section 8(c)
     hereof),  together  with a  completed  exercise  agreement  in the  Form of
     Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
     to the Company at the Company's  principal executive offices (or such other
     office  or  agency  of the  Company  as it may  designate  by notice to the
     Holder),  and upon payment to the Company in cash, by certified or official
     bank  check or by wire  transfer  for the  account of the  Company,  of the
     Exercise Price for the Warrant Shares specified in the Exercise  Agreement.
     The Warrant Shares so purchased  shall be deemed to be issued to the Holder
     or Holder's  designees,  as the record owner of such shares, as of the date
     on which this Warrant shall have been surrendered,  the completed  Exercise
     Agreement shall have been  delivered,  and payment shall have been made for
     such shares as set forth  above.  In lieu of the payment  methods set forth
     above, when permitted by law and applicable  regulations  (including Nasdaq
     and NASD rules),  the Holder may pay the Exercise Price through a "same day
     sale" commitment from the Holder (and if applicable a broker-dealer that is
     a  member  of the  National  Association  of  Securities  Dealers  (a "NASD
     Dealer")),  whereby the Holder  irrevocably elects to exercise this Warrant
     and to sell a portion of the Shares so  purchased  to pay for the  Exercise
     Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
     (or, in the case of the NASD Dealer,  upon receipt) of such Warrant  Shares
     to forward the Exercise Price directly to the Company.

          (b) Issuance of  Certificates.  Subject to Section 1(c),  certificates
     for the Warrant Shares so purchased,  representing  the aggregate number of
     shares  specified  in the  Exercise  Agreement,  shall be  delivered to the
     Holder within a reasonable  time,  not exceeding  three (3) business  days,
     after this Warrant shall have been so exercised  (the  "Delivery  Period").
     The  certificates  so delivered  shall be in such  denominations  as may be
     reasonably  requested by the Holder and shall be  registered in the name of
     Holder or such other name as shall be  designated  by such Holder.  If this
     Warrant shall have been exercised only in part,  then,  unless this Warrant
     has expired,  the Company shall, at its expense, at the time of delivery of
     such  certificates,  deliver to the Holder a new Warrant  representing  the
     number of shares  with  respect to which this  Warrant  shall not then have
     been exercised.

          (c) Exercise  Disputes.  In the case of any dispute with respect to an
     exercise,  the Company shall promptly issue such number of shares of Common
     Stock as are not disputed in accordance with this Section.  If such dispute
     involves the  calculation of the Exercise  Price,  the Company shall submit
     the disputed calculations to a nationally recognized independent accounting
     firm (selected by the Company) via facsimile within three (3) business days
     of receipt of the Exercise  Agreement.  The accounting firm shall audit the
     calculations  and  notify  the  Company  and the  converting  Holder of the
     results no later than two (2)  business  days from the date it receives the
     disputed  calculations.  The accounting firm's  calculation shall be deemed
     conclusive,  absent  manifest  error.  The  Company  shall  then  issue the
     appropriate  number  of  shares of  Common  Stock in  accordance  with this
     Section.

          (d) Fractional  Shares. No fractional shares of Common Stock are to be
     issued upon the exercise of this Warrant,  but the Company shall pay a cash
     adjustment  in respect of any  fractional  share which would  otherwise  be
     issuable in an amount equal to the same fraction of the Exercise Price of a
     share of Common  Stock (as  determined  for  exercise of this  Warrant into
     whole shares of Common Stock);  provided that in the event that  sufficient
     funds are not legally available for the payment of such cash adjustment any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (e)  Buy-In.  If (i) the  Company  fails for any  reason  (other  than
     Holder's  failure  to pay  timely to the  Company  the  Exercise  Price) to
     deliver during the Delivery Period shares of Common Stock to Holder upon an
     exercise of this Warrant and (ii) after the applicable Delivery Period with
     respect  to  such  an  exercise,   Holder  purchases  (in  an  open  market
     transaction  or  otherwise)  shares of Common Stock to make delivery upon a
     sale by Holder of the  shares of Common  Stock (the  "Sold  Shares")  which
     Holder was entitled to receive upon such exercise (a "Buy-in"), the Company
     shall pay Holder (in  addition to any other  remedies  available to Holder)
     the amount by which (x) Holder's total purchase price (including  brokerage
     commission, if any) for the shares of Common Stock so purchased exceeds (y)
     the lesser of (A) the Exercise  Price or (B) the net  proceeds  received by
     Holder from the sale of the Sold Shares.  Holder shall  provide the Company
     written  notification  indicating any amounts payable to Holder pursuant to
     this subsection.

     2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date  hereof and before 5:00 P.M.,  Pacific  Time on the
first (1st) anniversary of the date hereof (the "Exercise Period").  The Company
hereby  acknowledges  that  exercise  of this  Warrant by Holder may subject the
Company and/or the Holder to the filing  requirements  of the  Hart-Scott-Rodino
Antitrust  Improvements Act of 1976, as amended, (the "HSR Act") and that Holder
may be prevented  from  exercising  this Warrant  until the  expiration or early
termination  of  all  waiting   periods   imposed  by  the  HSR  Act  ("HSR  Act
Restrictions").  If on or before the end of the Exercise  Period Holder has sent
the Notice of Exercise  to Company and Holder has not been able to complete  the
exercise of this Warrant prior to the end of the Exercise  Period because of HSR
Act  Restrictions,  the Holder  shall be  entitled  to  complete  the process of
exercising  this  Warrant,  for a period of  ten (10)  business  days  following
termination  of the HSR Act  Restrictions,  in  accordance  with the  procedures
contained  herein  notwithstanding  the fact that  completion of the exercise of
this Warrant would take place after the end of the Exercise Period.

     3. Certain  Agreements  of the Company.  The Company  hereby  covenants and
agrees as follows:

          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
     accordance with the terms of this Warrant,  be validly issued,  fully paid,
     and non-assessable and free from all taxes, liens, claims and encumbrances.

          (b)  Reservation of Shares.  During the Exercise  Period,  the Company
     shall at all  times  have  authorized,  and  reserved  for the  purpose  of
     issuance upon exercise of this  Warrant,  a sufficient  number of shares of
     Common Stock to provide for the exercise of this Warrant.

          (c) Listing.  From and after the date of issuance of this Warrant, the
     Company  shall have  secured and shall  thereafter,  for at least three (3)
     years after the date of issuance of this  Warrant,  maintain the listing of
     the shares of Common Stock  issuable upon exercise of this Warrant upon The
     Nasdaq  National  Market,  the Nasdaq SmallCap  Market,  the New York Stock
     Exchange or the  American  Stock  Exchange,  as required by the  Securities
     Purchase Agreement and upon each national  securities exchange or automated
     quotation system, if any, upon which shares of Common Stock are then listed
     or become listed and shall maintain,  so long as any other shares of Common
     Stock shall be so listed,  such  listing of all shares of Common Stock from
     time to time issuable  upon the exercise of this  Warrant;  and the Company
     shall so list on each national  securities  exchange or automated quotation
     system,  as the case may be, and shall  maintain  such listing of any other
     shares of capital  stock of the Company  issuable upon the exercise of this
     Warrant  so long as any  shares of the same  class  shall be listed on such
     national securities exchange or automated quotation system.

          (d) Certain Actions Prohibited.  The Company will not, by amendment of
     its   charter  or  through   any   reorganization,   transfer   of  assets,
     consolidation,  merger,  dissolution,  issue or sale of securities,  or any
     other  voluntary  action,   avoid  or  seek  to  avoid  the  observance  or
     performance  of  any  of  the  terms  to be  observed  or  performed  by it
     hereunder,  but will at all times in good faith  assist in the carrying out
     of all the provisions of this Warrant and in the taking of all such actions
     as may  reasonably  be  requested by the Holder of this Warrant in order to
     protect the exercise  privilege of the Holder of this  Warrant,  consistent
     with the tenor and purpose of this Warrant. Without limiting the generality
     of the  foregoing,  the  Company  will  take  all  such  actions  as may be
     necessary or  appropriate in order that the Company may validly and legally
     issue fully paid and nonassessable shares of Common Stock upon the exercise
     of this Warrant.

     4.  Antidilution  Provisions.  During the  Exercise  Period or until  fully
exercised,  the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of
     Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
     if and whenever  after the initial  issuance of this  Warrant,  the Company
     issues or sells,  or in  accordance  with  Section 4(b) hereof is deemed to
     have issued or sold, any shares of Common Stock for no consideration or for
     a consideration per share less than the Market Price (as herein defined) on
     the date of issuance (a "Dilutive  Issuance"),  then effective  immediately
     upon  the  Dilutive  Issuance,  the  Exercise  Price  will be  adjusted  in
     accordance with the following formula:

     E' = (E) (O + P/M) / (CSDO)
 

     where:

     E' = the adjusted Exercise Price
     E = the then current Exercise Price;
     M = the then current Market Price;
     O = the number of shares of Common Stock  outstanding  immediately  prior 
     to the Dilutive Issuance;
     P = the aggregate consideration, calculated as set forth in Section 4(b) 
     hereof, received by the Company upon such Dilutive Issuance; and
     CSDO = the total number of shares of Common Stock Deemed  Outstanding (as 
     herein defined) immediately after the Dilutive Issuance.

          (b)  Effect on  Exercise  Price of Certain  Events.  For  purposes  of
     determining  the adjusted  Exercise  Price under  Section 4(a) hereof,  the
     following will be applicable:

               (i)  Issuance of Rights or Options.  If the Company in any manner
          issues or grants  any  warrants,  rights or  options,  whether  or not
          immediately exercisable,  to subscribe for or to purchase Common Stock
          or other securities exercisable,  convertible into or exchangeable for
          Common Stock ("Convertible Securities"),  but not to include the grant
          or exercise of any stock or options  which may hereafter be granted or
          exercised  under any employee or Director  benefit plan of the Company
          now  existing  or to be  implemented  in the  future,  so  long as the
          issuance  of such stock or options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose  (such  warrants,  rights and options to
          purchase  Common  Stock  or  Convertible  Securities  are  hereinafter
          referred to as  "Options"),  and the price per share for which  Common
          Stock is issuable  upon the  exercise of such Options is less than the
          Market Price on the date of issuance  ("Below Market  Options"),  then
          the maximum  total number of shares of Common Stock  issuable upon the
          exercise of all such Below Market  Options  (assuming  full  exercise,
          conversion or exchange of Convertible Securities, if applicable) will,
          as of the date of the issuance or grant of such Below Market  Options,
          be deemed to be  outstanding  and to have been  issued and sold by the
          Company  for such  price per  share.  For  purposes  of the  preceding
          sentence,  the price per share for which Common Stock is issuable upon
          the exercise of such Below Market  Options is  determined  by dividing
          (i) the total amount, if any, received or receivable by the Company as
          consideration  for the  issuance  or  granting  of such  Below  Market
          Options,   plus   the   minimum   aggregate   amount   of   additional
          consideration, if any, payable to the Company upon the exercise of all
          such Below Market Options, plus, in the case of Convertible Securities
          issuable upon the exercise of such Below Market  Options,  the minimum
          aggregate  amount  of  additional   consideration   payable  upon  the
          exercise,  conversion or exchange thereof at the time such Convertible
          Securities first become exercisable,  convertible or exchangeable,  by
          (ii) the maximum total number of shares of Common Stock  issuable upon
          the  exercise  of  all  such  Below  Market  Options   (assuming  full
          conversion  of  Convertible  Securities,  if  applicable).  No further
          adjustment to the Exercise Price will be made upon the actual issuance
          of such Common Stock upon the exercise of such Below Market Options or
          upon the exercise,  conversion or exchange of  Convertible  Securities
          issuable upon exercise of such Below Market Options.

          (ii) Issuance of Convertible Securities.

                    (A) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities,  whether or not immediately  convertible
               (other  than where the same are  issuable  upon the  exercise  of
               Options)  and the  price per  share  for  which  Common  Stock is
               issuable   upon  such   exercise,   conversion  or  exchange  (as
               determined pursuant to Section 4(b)(ii)(B) if applicable) is less
               than the Market Price on the date of  issuance,  then the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities  will,  as  of  the  date  of  the  issuance  of  such
               Convertible  Securities,  be deemed to be outstanding and to have
               been issued and sold by the Company for such price per share. For
               the purposes of the preceding  sentence,  the price per share for
               which Common Stock is issuable upon such exercise,  conversion or
               exchange is determined by dividing (i) the total amount,  if any,
               received or  receivable by the Company as  consideration  for the
               issuance  or sale of all such  Convertible  Securities,  plus the
               minimum  aggregate  amount of additional  consideration,  if any,
               payable to the Company upon the exercise,  conversion or exchange
               thereof  at the time such  Convertible  Securities  first  become
               exercisable,  convertible  or  exchangeable,  by (ii) the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities.  No further  adjustment to the Exercise Price will be
               made  upon  the  actual  issuances  of  such  Common  Stock  upon
               exercise, conversion or exchange of such Convertible Securities.

                    (B) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities with a fluctuating conversion or exercise
               price or exchange ratio (a "Variable Rate Convertible Security"),
               then the price per share for which Common Stock is issuable  upon
               such  exercise,  conversion  or  exchange  for  purposes  of  the
               calculation  contemplated by Section  4(b)(ii)(A) shall be deemed
               to be the  lowest  price  per  share  which  would be  applicable
               assuming that (1) all holding period and other  conditions to any
               discounts  contained  in  such  Convertible  Security  have  been
               satisfied,  and (2) the Market  Price on the date of  issuance of
               such  Convertible  Security  was 80% of the Market  Price on such
               date (the "Assumed Variable Market Price").

               (iii) Change in Option Price or Conversion  Rate.  Except for the
          grant or  exercise  of any stock or  options  which may  hereafter  be
          granted or exercised  under any  employee or Director  benefit plan of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance of such stock or options is approved by a majority of
          the non-employee members of the Board of Directors of the Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established for such purpose,  if there is a change at any time in (i)
          the amount of additional consideration payable to the Company upon the
          exercise of any Options; (ii) the amount of additional  consideration,
          if any,  payable  to the  Company  upon the  exercise,  conversion  or
          exchange or any Convertible Securities; or (iii) the rate at which any
          Convertible Securities are convertible into or exchangeable for Common
          Stock (other than under or by reason of provisions designed to protect
          against  dilution),  the Exercise  Price in effect at the time of such
          change will be readjusted to the Exercise  Price which would have been
          in effect  at such time had such  Options  or  Convertible  Securities
          still outstanding  provided for such changed additional  consideration
          or changed  conversion rate, as the case may be, at the time initially
          granted,  issued  or sold.  

               (iv)  Treatment of Expired  Options and  Unexercised  Convertible
          Securities.  If,  in any case,  the  total  number of shares of Common
          Stock  issuable  upon  exercise  of  any  Options  or  upon  exercise,
          conversion or exchange of any Convertible  Securities is not, in fact,
          issued and the rights to exercise such option or to exercise,  convert
          or  exchange  such  Convertible   Securities  shall  have  expired  or
          terminated,  the Exercise  Price then in effect will be  readjusted to
          the Exercise Price which would have been in effect at the time of such
          expiration or termination had such Options or Convertible  Securities,
          to the extent  outstanding  immediately  prior to such  expiration  or
          termination  (other than in respect of the actual  number of shares of
          Common Stock issued upon exercise or conversion  thereof),  never been
          issued.

               (v) Calculation of Consideration  Received.  If any Common Stock,
          Options or  Convertible  Securities  are  issued,  granted or sold for
          cash, the consideration received therefor for purposes of this Warrant
          will be the amount received by the Company therefor,  before deduction
          of  reasonable  commissions,  underwriting  discounts or allowances or
          other  reasonable   expenses  paid  or  incurred  by  the  Company  in
          connection  with  such  issuance,  grant or sale.  In case any  Common
          Stock,  Options  or  Convertible  Securities  are issued or sold for a
          consideration  part or all of  which  shall be other  than  cash,  the
          amount of the  consideration  other than cash  received by the Company
          will be the fair market value of such consideration  except where such
          consideration consists of freely-tradeable  securities,  in which case
          the amount of consideration received by the Company will be the Market
          Price  thereof as of the date of  receipt.  In case any Common  Stock,
          Options or Convertible  Securities  are issued in connection  with any
          merger  or  consolidation  in  which  the  Company  is  the  surviving
          corporation, the amount of consideration therefor will be deemed to be
          the fair market  value of such  portion of the net assets and business
          of the  non-surviving  corporation as is  attributable  to such Common
          Stock, Options or Convertible Securities, as the case may be. The fair
          market value of any  consideration  other than cash or securities will
          be determined in the good faith  reasonable  business  judgment of the
          Board of Directors.

               (vi) Exceptions to Adjustment of Exercise Price. No adjustment to
          the Exercise Price will be made (i) upon the exercise of any warrants,
          options or convertible  securities  issued and outstanding on the date
          hereof  in  accordance  with the terms of such  securities  as of such
          date;  (ii) upon the grant or exercise  of any stock or options  which
          may  hereafter be granted or exercised  under any employee or Director
          benefit plan of the Company now existing or to be  implemented  in the
          future,  so long as the  issuance of such stock or options is approved
          by a majority of the non-employee members of the Board of Directors of
          the  Company  or  a  majority  of  the  members  of  a  committee   of
          non-employee  directors  established for such purpose;  (iii) upon the
          issuance of the Common Shares (as defined in the  Securities  Purchase
          Agreement)  or Warrants  in  accordance  with terms of the  Securities
          Purchase Agreement; or (iv) upon the exercise of the Warrants.

          (c) Subdivision or Combination of Common Stock. If the Company, at any
     time after the initial  issuance of this Warrant,  subdivides (by any stock
     split, stock dividend, recapitalization,  reorganization,  reclassification
     or otherwise)  its shares of Common Stock into a greater  number of shares,
     then, after the date of record for effecting such subdivision, the Exercise
     Price  in   effect   immediately   prior  to  such   subdivision   will  be
     proportionately  reduced.  If the  Company,  at any time after the  initial
     issuance   of   this   Warrant,   combines   (by   reverse   stock   split,
     recapitalization, reorganization, reclassification or otherwise) its shares
     of Common Stock into a smaller  number of shares,  then,  after the date of
     record  for  effecting  such  combination,  the  Exercise  Price in  effect
     immediately prior to such combination will be proportionately increased.

          (d)  Adjustment  in Number of  Shares.  Upon  each  adjustment  of the
     Exercise  Price pursuant to the provisions of this Section 4, the number of
     shares of Common Stock  issuable  upon  exercise of this  Warrant  shall be
     adjusted by  multiplying  a number  equal to the  Exercise  Price in effect
     immediately  prior to such  adjustment  by the  number  of shares of Common
     Stock  issuable  upon  exercise of this Warrant  immediately  prior to such
     adjustment  and dividing  the product so obtained by the adjusted  Exercise
     Price.

          (e) Major Transactions. If the Company shall consolidate or merge with
     any other  corporation  or entity (other than a merger in which the Company
     is the  surviving or  continuing  entity and its capital stock is unchanged
     and unissued in such transaction (except for Common Stock constituting less
     than twenty percent (20%) of the Company's Common Stock then  outstanding))
     or  any  subsidiary  of  the  Company  shall  be a  party  to a  merger  or
     consolidation  or other  extraordinary  transaction  and the Company issues
     twenty  percent  (20%) or more of its  Common  Stock  in any  such  merger,
     consolidation or other  transaction or there shall occur any share exchange
     pursuant  to which  all of the  outstanding  shares  of  Common  Stock  are
     converted  into other  securities  or property or any  reclassification  or
     change of the  outstanding  shares of Common  Stock (each of the  foregoing
     being a "Major Transaction"), then each holder of a Warrant may thereafter,
     at its  option,  be  entitled  to (a) in the event  that the  Common  Stock
     remains  outstanding or holders of Common Stock receive any common stock or
     substantially similar equity interest, in each of the foregoing cases which
     is publicly  traded,  retain its Warrant and such Warrant shall continue to
     apply to such Common Stock or shall  apply,  as nearly as  practicable,  to
     such  other  common  stock or equity  interest,  as the case may be, or (b)
     regardless or whether (a) applies,  receive consideration,  in exchange for
     such Warrant, equal to the greater of, as determined in the sole discretion
     of such holder, (i) the number of shares of stock or securities or property
     of the Company, or of the entity resulting from such Major Transaction (the
     "Major  Transaction  Consideration"),  to which a holder  of the  number of
     shares of Common Stock  delivered  upon the exercise of such Warrant  would
     have been entitled upon such Major  Transaction  had such holder  exercised
     the Warrant  (without  regard to any limitations on conversion or elsewhere
     contained)   on  the  trading  date   immediately   preceding   the  public
     announcement of the transaction resulting in such Major Transaction and had
     such Common Stock been issued and  outstanding and had such Holder been the
     holder of record of such Common  Stock at the time of the  consummation  of
     such Major  Transaction,  and (ii) cash paid by the Company in  immediately
     available  funds, in an amount equal to one hundred and twenty five percent
     (125%) of the Black-Scholes  Amount (as defined herein) times the number of
     shares of Common  Stock for which this  Warrant  was  exercisable  (without
     regard to any  limitations on exercise herein  contained);  and the Company
     shall  make  lawful  provision  for the  foregoing  as a part of such Major
     Transaction and shall cause the issuer of any security in such  transaction
     which  constitutes  Registrable  Securities under the  registration  rights
     provisions of Section 7(c) of the Securities  Purchase  Agreement to assume
     all of the  Company's  obligations  thereunder.  No  sooner  than  ten (10)
     business  days  nor  later  than  five  (5)  business  days  prior  to  the
     consummation  of the  Major  Transaction,  but  not  prior  to  the  public
     announcement of such Major  Transaction,  the Company shall deliver written
     notice ("Notice of Major  Transaction") to each holder of a Warrant,  which
     Notice of Major  Transaction shall be deemed to have been delivered one (1)
     business day after the Company's sending such notice by telecopy  (provided
     that the Company sends a confirming  copy of such notice on the same day by
     overnight  courier)  of such  Notice of Major  Transaction.  Such Notice of
     Major  Transaction  shall  indicate  the  amount  and  type  of  the  Major
     Transaction  consideration  which such  holder of a Warrant  would  receive
     under this Section. If the Major Transaction Consideration does not consist
     entirely of United States currency, such holder may elect to receive United
     States  currency in an amount  equal to the value of the Major  Transaction
     Consideration in lieu of the Major Transaction  Consideration by delivering
     notice of such  election to the Company  within five (5)  business  days of
     such holder's receipt of the Notice of Major Transaction.

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following variable values: (i) the current market price of the Common Stock
     equal to the closing trade price on the last trading day before the date of
     the Notice of the Major  Transaction;  (ii)  volatility of the Common Stock
     equal to the  volatility  of the common  Stock  during the 100  trading day
     period preceding the date of the Notice of the Major  Transaction;  (iii) a
     risk free rate equal to the  interest  rate on the United  States  treasury
     bill or treasury note with a maturity  corresponding  to the remaining term
     of this  Warrant  on the date of the Notice of the Major  Transaction;  and
     (iv) an  exercise  price  equal  to the  Exercise  Price on the date of the
     Notice of the Major Transaction.  In the event such calculation function is
     no longer  available  utilizing the Bloomberg online page, the Holder shall
     calculate such amount in its sole  discretion  using the closest  available
     alternative  mechanism and variable values to those available utilizing the
     Bloomberg online page for such calculation function.

          (f) Distribution of Assets.  In case the Company shall declare or make
     any distribution of its assets (or rights to acquire its assets) to holders
     of Common  Stock as a  partial  liquidating  dividend,  by way of return of
     capital  or  otherwise  (including  any  dividend  or  distribution  to the
     Company's  shareholders  of cash or shares (or rights to acquire shares) of
     capital stock of a subsidiary)  (a  "Distribution"),  at any time after the
     initial  issuance of this  Warrant,  then the Holder shall be entitled upon
     exercise of this  Warrant  for the  purchase of any or all of the shares of
     Common  Stock  subject  hereto,  to receive  the amount of such  assets (or
     rights)  which  would have been  payable to the Holder had such Holder been
     the  holder  of such  shares  of Common  Stock on the  record  date for the
     determination of shareholders entitled to such Distribution.

          (g)  Notices of  Adjustment.  Upon the  occurrence  of any event which
     requires any adjustment of the Exercise Price, then, and in each such case,
     the Company  shall give notice  thereof to the Holder,  which  notice shall
     state the Exercise Price resulting from such adjustment and the increase or
     decrease  in the number of Warrant  Shares  purchasable  at such price upon
     exercise,  setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.  Such calculation  shall be
     certified by the chief financial officer of the Company.

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

          (i) No Fractional  Shares. No fractional shares of Common Stock are to
     be issued upon the exercise of this  Warrant,  but the Company  shall pay a
     cash adjustment in respect of any fractional share which would otherwise be
     issuable in an amount  equal to the same  fraction of the Market Price of a
     share of Common Stock; provided that in the event that sufficient funds are
     not  legally  available  for  the  payment  of  such  cash  adjustment  any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (j) Other Notices. In case at any time:

               (i) the Company  shall declare any dividend upon the Common Stock
          payable in shares of stock of any class or make any other distribution
          to the holders of the Common Stock;

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

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

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

          then,  in each such  case,  the  Company  shall give to the Holder (a)
          notice of the date on which the books of the Company  shall close or a
          record  shall be taken for  determining  the  holders of Common  Stock
          entitled to receive any such dividend,  distribution,  or subscription
          rights or for determining the holders of Common Stock entitled to vote
          in   respect   of   any   such    reorganization,    reclassification,
          consolidation,  merger, sale,  dissolution,  liquidation or winding-up
          and (b) in the  case  of any  such  reorganization,  reclassification,
          consolidation,  merger, sale, dissolution,  liquidation or winding-up,
          notice of the date (or, if not then known, a reasonable  approximation
          thereof by the  Company)  when the same shall take place.  Such notice
          shall also specify the date on which the holders of Common Stock shall
          be entitled to receive such dividend,  distribution,  or  subscription
          rights or to exchange their Common Stock for stock or other securities
          or property  deliverable upon such  reorganization,  reclassification,
          consolidation, merger, sale, dissolution,  liquidation, or winding-up,
          as the case may be. Such notice  shall be given at least 30 days prior
          to the record date or the date on which the Company's books are closed
          in respect thereto,  but in no event earlier than public  announcement
          of such proposed transaction or event. Failure to give any such notice
          or any defect therein shall not affect the validity of the proceedings
          referred to in clauses (i), (ii), (iii) and (iv) above.

               (k) Certain Definitions.

                    (i) "Common Stock Deemed  Outstanding" shall mean the number
               of shares of Common Stock  actually  outstanding  (not  including
               shares of Common Stock held in the treasury of the Company), plus
               (x) in case of any adjustment  required by Section 4(a) resulting
               from the  issuance of any  Options,  the maximum  total number of
               shares of Common Stock  issuable upon the exercise of the Options
               for which the adjustment is required  (including any Common Stock
               issuable upon the conversion of Convertible  Securities  issuable
               upon the  exercise of such  Options),  and (y) in the case of any
               adjustment  required by Section 4(a)  resulting from the issuance
               of any Convertible Securities, the maximum total number of shares
               of  Common  Stock  issuable  upon  the  exercise,  conversion  or
               exchange of the  Convertible  Securities for which the adjustment
               is  required,  as of the  date of  issuance  of such  Convertible
               Securities, if any.

                    (ii) "Market  Price," as of any date,  (i) means the average
               of the  Closing  Bid  Prices  for the  shares of Common  Stock as
               reported  to Nasdaq  National  Market  System for the trading day
               immediately  preceding such date, or (ii) if The Nasdaq  National
               Market is not the principal  trading market for the Common Stock,
               the  average of the last  reported  bid  prices on the  principal
               trading  market for the Common Stock during the same period,  or,
               if there is no bid price for such period, the last reported sales
               price  for such  period,  or  (iii) if  market  value  cannot  be
               calculated  as of such date on any of the  foregoing  bases,  the
               Market  Price shall be the value  thereof,  as agreed upon by the
               Company and the Holder;  provided,  however,  that if the Company
               and the Holder  cannot  agree on such value,  such value shall be
               the average  fair market  value as  reasonably  determined  by an
               investment  banking firm  selected by the Company and  reasonably
               acceptable  to the  Holders  of a  majority  in  interest  of the
               Warrants,  with  the  costs of the  appraisal  to be borne by the
               Company. The manner of determining the Market Price of the Common
               Stock set forth in the  foregoing  definition  shall  apply  with
               respect to any other security in respect of which a determination
               as to market value must be made hereunder.

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

                         (1) Maurizio Vecchione disposes of any shares of Common
                    Stock  beneficially  owned by him while the Common  Stock is
                    trading  at or below  twenty-five  dollars  ($25)  per share
                    during the period  beginning  on the date of the Closing and
                    ending on the earlier of (i) the first (1st)  anniversary of
                    the date of the Closing,  or (ii) the date on which Maurizio
                    Vecchione ceases to be President or CEO of the Company; or

                         (2) Joyce  Freedman or Lee Freedman (each a "Freedman")
                    dispose of any shares of Common Stock  beneficially owned by
                    such Freedman at any time during the period beginning on the
                    date of the  Closing and ending on the date which is six (6)
                    months following the Closing,  then the Exercise Price shall
                    be  adjusted  to the  Adjusted  Exercise  Price (as  defined
                    herein) if such adjustment would result in a decrease in the
                    Exercise Price;  provided,  however, that the Exercise Price
                    shall not be  adjusted  upon the  occurrence  of a  disposal
                    described in clause (1) until  Maurizio  Vecchione  sells or
                    otherwise  transfers  in excess of fifty  thousand  (50,000)
                    shares of Common Stock in aggregate  during such period at a
                    price less than  twenty-five  dollars ($25) pursuant to Rule
                    144. For any disposal of Common Stock  described  hereunder,
                    the "Adjusted  Exercise  Price" shall mean the lesser of (a)
                    the lowest  closing bid price of the Common Stock during the
                    thirty (30) trading day period  beginning on the trading day
                    (the "Announcement  Date") immediately  preceding the day on
                    which such disposal was publicly announced and (b) the price
                    per share which  Vecchione or such Freedman,  as applicable,
                    received  in  connection   with  such  disposal;   provided,
                    however, that if the Adjusted Exercise Price described above
                    is  greater  than the  Exercise  Price,  then  the  Adjusted
                    Exercise  Price shall be equal to (c) the lowest closing bid
                    price of the Common Stock during the thirty (30) trading day
                    period beginning on the Announcement Date divided by (d) the
                    closing  bid price of the Common  Stock on the  Announcement
                    Date times (e) the Exercise Price.

     5. Cap Amount.

          (a)  Prior to the  earlier  of  Nasdaq  Approval  (as  defined  in the
     Securities Purchase Agreement) or the 4460 Shareholder Approval (as defined
     in the Securities  Purchase  Agreement),  unless otherwise permitted by The
     Nasdaq National Market or unless the rules thereof no longer are applicable
     to the  Company,  in no event  shall the  total  number of shares of Common
     Stock issued at the Closing  under the  Securities  Purchase  Agreement and
     upon exercise of the Warrants exceed the maximum number of shares of Common
     Stock that the Company can without  stockholder  approval so issue pursuant
     to Nasdaq Rule  4460(i) (or any  successor  rule) (the "Cap  Amount")  upon
     Closing  under the  Securities  Purchase  Agreement and the exercise of the
     Warrants,  which,  as of the date of initial  issuance of Common  Stock and
     Warrants to the Holders,  which amount is one million,  two hundred  thirty
     two thousand  and forty five  (1,232,045)  shares.  The Cap Amount shall be
     allocated  pro rata  among  the  Holders  based on the  number of shares of
     Common  Stock and  Warrants  issued to each  Holder.  In the event a Holder
     shall  sell or  otherwise  transfer  any of such  Holder's  Warrants,  each
     transferee  shall be allocated a pro rata portion of such  transferor's Cap
     Amount. A Holder's  allocable  portion of the Cap Amount shall be allocated
     first to the Common  Stock  issued to the Holder at the  Closing  under the
     Securities  Purchase  Agreement,  then to the First Warrants (as defined in
     the Securities  Purchase  Agreement) and only the Warrants shall be subject
     to the limitation imposed by this Section 5(a).

          (b) Prior to the earlier of Second Nasdaq  Approval (as defined in the
     Securities Purchase Agreement) or the 4310 Shareholder Approval (as defined
     in the Securities  Purchase  Agreement),  unless otherwise permitted by The
     Nasdaq National Market or unless the rules thereof no longer are applicable
     to the Company, in no event shall this Warrant be exercisable.

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

     7. No  Rights or  Liabilities  as a  Shareholder.  This  Warrant  shall not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company.  No provision of this Warrant,  in the absence of affirmative action by
the Holder to purchase  Warrant Shares,  and no mere  enumeration  herein of the
rights or  privileges  of the Holder,  shall give rise to any  liability  of the
Holder for the Exercise Price or as a shareholder  of the Company,  whether such
liability is asserted by the Company or by creditors of the Company.

     8. Transfer, Exchange and Replacement of Warrant.

          a. Restriction on Transfer. This Warrant and the rights granted to the
     Holder  are  transferable,  in  whole or in part,  upon  surrender  of this
     Warrant,  together  with a  properly  executed  assignment  in the  Form of
     Assignment  attached  hereto as  Exhibit  2, at the office or agency of the
     Company  referred to in Section  8(e) below,  provided,  however,  that any
     transfer or  assignment  shall be subject to the  provisions of Section 5.1
     and 5.2 of the Securities  Purchase  Agreement.  Until due  presentment for
     registration of transfer on the books of the Company, the Company may treat
     the  registered  holder  hereof  as the  owner and  holder  hereof  for all
     purposes,  and the  Company  shall  not be  affected  by any  notice to the
     contrary.  Notwithstanding  anything to the contrary  contained herein, the
     registration  rights  described in Section 9 hereof are assignable  only in
     accordance with the provisions of the Securities Purchase Agreement.
 
          b. Warrant Exchangeable for Different  Denominations.  This Warrant is
     exchangeable,  upon the  surrender  hereof by the  Holder at the  office or
     agency of the Company  referred to in Section 8(e) below, for new Warrants,
     in  the  form  hereof,  of  different  denominations  representing  in  the
     aggregate  the right to purchase the number of shares of Common Stock which
     may be purchased  hereunder,  each of such new  Warrants to  represent  the
     right to  purchase  such  number of shares  as shall be  designated  by the
     Holder of at the time of such surrender.

          c.  Replacement  of  Warrant.  Upon  receipt  of  evidence  reasonably
     satisfactory to the Company of the loss, theft, destruction,  or mutilation
     of this Warrant or, in the case of any such loss,  theft,  or  destruction,
     upon delivery,  of an indemnity agreement  reasonably  satisfactory in form
     and amount to the  Company,  or, in the case of any such  mutilation,  upon
     surrender and  cancellation of this Warrant,  the Company,  at its expense,
     will execute and deliver,  in lieu  thereof,  a new  Warrants,  in the form
     hereof, in such denominations as Holder may request.

          d.  Cancellation;  Payment of  Expenses.  Upon the  surrender  of this
     Warrant in  connection  with any  transfer,  exchange,  or  replacement  as
     provided in this Section 8, this Warrant shall be promptly  canceled by the
     Company.  The Company shall pay all issuance  taxes (other than  securities
     transfer  taxes) and charges  payable in connection  with the  preparation,
     execution, and delivery of Warrants pursuant to this Section 8.

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

     9.  Registration  Rights.  The initial  holder of this Warrant (and certain
assignees  thereof) is entitled  to the benefit of such  registration  rights in
respect of the Warrant Shares as are set forth in Section 7(c) of the Securities
Purchase Agreement.

     10.  Notices.  Any notice herein required or permitted to be given shall be
in writing and may be personally  served or delivered by courier or by confirmed
telecopy,  and shall be deemed  delivered at the time and date of receipt (which
shall include  telephone  line facsimile  transmission).  The addresses for such
communications shall be:

                  If to the Company:

                           ModaCAD, Inc.
                           3861 Sepulveda Blvd.
                           Culver City, CA 90230
                           Telecopy: (310) 751-2120
                           Attention: President

                           with a copy to:

                           Coudert Brothers
                           1055 West Seventh Street - 20th Floor
                           Los Angeles, CA  90017
                           Telecopy:  (213) 689-4467
                           Attention:  John A. St. Clair

and if to the Holder,  at such address as Holder shall have  provided in writing
to the Company,  or at such other address as each such party furnishes by notice
given in accordance with this Section 10.

     11.  Governing  Law;  Jurisdiction.  This Warrant  shall be governed by and
construed in accordance  with the laws of the State of California  applicable to
contracts  made and to be  performed  in the State of  California.  The  Company
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the State of California and the state courts located in the County of
Santa Clara in the State of  California  in any suit or  proceeding  based on or
arising under this Warrant and irrevocably  agrees that all claims in respect of
such  suit  or  proceeding  may  be  determined  in  such  courts.  The  Company
irrevocably  waives the defense of an  inconvenient  forum to the maintenance of
such suit or proceeding.  The Company agrees that a final nonappealable judgment
in any such suit or proceeding  shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

     12. Miscellaneous.

          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument in writing signed by the Company and the Holder.

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

          c. [Intentionally deleted].

          d.  Assignability.  This Warrant shall be binding upon the Company and
     its successors and assigns and shall inure to the benefit of Holder and its
     successors  and  assigns.  The Holder  shall  notify the  Company  upon the
     assignment of this Warrant.

          e.  Weekends,  Etc.  If the  end of the  Exercise  Period  falls  on a
     Saturday,  Sunday or legal holiday, the end of the Exercise Period shall be
     extended automatically until 5:00 p.m. the next business day.

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

     ModaCAD, Inc.
     By:        /s/ JOYCE FREEDMAN
        ________________________________
     Name:      Joyce Freedman
     Title:     Chief Executive Officer
FORM OF EXERCISE AGREEMENT

         (To be Executed by the Holder in order to Exercise the Warrant)

     The  undersigned  hereby  irrevocably   exercises  the  right  to  purchase
____________  of the  shares of common  stock of  ModaCAD,  Inc.,  a  California
corporation (the  "Company"),  evidenced by the attached  Warrant,  and herewith
makes payment of the Exercise  Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.

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

     (ii) The undersigned  requests that stock  certificates  for such shares be
issued,  and a Warrant  representing  any unexercised  portion hereof be issued,
pursuant  to the  Warrant in the name of the  Holder  (or such  other  person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:

Date:
Signature of Holder                                                             
Name of Holder (Print)

Address:
FORM OF ASSIGNMENT

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

Name of Assignee                  Address                          No. of Shares

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

Date:____________, _____,

In the presence of

                  Name:                                                         

                  Signature:                                                    
                               Title of Signing Officer or Agent (if any):

                  Address:       

Note: The above signature should correspond exactly with the name on the face of
the within Warrant.
EXHIBIT A-3
THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,  OR THE SECURITIES  LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES  REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES UNDER APPLICABLE  SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED   PURSUANT  TO  AN  AVAILABLE   EXEMPTION   FROM  THE   REGISTRATION
REQUIREMENTS OF THOSE LAWS.

Right to Purchase 189,674 Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT

     THIS  CERTIFIES  THAT,  for  value  received,   Intel  Corporation  or  its
registered  assigns,  is entitled to purchase from  ModaCAD,  Inc., a California
corporation (the "Company"),  at any time or from time to time during the period
specified  in Section 2 hereof,  One Hundred  Eighty-Nine  Thousand  Six Hundred
Seventy-Four  (189,674)  fully paid and  nonassessable  shares of the  Company's
common stock (the "Common  Stock"),  at an initial  exercise price of $13.18 per
share (the  "Exercise  Price").  This Warrant is being  issued  pursuant to that
certain Stock and Warrant  Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (the "Securities  Purchase  Agreement").
The  number of  shares  of Common  Stock  purchasable  hereunder  (the  "Warrant
Shares") and the Exercise Price are subject to adjustment as provided in Section
4 hereof.  The term "Warrants"  means this Warrant and the other warrants of the
Company issued pursuant to the terms of the Securities Purchase Agreement.

     The term  "Closing Bid Price" means,  for any security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the  Company and  reasonably  acceptable  to the holder  hereof (the
"Holder")  if  Bloomberg  Financial  Markets is not then  reporting  closing bid
prices of such security  (collectively,  "Bloomberg"),  or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market  on the  electronic  bulletin  board  of such  security  as  reported  by
Bloomberg,  or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market  makers for such security as reported in
the "pink  sheets" by the  National  Quotation  Bureau,  Inc. If the Closing Bid
Price  cannot  be  calculated  for  such  security  on  such  date on any of the
foregoing  bases,  the Closing Bid Price of such  security on such date shall be
the value  thereof,  as agreed upon by the  Company  and the  Holder;  provided,
however,  that if the Company and the Holder  cannot  agree on such value,  such
value shall be the fair market value as  reasonably  determined by an investment
banking firm  selected by the Company and  reasonably  acceptable  to the Holder
with the costs of such appraisal to be borne by the Company.

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

     1.  Mechanics of Exercise.  Subject to the  provisions  hereof,  including,
without  limitation,  the  limitations  contained in Section  8(f) hereof,  this
Warrant may be exercised as follows:

          (a) Manner of  Exercise.  This Warrant may be exercised by the Holder,
     in whole or in part, by the surrender of this Warrant (or evidence of loss,
     theft,  destruction or mutilation  thereof in accordance  with Section 8(c)
     hereof),  together  with a  completed  exercise  agreement  in the  Form of
     Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
     to the Company at the Company's  principal executive offices (or such other
     office  or  agency  of the  Company  as it may  designate  by notice to the
     Holder),  and upon payment to the Company in cash, by certified or official
     bank  check or by wire  transfer  for the  account of the  Company,  of the
     Exercise Price for the Warrant Shares specified in the Exercise  Agreement.
     The Warrant Shares so purchased  shall be deemed to be issued to the Holder
     or Holder's  designees,  as the record owner of such shares, as of the date
     on which this Warrant shall have been surrendered,  the completed  Exercise
     Agreement shall have been  delivered,  and payment shall have been made for
     such shares as set forth  above.  In lieu of the payment  methods set forth
     above, when permitted by law and applicable  regulations  (including Nasdaq
     and NASD rules),  the Holder may pay the Exercise Price through a "same day
     sale" commitment from the Holder (and if applicable a broker-dealer that is
     a  member  of the  National  Association  of  Securities  Dealers  (a "NASD
     Dealer")),  whereby the Holder  irrevocably elects to exercise this Warrant
     and to sell a portion of the Shares so  purchased  to pay for the  Exercise
     Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
     (or, in the case of the NASD Dealer,  upon receipt) of such Warrant  Shares
     to forward the Exercise Price directly to the Company.

          (b) Issuance of  Certificates.  Subject to Section 1(c),  certificates
     for the Warrant Shares so purchased,  representing  the aggregate number of
     shares  specified  in the  Exercise  Agreement,  shall be  delivered to the
     Holder within a reasonable  time,  not exceeding  three (3) business  days,
     after this Warrant shall have been so exercised  (the  "Delivery  Period").
     The  certificates  so delivered  shall be in such  denominations  as may be
     reasonably  requested by the Holder and shall be  registered in the name of
     Holder or such other name as shall be  designated  by such Holder.  If this
     Warrant shall have been exercised only in part,  then,  unless this Warrant
     has expired,  the Company shall, at its expense, at the time of delivery of
     such  certificates,  deliver to the Holder a new Warrant  representing  the
     number of shares  with  respect to which this  Warrant  shall not then have
     been exercised.

          (c) Exercise  Disputes.  In the case of any dispute with respect to an
     exercise,  the Company shall promptly issue such number of shares of Common
     Stock as are not disputed in accordance with this Section.  If such dispute
     involves the  calculation of the Exercise  Price,  the Company shall submit
     the disputed calculations to a nationally recognized independent accounting
     firm (selected by the Company) via facsimile within three (3) business days
     of receipt of the Exercise  Agreement.  The accounting firm shall audit the
     calculations  and  notify  the  Company  and the  converting  Holder of the
     results no later than two (2)  business  days from the date it receives the
     disputed  calculations.  The accounting firm's  calculation shall be deemed
     conclusive,  absent  manifest  error.  The  Company  shall  then  issue the
     appropriate  number  of  shares of  Common  Stock in  accordance  with this
     Section.

          (d) Fractional  Shares. No fractional shares of Common Stock are to be
     issued upon the exercise of this Warrant,  but the Company shall pay a cash
     adjustment  in respect of any  fractional  share which would  otherwise  be
     issuable in an amount equal to the same fraction of the Exercise Price of a
     share of Common  Stock (as  determined  for  exercise of this  Warrant into
     whole shares of Common Stock);  provided that in the event that  sufficient
     funds are not legally available for the payment of such cash adjustment any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (e)  Buy-In.  If (i) the  Company  fails for any  reason  (other  than
     Holder's  failure  to pay  timely to the  Company  the  Exercise  Price) to
     deliver during the Delivery Period shares of Common Stock to Holder upon an
     exercise of this Warrant and (ii) after the applicable Delivery Period with
     respect  to  such  an  exercise,   Holder  purchases  (in  an  open  market
     transaction  or  otherwise)  shares of Common Stock to make delivery upon a
     sale by Holder of the  shares of Common  Stock (the  "Sold  Shares")  which
     Holder was entitled to receive upon such exercise (a "Buy-in"), the Company
     shall pay Holder (in  addition to any other  remedies  available to Holder)
     the amount by which (x) Holder's total purchase price (including  brokerage
     commission, if any) for the shares of Common Stock so purchased exceeds (y)
     the lesser of (A) the Exercise  Price or (B) the net  proceeds  received by
     Holder from the sale of the Sold Shares.  Holder shall  provide the Company
     written  notification  indicating any amounts payable to Holder pursuant to
     this subsection.

     2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date  hereof and before 5:00 P.M.,  Eastern  Time on the
date which is fifteen (15) months after the date hereof (the "Exercise Period").
The Company  hereby  acknowledges  that  exercise of this  Warrant by Holder may
subject  the  Company  and/or  the  Holder  to the  filing  requirements  of the
Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976,  as amended,  (the "HSR
Act") and that Holder may be prevented  from  exercising  this Warrant until the
expiration or early  termination of all waiting  periods  imposed by the HSR Act
("HSR Act Restrictions").  If on or before the end of the Exercise Period Holder
has sent the  Notice of  Exercise  to  Company  and  Holder has not been able to
complete the exercise of this  Warrant  prior to the end of the Exercise  Period
because of HSR Act  Restrictions,  the Holder  shall be entitled to complete the
process of  exercising  this  Warrant,  for a period of ten (10)  business  days
following  termination  of the HSR Act  Restrictions,  in  accordance  with  the
procedures  contained  herein  notwithstanding  the fact that  completion of the
exercise of this Warrant would take place after the end of the Exercise Period.

     3. Certain  Agreements  of the Company.  The Company  hereby  covenants and
agrees as follows:

          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
     accordance with the terms of this Warrant,  be validly issued,  fully paid,
     and non-assessable and free from all taxes, liens, claims and encumbrances.

          (b)  Reservation of Shares.  During the Exercise  Period,  the Company
     shall at all  times  have  authorized,  and  reserved  for the  purpose  of
     issuance upon exercise of this  Warrant,  a sufficient  number of shares of
     Common Stock to provide for the exercise of this Warrant.

          (c) Listing.  From and after the date of issuance of this Warrant, the
     Company  shall have  secured and shall  thereafter,  for at least three (3)
     years after the date of issuance of this  Warrant,  maintain the listing of
     the shares of Common Stock  issuable upon exercise of this Warrant upon The
     Nasdaq  National  Market,  the Nasdaq SmallCap  Market,  the New York Stock
     Exchange or the  American  Stock  Exchange,  as required by the  Securities
     Purchase Agreement and upon each national  securities exchange or automated
     quotation system, if any, upon which shares of Common Stock are then listed
     or become listed and shall maintain,  so long as any other shares of Common
     Stock shall be so listed,  such  listing of all shares of Common Stock from
     time to time issuable  upon the exercise of this  Warrant;  and the Company
     shall so list on each national  securities  exchange or automated quotation
     system,  as the case may be, and shall  maintain  such listing of any other
     shares of capital  stock of the Company  issuable upon the exercise of this
     Warrant  so long as any  shares of the same  class  shall be listed on such
     national securities exchange or automated quotation system.

          (d) Certain Actions Prohibited.  The Company will not, by amendment of
     its   charter  or  through   any   reorganization,   transfer   of  assets,
     consolidation,  merger,  dissolution,  issue or sale of securities,  or any
     other  voluntary  action,   avoid  or  seek  to  avoid  the  observance  or
     performance  of  any  of  the  terms  to be  observed  or  performed  by it
     hereunder,  but will at all times in good faith  assist in the carrying out
     of all the provisions of this Warrant and in the taking of all such actions
     as may  reasonably  be  requested by the Holder of this Warrant in order to
     protect the exercise  privilege of the Holder of this  Warrant,  consistent
     with the tenor and purpose of this Warrant. Without limiting the generality
     of the  foregoing,  the  Company  will  take  all  such  actions  as may be
     necessary or  appropriate in order that the Company may validly and legally
     issue fully paid and nonassessable shares of Common Stock upon the exercise
     of this Warrant.

     4.  Antidilution  Provisions.  During the  Exercise  Period or until  fully
exercised,  the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of
     Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
     if and whenever  after the initial  issuance of this  Warrant,  the Company
     issues or sells,  or in  accordance  with  Section 4(b) hereof is deemed to
     have issued or sold, any shares of Common Stock for no consideration or for
     a consideration per share less than the Market Price (as herein defined) on
     the date of issuance (a "Dilutive  Issuance"),  then effective  immediately
     upon  the  Dilutive  Issuance,  the  Exercise  Price  will be  adjusted  in
     accordance with the following formula:

     E' = (E) (O + P/M) / (CSDO)
 

     where:

          E' = the adjusted Exercise Price
          E = the then current Exercise Price;
          M = the then current Market Price;
          O = the number of shares of Common Stock  outstanding immediately  
          prior to the Dilutive Issuance;
          P = the  aggregate  consideration,  calculated as set forth in Section
          4(b) hereof, received by the Company upon such Dilutive Issuance; and
          CSDO = the total number of shares of Common  Stock Deemed  Outstanding
          (as herein defined) immediately after the Dilutive Issuance.
                  
          (b)  Effect on  Exercise  Price of Certain  Events.  For  purposes  of
     determining  the adjusted  Exercise  Price under  Section 4(a) hereof,  the
     following will be applicable:

               (i)  Issuance of Rights or Options.  If the Company in any manner
          issues or grants  any  warrants,  rights or  options,  whether  or not
          immediately exercisable,  to subscribe for or to purchase Common Stock
          or other securities exercisable,  convertible into or exchangeable for
          Common Stock ("Convertible Securities"),  but not to include the grant
          or exercise of any stock or options  which may hereafter be granted or
          exercised  under any employee or Director  benefit plan of the Company
          now  existing  or to be  implemented  in the  future,  so  long as the
          issuance  of such stock or options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose  (such  warrants,  rights and options to
          purchase  Common  Stock  or  Convertible  Securities  are  hereinafter
          referred to as  "Options"),  and the price per share for which  Common
          Stock is issuable  upon the  exercise of such Options is less than the
          Market Price on the date of issuance  ("Below Market  Options"),  then
          the maximum  total number of shares of Common Stock  issuable upon the
          exercise of all such Below Market  Options  (assuming  full  exercise,
          conversion or exchange of Convertible Securities, if applicable) will,
          as of the date of the issuance or grant of such Below Market  Options,
          be deemed to be  outstanding  and to have been  issued and sold by the
          Company  for such  price per  share.  For  purposes  of the  preceding
          sentence,  the price per share for which Common Stock is issuable upon
          the exercise of such Below Market  Options is  determined  by dividing
          (i) the total amount, if any, received or receivable by the Company as
          consideration  for the  issuance  or  granting  of such  Below  Market
          Options,   plus   the   minimum   aggregate   amount   of   additional
          consideration, if any, payable to the Company upon the exercise of all
          such Below Market Options, plus, in the case of Convertible Securities
          issuable upon the exercise of such Below Market  Options,  the minimum
          aggregate  amount  of  additional   consideration   payable  upon  the
          exercise,  conversion or exchange thereof at the time such Convertible
          Securities first become exercisable,  convertible or exchangeable,  by
          (ii) the maximum total number of shares of Common Stock  issuable upon
          the  exercise  of  all  such  Below  Market  Options   (assuming  full
          conversion  of  Convertible  Securities,  if  applicable).  No further
          adjustment to the Exercise Price will be made upon the actual issuance
          of such Common Stock upon the exercise of such Below Market Options or
          upon the exercise,  conversion or exchange of  Convertible  Securities
          issuable upon exercise of such Below Market Options.

               (ii) Issuance of Convertible Securities.

                    (A) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities,  whether or not immediately  convertible
               (other  than where the same are  issuable  upon the  exercise  of
               Options)  and the  price per  share  for  which  Common  Stock is
               issuable   upon  such   exercise,   conversion  or  exchange  (as
               determined pursuant to Section 4(b)(ii)(B) if applicable) is less
               than the Market Price on the date of  issuance,  then the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities  will,  as  of  the  date  of  the  issuance  of  such
               Convertible  Securities,  be deemed to be outstanding and to have
               been issued and sold by the Company for such price per share. For
               the purposes of the preceding  sentence,  the price per share for
               which Common Stock is issuable upon such exercise,  conversion or
               exchange is determined by dividing (i) the total amount,  if any,
               received or  receivable by the Company as  consideration  for the
               issuance  or sale of all such  Convertible  Securities,  plus the
               minimum  aggregate  amount of additional  consideration,  if any,
               payable to the Company upon the exercise,  conversion or exchange
               thereof  at the time such  Convertible  Securities  first  become
               exercisable,  convertible  or  exchangeable,  by (ii) the maximum
               total  number  of  shares  of  Common  Stock  issuable  upon  the
               exercise,   conversion  or  exchange  of  all  such   Convertible
               Securities.  No further  adjustment to the Exercise Price will be
               made  upon  the  actual  issuances  of  such  Common  Stock  upon
               exercise, conversion or exchange of such Convertible Securities.

                    (B) If the  Company  in  any  manner  issues  or  sells  any
               Convertible  Securities with a fluctuating conversion or exercise
               price or exchange ratio (a "Variable Rate Convertible Security"),
               then the price per share for which Common Stock is issuable  upon
               such  exercise,  conversion  or  exchange  for  purposes  of  the
               calculation  contemplated by Section  4(b)(ii)(A) shall be deemed
               to be the  lowest  price  per  share  which  would be  applicable
               assuming that (1) all holding period and other  conditions to any
               discounts  contained  in  such  Convertible  Security  have  been
               satisfied,  and (2) the Market  Price on the date of  issuance of
               such  Convertible  Security  was 80% of the Market  Price on such
               date (the "Assumed Variable Market Price").

               (iii) Change in Option Price or Conversion  Rate.  Except for the
          grant or  exercise  of any stock or  options  which may  hereafter  be
          granted or exercised  under any  employee or Director  benefit plan of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance of such stock or options is approved by a majority of
          the non-employee members of the Board of Directors of the Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established for such purpose,  if there is a change at any time in (i)
          the amount of additional consideration payable to the Company upon the
          exercise of any Options; (ii) the amount of additional  consideration,
          if any,  payable  to the  Company  upon the  exercise,  conversion  or
          exchange or any Convertible Securities; or (iii) the rate at which any
          Convertible Securities are convertible into or exchangeable for Common
          Stock (other than under or by reason of provisions designed to protect
          against  dilution),  the Exercise  Price in effect at the time of such
          change will be readjusted to the Exercise  Price which would have been
          in effect  at such time had such  Options  or  Convertible  Securities
          still outstanding  provided for such changed additional  consideration
          or changed  conversion rate, as the case may be, at the time initially
          granted, issued or sold.

               (iv)  Treatment of Expired  Options and  Unexercised  Convertible
          Securities.  If,  in any case,  the  total  number of shares of Common
          Stock  issuable  upon  exercise  of  any  Options  or  upon  exercise,
          conversion or exchange of any Convertible  Securities is not, in fact,
          issued and the rights to exercise such option or to exercise,  convert
          or  exchange  such  Convertible   Securities  shall  have  expired  or
          terminated,  the Exercise  Price then in effect will be  readjusted to
          the Exercise Price which would have been in effect at the time of such
          expiration or termination had such Options or Convertible  Securities,
          to the extent  outstanding  immediately  prior to such  expiration  or
          termination  (other than in respect of the actual  number of shares of
          Common Stock issued upon exercise or conversion  thereof),  never been
          issued.

               (v) Calculation of Consideration  Received.  If any Common Stock,
          Options or  Convertible  Securities  are  issued,  granted or sold for
          cash, the consideration received therefor for purposes of this Warrant
          will be the amount received by the Company therefor,  before deduction
          of  reasonable  commissions,  underwriting  discounts or allowances or
          other  reasonable   expenses  paid  or  incurred  by  the  Company  in
          connection  with  such  issuance,  grant or sale.  In case any  Common
          Stock,  Options  or  Convertible  Securities  are issued or sold for a
          consideration  part or all of  which  shall be other  than  cash,  the
          amount of the  consideration  other than cash  received by the Company
          will be the fair market value of such consideration  except where such
          consideration consists of freely-tradeable  securities,  in which case
          the amount of consideration received by the Company will be the Market
          Price  thereof as of the date of  receipt.  In case any Common  Stock,
          Options or Convertible  Securities  are issued in connection  with any
          merger  or  consolidation  in  which  the  Company  is  the  surviving
          corporation, the amount of consideration therefor will be deemed to be
          the fair market  value of such  portion of the net assets and business
          of the  non-surviving  corporation as is  attributable  to such Common
          Stock, Options or Convertible Securities, as the case may be. The fair
          market value of any  consideration  other than cash or securities will
          be determined in the good faith  reasonable  business  judgment of the
          Board of Directors.

               (vi) Exceptions to Adjustment of Exercise Price. No adjustment to
          the Exercise Price will be made (i) upon the exercise of any warrants,
          options or convertible  securities  issued and outstanding on the date
          hereof  in  accordance  with the terms of such  securities  as of such
          date;  (ii) upon the grant or exercise  of any stock or options  which
          may  hereafter be granted or exercised  under any employee or Director
          benefit plan of the Company now existing or to be  implemented  in the
          future,  so long as the  issuance of such stock or options is approved
          by a majority of the non-employee members of the Board of Directors of
          the  Company  or  a  majority  of  the  members  of  a  committee   of
          non-employee  directors  established for such purpose;  (iii) upon the
          issuance of the Common Shares (as defined in the  Securities  Purchase
          Agreement)  or Warrants  in  accordance  with terms of the  Securities
          Purchase Agreement; or (iv) upon the exercise of the Warrants.

          (c) Subdivision or Combination of Common Stock. If the Company, at any
     time after the initial  issuance of this Warrant,  subdivides (by any stock
     split, stock dividend, recapitalization,  reorganization,  reclassification
     or otherwise)  its shares of Common Stock into a greater  number of shares,
     then, after the date of record for effecting such subdivision, the Exercise
     Price  in   effect   immediately   prior  to  such   subdivision   will  be
     proportionately  reduced.  If the  Company,  at any time after the  initial
     issuance   of   this   Warrant,   combines   (by   reverse   stock   split,
     recapitalization, reorganization, reclassification or otherwise) its shares
     of Common Stock into a smaller  number of shares,  then,  after the date of
     record  for  effecting  such  combination,  the  Exercise  Price in  effect
     immediately prior to such combination will be proportionately increased.

          (d)  Adjustment  in Number of  Shares.  Upon  each  adjustment  of the
     Exercise  Price pursuant to the provisions of this Section 4, the number of
     shares of Common Stock  issuable  upon  exercise of this  Warrant  shall be
     adjusted by  multiplying  a number  equal to the  Exercise  Price in effect
     immediately  prior to such  adjustment  by the  number  of shares of Common
     Stock  issuable  upon  exercise of this Warrant  immediately  prior to such
     adjustment  and dividing  the product so obtained by the adjusted  Exercise
     Price.

          (e) Major Transactions. If the Company shall consolidate or merge with
     any other  corporation  or entity (other than a merger in which the Company
     is the  surviving or  continuing  entity and its capital stock is unchanged
     and unissued in such transaction (except for Common Stock constituting less
     than twenty percent (20%) of the Company's Common Stock then  outstanding))
     or  any  subsidiary  of  the  Company  shall  be a  party  to a  merger  or
     consolidation  or other  extraordinary  transaction  and the Company issues
     twenty  percent  (20%) or more of its  Common  Stock  in any  such  merger,
     consolidation or other  transaction or there shall occur any share exchange
     pursuant  to which  all of the  outstanding  shares  of  Common  Stock  are
     converted  into other  securities  or property or any  reclassification  or
     change of the  outstanding  shares of Common  Stock (each of the  foregoing
     being a "Major Transaction"), then each holder of a Warrant may thereafter,
     at its  option,  be  entitled  to (a) in the event  that the  Common  Stock
     remains  outstanding or holders of Common Stock receive any common stock or
     substantially similar equity interest, in each of the foregoing cases which
     is publicly  traded,  retain its Warrant and such Warrant shall continue to
     apply to such Common Stock or shall  apply,  as nearly as  practicable,  to
     such  other  common  stock or equity  interest,  as the case may be, or (b)
     regardless or whether (a) applies,  receive consideration,  in exchange for
     such Warrant, equal to the greater of, as determined in the sole discretion
     of such holder, (i) the number of shares of stock or securities or property
     of the Company, or of the entity resulting from such Major Transaction (the
     "Major  Transaction  Consideration"),  to which a holder  of the  number of
     shares of Common Stock  delivered  upon the exercise of such Warrant  would
     have been entitled upon such Major  Transaction  had such holder  exercised
     the Warrant  (without  regard to any limitations on conversion or elsewhere
     contained)   on  the  trading  date   immediately   preceding   the  public
     announcement of the transaction resulting in such Major Transaction and had
     such Common Stock been issued and  outstanding and had such Holder been the
     holder of record of such Common  Stock at the time of the  consummation  of
     such Major  Transaction,  and (ii) cash paid by the Company in  immediately
     available  funds, in an amount equal to one hundred and twenty five percent
     (125%) of the Black-Scholes  Amount (as defined herein) times the number of
     shares of Common  Stock for which this  Warrant  was  exercisable  (without
     regard to any  limitations on exercise herein  contained);  and the Company
     shall  make  lawful  provision  for the  foregoing  as a part of such Major
     Transaction and shall cause the issuer of any security in such  transaction
     which  constitutes  Registrable  Securities under the  registration  rights
     provisions of Section 7(c) of the Securities  Purchase  Agreement to assume
     all of the  Company's  obligations  thereunder.  No  sooner  than  ten (10)
     business  days  nor  later  than  five  (5)  business  days  prior  to  the
     consummation  of the  Major  Transaction,  but  not  prior  to  the  public
     announcement of such Major  Transaction,  the Company shall deliver written
     notice ("Notice of Major  Transaction") to each holder of a Warrant,  which
     Notice of Major  Transaction shall be deemed to have been delivered one (1)
     business day after the Company's sending such notice by telecopy  (provided
     that the Company sends a confirming  copy of such notice on the same day by
     overnight  courier)  of such  Notice of Major  Transaction.  Such Notice of
     Major  Transaction  shall  indicate  the  amount  and  type  of  the  Major
     Transaction  consideration  which such  holder of a Warrant  would  receive
     under this Section. If the Major Transaction Consideration does not consist
     entirely of United States currency, such holder may elect to receive United
     States  currency in an amount  equal to the value of the Major  Transaction
     Consideration in lieu of the Major Transaction  Consideration by delivering
     notice of such  election to the Company  within five (5)  business  days of
     such holder's receipt of the Notice of Major Transaction.

          The   "Black-Scholes   Amount"  shall  be  an  amount   determined  by
     calculating the "Black-Scholes" value of an option to purchase one share of
     Common Stock on the applicable page on the Bloomberg online page, using the
     following variable values: (i) the current market price of the Common Stock
     equal to the closing trade price on the last trading day before the date of
     the Notice of the Major  Transaction;  (ii)  volatility of the Common Stock
     equal to the  volatility  of the common  Stock  during the 100  trading day
     period preceding the date of the Notice of the Major  Transaction;  (iii) a
     risk free rate equal to the  interest  rate on the United  States  treasury
     bill or treasury note with a maturity  corresponding  to the remaining term
     of this  Warrant  on the date of the Notice of the Major  Transaction;  and
     (iv) an  exercise  price  equal  to the  Exercise  Price on the date of the
     Notice of the Major Transaction.  In the event such calculation function is
     no longer  available  utilizing the Bloomberg online page, the Holder shall
     calculate such amount in its sole  discretion  using the closest  available
     alternative  mechanism and variable values to those available utilizing the
     Bloomberg online page for such calculation function.

          (f) Distribution of Assets.  In case the Company shall declare or make
     any distribution of its assets (or rights to acquire its assets) to holders
     of Common  Stock as a  partial  liquidating  dividend,  by way of return of
     capital  or  otherwise  (including  any  dividend  or  distribution  to the
     Company's  shareholders  of cash or shares (or rights to acquire shares) of
     capital stock of a subsidiary)  (a  "Distribution"),  at any time after the
     initial  issuance of this  Warrant,  then the Holder shall be entitled upon
     exercise of this  Warrant  for the  purchase of any or all of the shares of
     Common  Stock  subject  hereto,  to receive  the amount of such  assets (or
     rights)  which  would have been  payable to the Holder had such Holder been
     the  holder  of such  shares  of Common  Stock on the  record  date for the
     determination of shareholders entitled to such Distribution.

          (g)  Notices of  Adjustment.  Upon the  occurrence  of any event which
     requires any adjustment of the Exercise Price, then, and in each such case,
     the Company  shall give notice  thereof to the Holder,  which  notice shall
     state the Exercise Price resulting from such adjustment and the increase or
     decrease  in the number of Warrant  Shares  purchasable  at such price upon
     exercise,  setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.  Such calculation  shall be
     certified by the chief financial officer of the Company.

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

          (i) No Fractional  Shares. No fractional shares of Common Stock are to
     be issued upon the exercise of this  Warrant,  but the Company  shall pay a
     cash adjustment in respect of any fractional share which would otherwise be
     issuable in an amount  equal to the same  fraction of the Market Price of a
     share of Common Stock; provided that in the event that sufficient funds are
     not  legally  available  for  the  payment  of  such  cash  adjustment  any
     fractional  shares of Common  Stock  shall be  rounded up to the next whole
     number.

          (j) Other Notices. In case at any time:

               (i) the Company  shall declare any dividend upon the Common Stock
          payable in shares of stock of any class or make any other distribution
          to the holders of the Common Stock;

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

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

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

               then, in each such case, the Company shall give to the Holder (a)
          notice of the date on which the books of the Company  shall close or a
          record  shall be taken for  determining  the  holders of Common  Stock
          entitled to receive any such dividend,  distribution,  or subscription
          rights or for determining the holders of Common Stock entitled to vote
          in   respect   of   any   such    reorganization,    reclassification,
          consolidation,  merger, sale,  dissolution,  liquidation or winding-up
          and (b) in the  case  of any  such  reorganization,  reclassification,
          consolidation,  merger, sale, dissolution,  liquidation or winding-up,
          notice of the date (or, if not then known, a reasonable  approximation
          thereof by the  Company)  when the same shall take place.  Such notice
          shall also specify the date on which the holders of Common Stock shall
          be entitled to receive such dividend,  distribution,  or  subscription
          rights or to exchange their Common Stock for stock or other securities
          or property  deliverable upon such  reorganization,  reclassification,
          consolidation, merger, sale, dissolution,  liquidation, or winding-up,
          as the case may be. Such notice  shall be given at least 30 days prior
          to the record date or the date on which the Company's books are closed
          in respect thereto,  but in no event earlier than public  announcement
          of such proposed transaction or event. Failure to give any such notice
          or any defect therein shall not affect the validity of the proceedings
          referred to in clauses (i), (ii), (iii) and (iv) above.

          (k) Certain Definitions.

               (i) "Common  Stock Deemed  Outstanding"  shall mean the number of
          shares of Common Stock actually  outstanding  (not including shares of
          Common Stock held in the treasury of the Company), plus (x) in case of
          any adjustment required by Section 4(a) resulting from the issuance of
          any  Options,  the  maximum  total  number of  shares of Common  Stock
          issuable upon the exercise of the Options for which the  adjustment is
          required  (including  any Common Stock issuable upon the conversion of
          Convertible  Securities  issuable upon the exercise of such  Options),
          and  (y) in the  case  of any  adjustment  required  by  Section  4(a)
          resulting from the issuance of any Convertible Securities, the maximum
          total number of shares of Common  Stock  issuable  upon the  exercise,
          conversion  or exchange of the  Convertible  Securities  for which the
          adjustment is required, as of the date of issuance of such Convertible
          Securities, if any.

               (ii) "Market Price," as of any date, (i) means the average of the
          Closing  Bid  Prices  for the shares of Common  Stock as  reported  to
          Nasdaq   National  Market  System  for  the  trading  day  immediately
          preceding such date, or (ii) if The Nasdaq  National Market is not the
          principal trading market for the Common Stock, the average of the last
          reported  bid prices on the  principal  trading  market for the Common
          Stock  during the same  period,  or, if there is no bid price for such
          period,  the last  reported  sales price for such period,  or (iii) if
          market  value  cannot  be  calculated  as of  such  date on any of the
          foregoing  bases,  the Market  Price  shall be the value  thereof,  as
          agreed upon by the Company and the Holder; provided,  however, that if
          the Company  and the Holder  cannot  agree on such  value,  such value
          shall be the average fair market value as reasonably  determined by an
          investment  banking  firm  selected  by  the  Company  and  reasonably
          acceptable  to the Holders of a majority in interest of the  Warrants,
          with the costs of the appraisal to be borne by the Company. The manner
          of  determining  the Market Price of the Common Stock set forth in the
          foregoing definition shall apply with respect to any other security in
          respect  of which a  determination  as to  market  value  must be made
          hereunder.

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

                    (l) Other Adjustments. If:

                    (1)  Maurizio  Vecchione  disposes  of any  shares of Common
               Stock beneficially owned by him while the Common Stock is trading
               at or below twenty-five dollars ($25) per share during the period
               beginning on the date of the Closing and ending on the earlier of
               (i) the first (1st)  anniversary  of the date of the Closing,  or
               (ii) the date on which Maurizio  Vecchione ceases to be President
               or CEO of the Company; or

                    (2)  Joyce  Freedman  or Lee  Freedman  (each a  "Freedman")
               dispose of any shares of Common Stock  beneficially owned by such
               Freedman  at any time  during the period  begining on the date of
               the  Closing  and  ending  on the date  which  is six (6)  months
               following the Closing,  then the Exercise Price shall be adjusted
               to the  Adjusted  Exercise  Price  (as  defined  herein)  if such
               adjustment  would  result in a decrease  in the  Exercise  Price;
               provided,  however, that the Exercise Price shall not be adjusted
               upon the  occurrence of a disposal  described in clause (1) until
               Maurizio  Vecchione  sells or  otherwise  transfers  in excess of
               fifty  thousand  (50,000)  shares  of Common  Stock in  aggregate
               during such period at a price less than twenty-five dollars ($25)
               pursuant to Rule 144. For any disposal of Common Stock  described
               hereunder, the "Adjusted Exercise Price" shall mean the lesser of
               (a) the lowest  closing bid price of the Common  Stock during the
               thirty (30) trading day period  beginning on the trading day (the
               "Announcement Date") immediately  preceding the day on which such
               disposal was publicly announced and (b) the price per share which
               Vecchione or such Freedman, as applicable, received in connection
               with  such  disposal;  provided,  however,  that if the  Adjusted
               Exercise  Price  described  above is  greater  than the  Exercise
               Price, then the Adjusted Exercise Price shall be equal to (c) the
               lowest  closing bid price of the Common  Stock  during the thirty
               (30)  trading  day  period  beginning  on the  Announcement  Date
               divided by (d) the closing  bid price of the Common  Stock on the
               Announcement Date times (e) the Exercise Price.

     5. Cap Amount.

          (a) Prior to Nasdaq  Approval (as defined in the  Securities  Purchase
     Agreement) or the 4460  Shareholder  Approval (as defined in the Securities
     Purchase  Agreement),  unless  otherwise  permitted by The Nasdaq  National
     Market or unless the rules thereof no longer are applicable to the Company,
     in no event shall the total  number of shares of Common Stock issued at the
     Closing under the  Securities  Purchase  Agreement and upon exercise of the
     Warrants  exceed  the  maximum  number of shares of Common  Stock  that the
     Company can without  stockholder  approval so issue pursuant to Nasdaq Rule
     4460(i) (or any  successor  rule) (the "Cap Amount") upon Closing under the
     Securities  Purchase Agreement and the exercise of the Warrants,  which, as
     of the date of  initial  issuance  of  Common  Stock  and  Warrants  to the
     Holders,  which amount is one million,  two hundred thirty two thousand and
     forty five (1,232,045)  shares.  The Cap Amount shall be allocated pro rata
     among the  Holders  based on the  number  of  shares  of  Common  Stock and
     Warrants  issued  to each  Holder.  In the  event a  Holder  shall  sell or
     otherwise transfer any of such Holder's Warrants,  each transferee shall be
     allocated a pro rata portion of such  transferor's  Cap Amount.  A Holder's
     allocable  portion of the Cap Amount shall be allocated first to the Common
     Stock  issued to the Holder at the Closing  under the  Securities  Purchase
     Agreement,  then  to the  First  Warrants  (as  defined  in the  Securities
     Purchase  Agreement)  and  only  the  Warrants  shall  be  subject  to  the
     limitation imposed by this Section 5(a).

          (b) Prior to the earlier of Second Nasdaq  Approval (as defined in the
     Securities Purchase Agreement) or the 4310 Shareholder Approval (as defined
     in the Securities  Purchase  Agreement),  unless otherwise permitted by The
     Nasdaq National Market or unless the rules thereof no longer are applicable
     to the Company, in no event shall this Warrant be exercisable.

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

     7. No  Rights or  Liabilities  as a  Shareholder.  This  Warrant  shall not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company.  No provision of this Warrant,  in the absence of affirmative action by
the Holder to purchase  Warrant Shares,  and no mere  enumeration  herein of the
rights or  privileges  of the Holder,  shall give rise to any  liability  of the
Holder for the Exercise Price or as a shareholder  of the Company,  whether such
liability is asserted by the Company or by creditors of the Company.

     8. Transfer, Exchange, Redemption and Replacement of Warrant.

          a. Restriction on Transfer. This Warrant and the rights granted to the
     Holder  are  transferable,  in  whole or in part,  upon  surrender  of this
     Warrant,  together  with a  properly  executed  assignment  in the  Form of
     Assignment  attached  hereto as  Exhibit  2, at the office or agency of the
     Company  referred to in Section  8(e) below,  provided,  however,  that any
     transfer or assignment shall be subject to the provisions of the Securities
     Purchase  Agreement.  Until due presentment for registration of transfer on
     the books of the  Company,  the  Company  may treat the  registered  holder
     hereof as the owner and holder  hereof for all  purposes,  and the  Company
     shall  not be  affected  by any  notice  to the  contrary.  Notwithstanding
     anything  to  the  contrary  contained  herein,  the  registration   rights
     described in Section 9 hereof are  assignable  only in accordance  with the
     provisions of the Securities Purchase Agreement.
 
          b. Warrant Exchangeable for Different  Denominations.  This Warrant is
     exchangeable,  upon the  surrender  hereof by the  Holder at the  office or
     agency of the Company  referred to in Section 8(e) below, for new Warrants,
     in  the  form  hereof,  of  different  denominations  representing  in  the
     aggregate  the right to purchase the number of shares of Common Stock which
     may be purchased  hereunder,  each of such new  Warrants to  represent  the
     right to  purchase  such  number of shares  as shall be  designated  by the
     Holder of at the time of such surrender.

          c.  Replacement  of  Warrant.  Upon  receipt  of  evidence  reasonably
     satisfactory to the Company of the loss, theft, destruction,  or mutilation
     of this Warrant or, in the case of any such loss,  theft,  or  destruction,
     upon delivery,  of an indemnity agreement  reasonably  satisfactory in form
     and amount to the  Company,  or, in the case of any such  mutilation,  upon
     surrender and  cancellation of this Warrant,  the Company,  at its expense,
     will execute and deliver,  in lieu  thereof,  a new  Warrants,  in the form
     hereof, in such denominations as Holder may request.

          d.  Cancellation;  Payment of  Expenses.  Upon the  surrender  of this
     Warrant in  connection  with any  transfer,  exchange,  or  replacement  as
     provided in this Section 8, this Warrant shall be promptly  canceled by the
     Company.  The Company shall pay all issuance  taxes (other than  securities
     transfer  taxes) and charges  payable in connection  with the  preparation,
     execution, and delivery of Warrants pursuant to this Section 8.

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

          f. Redemption at Company's Option.

               1. On the first (1st) anniversary of the date hereof and for five
          (5) days  thereafter,  the  Company  shall have the right to elect the
          redemption for cash  ("Redemption at Company's  Option") of all or any
          part of the then unexercised  portion of this Warrant for the Optional
          Redemption   Amount  (as  herein   defined),   which  right  shall  be
          exercisable by delivery of an Optional  Redemption  Notice (as defined
          herein)  in   accordance   with  the   procedures   set  forth  below.
          Notwithstanding  the delivery of an Optional  Redemption  Notice,  the
          Holder  shall  have  the  right  to  exercise  all or any part of this
          Warrant up to and including the date of redemption;  provided, however
          that the Company may effect a Redemption at Company's  Option only if:
          (a) there has not occurred any material breach of any of the Company's
          representationss,   warranties  or  covenants   under  the  Securities
          Purchase  Agreement  and the  Company  is not in default of any of its
          obligations under the Securities  Purchase Agreement and the Warrants;
          (b) the  registration  statement  required  to be filed by the Company
          pursuant to the Securities  Purchase  Agreement covering the Purchased
          Shares  (as  defined in the  Securities  Purchase  Agreement)  and the
          Warrant Shares issuable upon conversion of the Warrants,  is effective
          and  available  for  trading;  (c) the  Common  Stock,  including  all
          Purchased Shares and Warrant Shares,  is listed on the Nasdaq National
          Market and trading in the Common Stock is not suspended by Nasdaq, the
          Securities and Exchange  Commission or other regulatory  authority and
          no  de-listing  or  suspension  shall  be  reasonably  likely  for the
          foreseeable  future;  (d) since December 31, 1998, the Company has not
          suffered any  Material  Adverse  Effect (as defined in the  Securities
          Purchase  Agreement) and nothing has occurred which would be likely to
          cause a Material Adverse Effect, and (e) the closing sale price of the
          Common  Stock on each of the fifteen  (15)  trading  days  immediately
          preceding  the first (1st)  anniversary  is greater  than the Exercise
          Price.  For purposes of this  Section  8(f),  the Optional  Redemption
          Amount is equal to (x) one cent ($0.01) times (y) the number of shares
          underlying the portion of the Warrant to be redeemed,  as specified in
          the Optional  Redemption Notice.  Upon timely delivery of the Optional
          Redemption  Notice,  the Optional  Redemption  Amount shall be paid to
          Holder on the date of redemption.

               2. The Company shall effect the  Redemption  at Company's  Option
          under this  Section 8(f) by  delivering  written  notice  thereof (the
          "Optional  Redemption  Notice") on the first (1st)  anniversary of the
          date  hereof  or  within  five (5) days  thereafter  to  Holder at the
          facsimile  number set forth below Holder's name on the signature pages
          of the Securities Purchase Agreement or at such other facsimile number
          as Holder  shall have  provided  in writing to the  Company.  Once the
          Company  has  delivered  such  Optional   Redemption   Notice,  it  is
          irrevocable  and  binding.  The  Optional  Redemption  Notice shall be
          deemed to have been  delivered to Holder:  (i) if such fax is received
          by  Holder  on or prior to 3:00  p.m.  New York  time,  on the date of
          transmission of the Company's fax; and (ii) if such fax is received by
          Holder  after  3:00  p.m.  New York  time,  on the next  business  day
          following  the date of  transmission  provided  that,  for any  notice
          required under this subsection to be valid, a copy of such notice must
          be sent to Holder on the same day by overnight  courier.  The Optional
          Redemption  Notice shall  specify the portion of the Warrant which the
          Company  elects to redeem by specifying the number of shares of Common
          Stock as to which the Warrant is being  redeemed.  The  Redemption  at
          Company's  Option shall occur on the  thirtieth  (30th) day  following
          delivery of the  Optional  Redemption  Notice (or if such day is not a
          business day, on the next business day thereafter).

     9.  Registration  Rights.  The initial  holder of this Warrant (and certain
assignees  thereof) is entitled  to the benefit of such  registration  rights in
respect of the Warrant Shares as are set forth in Section 7(c) of the Securities
Purchase Agreement.

     10.  Notices.  Any notice herein required or permitted to be given shall be
in writing and may be personally  served or delivered by courier or by confirmed
telecopy,  and shall be deemed  delivered at the time and date of receipt (which
shall include  telephone  line facsimile  transmission).  The addresses for such
communications shall be:

                  If to the Company:

                           ModaCAD, Inc.
                           3861 Sepulveda Blvd.
                           Culver City, CA 90230
                           Telecopy: (310) 751-2120
                           Attention: President

                           with a copy to:

                           Coudert Brothers
                           1055 West Seventh Street - 20th Floor
                           Los Angeles, CA  90017
                           Telecopy:  (213) 689-4467
                           Attention:  John A. St. Clair

and if to the Holder,  at such address as Holder shall have  provided in writing
to the Company,  or at such other address as each such party furnishes by notice
given in accordance with this Section 10.

     11.  Governing  Law;  Jurisdiction.  This Warrant  shall be governed by and
construed in accordance  with the laws of the State of California  applicable to
contracts  made and to be  performed  in the State of  California.  The  Company
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the State of California and the state courts located in the County of
Santa Clara in the State of  California  in any suit or  proceeding  based on or
arising under this Warrant and irrevocably  agrees that all claims in respect of
such  suit  or  proceeding  may  be  determined  in  such  courts.  The  Company
irrevocably  waives the defense of an  inconvenient  forum to the maintenance of
such suit or proceeding.  The Company agrees that a final nonappealable judgment
in any such suit or proceeding  shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

     12. Miscellaneous.

          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument in writing signed by the Company and the Holder.

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

          c. [Intentionally deleted].

          d.  Assignability.  This Warrant shall be binding upon the Company and
     its successors and assigns and shall inure to the benefit of Holder and its
     successors  and  assigns.  The Holder  shall  notify the  Company  upon the
     assignment of this Warrant.

          e.  Weekends,  Etc.  If the  end of the  Exercise  Period  falls  on a
     Saturday,  Sunday or legal holiday, the end of the Exercise Period shall be
     extended automatically until 5:00 p.m. the next business day.

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

     ModaCAD, Inc.
     By: /S/ JOYCE FREEDMAN
         ------------------
     Name: Joyce Freedman
     Title:Chief Executive Officer
FORM OF EXERCISE AGREEMENT

         (To be Executed by the Holder in order to Exercise the Warrant)

     The  undersigned  hereby  irrevocably   exercises  the  right  to  purchase
____________  of the  shares of common  stock of  ModaCAD,  Inc.,  a  California
corporation (the  "Company"),  evidenced by the attached  Warrant,  and herewith
makes payment of the Exercise  Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.

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

     (ii) The undersigned  requests that stock  certificates  for such shares be
issued,  and a Warrant  representing  any unexercised  portion hereof be issued,
pursuant  to the  Warrant in the name of the  Holder  (or such  other  person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:

Date:               

Signature of Holder

Name of Holder (Print)

Address:
FORM OF ASSIGNMENT

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

Name of Assignee                    Address                        No. of Shares

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

Date:____________, _____,

In the presence of

                  Name:                                                         

                  Signature:                                                    
                               Title of Signing Officer or Agent (if any):

                  Address:      

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

CONFIDENTIAL INFORMATION TRANSMITTAL RECORD ("CITR")
CITR DATE:__________________ , 199 __________    CNDA # _______________________
    (Date Disclosure(s) will commence)       (Fill in Number from Executed CNDA)

Participant's Name: ___________________________________________________________
                                  (Use Same Name as on CNDA)
    ___________________________________________________________________________
                                (Location of Disclosure)
    ___________________________________________________________________________
         City                  State                              Zip Code

Intel and Participant  agree that the Confidential  Information  described below
shall be kept  confidential by the receiving party.  This CITR  incorporates all
the terms and  conditions of the  Corporate  Non-Disclosure  Agreement  ("CNDA")
executed by the parties.

1.   Describe  Confidential  Information  disclosed by each party. (Be specific.
     Include subject or product,  any document title,  drawing/document  number,
     date, rev., etc.) Identify  visuals,  foils, and verbal  disclosures.  (Use
     additional sheets if necessary).  Intel Confidential Information: All Intel
     Confidential  Information,  including  oral  disclosures,  disclosed by the
     board  observer  representing  Intel  at  any  of  Participant's  board  of
     directors meetings where Intel's board observer was in attendance,  as such
     attendance is documented by the  Participant's  board of director  meetings
     minutes.   Participant's   Confidential   Information:   All  Participant's
     Confidential Information, including oral disclosures,  pertaining to any of
     Participant's  board of directors meetings that is disclosed to Intel prior
     to   Participant's   board   meetings,   all   Participant's   Confidential
     Information,   including  oral   disclosures,   disclosed   during  any  of
     Participant's  board of  directors  meetings  for  those  portions  of such
     meetings where Intel's board observer was in attendance, as such attendance
     is documented by the Participant's board of director meetings minutes,  and
     all  other   Participant's   Confidential   Information,   including   oral
     disclosures,  disclosed to Intel's board  observer in their  capacity as an
     observer of Participant's board of directors.

2.   This  CITR  covers  the  above  described  Confidential  Information  to be
     conveyed  commencing on the CITR Date stated above provided it is marked as
     required under the CNDA.

3.   Unless a shorter period is indicated  below,  the disclosing party will not
     assert any claims of breach or  misappropriation  of trade secrets  against
     the receiving  party arising from the receiving  party's  disclosure of the
     disclosing party's Confidential  Information under this CITR more than five
     (5) years  from the date  when such  information  was  disclosed.  However,
     unless at least one of the  exceptions  set forth in  Section 4 of the CNDA
     has occurred,  the receiving party will continue to treat such Confidential
     Information as the  confidential  information  of the disclosing  party and
     only disclose any such Confidential  Information to third parties under the
     terms of a non-disclosure agreement.

     If initialed  and filled in below,  the period  after which the  disclosing
     party agrees not to assert claims against the receiving  party with respect
     to the  Confidential  Information  disclosed  under this CITR will be _____
     months  (not less than  twenty-four  (24)  months  nor more than sixty (60)
     months). (_____/_____)

4.   Either party may at any time request in writing the immediate return of all
     or part of its Confidential Information disclosed hereunder, and all copies
     thereof, and the receiving party shall promptly comply with such request.

5.   All other terms and  conditions  of the executed  CNDA shall remain in full
     force and effect.  Nothing  contained herein shall be construed as amending
     or modifying the terms of the CNDA referenced above.

6.   Both parties  understand and acknowledge  that no license under any patent,
     copyright,  trade secret or other intellectual property right is granted to
     or conferred  upon either party in this Agreement or by the transfer of any
     information  by one party to the  other  party as  contemplated  hereunder,
     either expressly, by implication,  inducement,  estoppel or otherwise,  and
     that any license under such  intellectual  property  rights must be express
     and in writing.  

                                   PARTICIPANT:________________________________ 
                                   (Company Name,  Division/Sub  if applicable)

INTEL  CORPORATION  
2200 Mission  College Blvd.        ____________________________________________
Santa Clara, CA 95052-8119         Address

                                   ____________________________________________
                                   City, State, Zip